International investors owed money by the crisis-hit Bulgarian lender Corporate Commercial Bank have warned the Bulgarian authorities against letting it fail.
Corpbank is in limbo after its operations were shut down in June and its main owner charged with embezzlement.
A group of creditors, including US and European hedge funds and financial institutions, has written to the Bulgarian government saying taking away its licence to operate would be more expensive than the state saving it and would risk years of lawsuits.
Their rescue plan has been rejected by Bulgaria’s parliament and criticised by the central bank.
A consortium of investors had proposing a vehicle jointly held with the state should acquire Corpbank. It sought 2.3 billion levs (1.18 billion euros) in capital support from the government.
In a letter to the government seen by Reuters, a group of Corpbank’s bondholders is now urging the authorities to reconsider the rescue offer put forward by the consortium.
The letter underscored the potentially messy fallout if Corpbank were to lose its licence. The central bank is expected to announce a decision on that within days.
“Simply put, the cost of bankrupting Corpbank will far outstrip even the highest assumptions as to the amount of state assistance required to rescue the bank and its depositors,” the letter said.
The creditors argued Corpbank having its licence taken away would force hundreds of businesses to close, result in thousands of job losses and tip the country into recession. “This decision will haunt the Republic of Bulgaria for years to come,” it said.
A key complaint from the bondholders is the central bank’s “contradictory” statements about Corpbank’s health. The audit commissioned by the central bank into Corpbank’s books reported in October the bank would have to write off nearly two thirds of its assets, and that only 13 percent of its loans were properly backed by collateral.
Such statements, the bondholders say, contradict the central bank’s earlier assurances both to the public and to investors.
“The purported problems… did not occur overnight and would have taken several years to materialise,” said the letter, which Reuters reported it was shown with the names of the individual bondholders blacked out.
“One might easily conclude that the [central bank] intentionally turned a blind eye and willfully neglected its duties,” the letter said, adding that it “has failed spectacularly in discharging its core function: to provide for the stability and safety of the Bulgarian banking system.”
“These, and other claims, will form the basis of lawsuits by depositors and creditors for years to come.”
The consortium includes Vienna-based consultancy EPIC, an Omani sovereign wealth fund which owns a 30 percent stake in Corpbank and London-based emerging market fund Gemcorp.