Run on big Czech bank, sector in trouble

Wednesday, June 14, 2000 7:39:08 PM EST PRAGUE, Czech Republic, June 14 (UPI) -- Despite government reassurance, anxious customers of the Czech Republic's third largest bank continued lining up Wednesday to empty their accounts.

The run on IPB bank is the latest sign of mounting troubles in the country's banking sector. The country's biggest bank, state-controlled Komercni, recently laid off 2,500 workers despite a huge government bailout and a pledge to find a private buyer by the end of the year. Ten smaller banks have been liquidated since 1994.

IPB account-holders queued for a third day Wednesday at branches across the country. Bank officials said about $35 million was withdrawn Monday but refused to give totals for Tuesday and Wednesday. IPB has about $6 billion in deposits.

The run was triggered by a Prague newspaper report that said IPB lacked sufficient reserves to cover its 1999 losses, estimated at more than $500 million. IPB officials, partly owned by the Japanese investment bank Nomura, had no comment.

Two months ago Nomura requested but was denied a government bailout for the bank. Some 28 percent of IPB's loan portfolio is deemed uncollectable. Last month IPB's insurance division was sold to raise cash while Nomura tried to sell the retail banking unit.

Today the nation's finance minister, Pavel Mertlik, announced negotiations for government assistance were continuing with Nomura officials. He gave no details but sought to assure IPB customers that all deposits were safe. Prime Minister Milos Zeman and the head of the Czech National Bank also were involved in the talks.

For several years Czech banks including IPB have been weighed down with billions of dollars worth of bad loans, much of it owed by penniless companies that failed during the transition to capitalism after communism's fall in 1989.

In many cases unscrupulous company managers stripped assets from the old, state-run firms -- a crime called "tunneling" -- and left behind piles of unpaid debt. Czech police estimate tunnelers stole $552 million last year alone. Many have gone unpunished.

Other big companies propped up by the communist centrally planned economy have found it difficult to compete in the free market. That led to heavy debt during the government's privatization process of the 1990s. As a result, several big employers such as engineering firm Skoda Plzen and steelmaker Vitkovice have needed massive government bailouts to survive.

Unpayable company debt, whether or not linked to tunneling, usually became the burden of banks. And when state-owned banks got in trouble, the government picked up the tab.

In 1998 IPB became the first big, state-owned bank to be privatized. Nomura bought a controlling, 46 percent stake. Later Nomura said it had no idea how many bad loans were part of the IPB portfolio.

Earlier this year the country's No. 2 bank, Ceska Sporitelna, was bought by the Austrian bank Erste but only after the government agreed to swallow a hefty number of bad loans.

http://www.rapidcontent.com/isyndicate/upi.phtml?a=39482153.733b.20&c=upi.international_news.ft&d=20000614

-- Martin Thompson (mthom1927@aol.com), June 14, 2000

Answers

If I recall correctly, the '29 crash started with bank falures in Europe , long before our crash in October . With inter connectiveness of ALL banks ( and, with the speed of electronics today ) the time element WILL be vastly foreshortened , I fear .

Better get your "chestnuts" out of the fire , NOW !!!

Eagle

-- Hal Walker (e999eagle@freewwweb.com), June 16, 2000.