Most frequent myth in the Czech media
CSOB transferred to CCA (“Czech Consolidation Agency”) assets of the former IPB and received for them from the Agency tens of billions of crowns. It appears, however, that CSOB has no title to this money; many of the assets (accounts receivable) transferred to CCA are said to be inexistent or CSOB is said to damage their value by negligent management. CSOB is now defending itself with all means against having to give the billions for the receivables back to the government. CCA is therefore drawn into disputes with CSOB lest the option to return the receivables to CSOB is statute barred.
Quotation of CSOB re problem
CSOB rejects [accusations of] malpractice in the administration of the assets or damage to their value as presented by CCA. As the majority of the credits for which IPB had used the deposits of savers were loss-making, they were transferred to CCA. If anybody says today that the quality of these credits was underestimated and is surprised at the final account for IPB, he should look at the price offered by the market to CCA for [IPB] credits,’ adds Kavanek. CSOB fully stands behind the obligations to the government assumed in ‘Agreement and Government Guarantee’. It will not agree to their being fulfilled by only one party just because officials at MF and CCA can’t agree,’ said Pavel Kavanek, general director of CSOB.
Summary of facts
Takeover of IPB in June 2000
Forced administration was imposed in June 2000 on IPB on the grounds of insolvency and insufficient liquidity.
The problems leading to the collapse of IPB were caused by huge losses accumulated in the bank in the preceding years. Aggressive credit expansion in the risky environment of a transforming economy and conflict of interests of IPB as owner of and creditor to companies in its vast industrial empire led to a growing share of bad assets. Many debtors were unable to repay their debts and the documents of IPB were not kept properly. All this resulted in a loss of confidence in the management and major shareholders in IPB, that the government refused to supply the money necessary to cleanse the bank before planned sale to a strategic investor.
Making government guarantees for losses in IPB in favour of CSOB
During the run on the bank and under strong time pressure the Czech government and CNB decided to impose forced administration and to sell IPB to CSOB with guarantees against all losses incurred by IPB before 19 June 2000.
Agreement and State Guarantee (MF CR - CSOB) 
(48 kB)
Agreement and Indemnity (CNB - CSOB) 
(67 kB)
CSOB was at the time the only bank in the Czech market able to cope with such a demanding transaction.
The takeover of IPB by CSOB followed these principles guaranteed by contract:
Because CSOB drew attention to possible legal pitfalls connected with assets whose existence could be questioned by the debtors on the basis of the errors in the documents of ex-IPB, the two sides decided to incorporate in the contract documents a mechanism for dealing with such cases. According to it, the Ministry of Finance is obliged to pay to CSOB the value of the assets of ex-IPB which CCA decides (for objective or subjective reasons) to return to CSOB or which are questionable for any legal or other reason. This mechanism contains safeguards preventing CSOB using both compensation mechanisms (CCA and MF) at the same time.
Statements about settlement of assets with legal imperfection
Minister of Finance Bohuslav Sobotka yesterday (26.1.2006) emphatically denied an allegation made by the head of the ODS parliamentary club and chairman of the supervisory board of Czech Consolidation Agency (CCA), Vlastimil Tlusty. The latter declared in front of the press that the minister was not upholding interests of the government, but of a private bank, CSOB. Sobotka is said to want to sell receivables that the government had bought from banks for 11.1 billion crowns back to CSOB for one crown. ‘Resistance of the supervisory board of CCA to this transaction is the real reason why Sobotka wants to replace the board,’ said Tlusty yesterday.
‘Why turn down billions on the way for one crown? I should never sign such a transaction. Looking at the development of the case I consider it evident that the minister of finance upholds the interests of CSOB more than the interests of the government,’ said Tlusty (dailies HN, Lidove noviny, MfD and Pravo, 26.1.2006).
‘The solution being discussed and studied by CSOB to see whether it could accept it should consist in a technical transfer of the remaining assets of IPB for their real value. Certainly not for one crown, as sources insufficiently familiar with the proposal say. It should be koruna plus all future earnings, in other words the real value of the assets. CCA is trying today to construct around these assets some sort of mistake on the part CSOB, though there’s none’, said the head of communications at CSOB, Milan Tomanek (ibid).
Assets with legal imperfection – comments by CSOB
What are these assets and who is responsible for the legal imperfection? The discussion of them is not new. As early as 2000 it was clear to all the parties that the assets of IPB did not have the value claimed by IPB.
Press statements
If a course of action were taken in the case of IPB as in the case of Enron and Parmalat, the real culprits would already be behind bars and pretexts would not be sought to attack CSOB, said the head of communications at CSOB, Milan Tomanek (station CT 24).
‘We don’t understand the sudden surprise of some members of the supervisory board of CCA at the existence of the assets with legal imperfection. They emerged in IPB and CSOB is not responsible for errors of IPB. This thesis is controlling logic for all documents signed between CSOB and Czech government represented by the Ministry of Finance and Czech National Bank. Thus it was approved by the Antimonopoly Office and the European Commission in their in-depth examination of the entire arrangement for rescuing IPB’, said the head of communications at CSOB, Milan Tomanek (daily Pravo 26.1.2006).
‘If it is established that some asset has serious legal imperfection, the situation will be settled by the Ministry of Finance and CCA. CSOB is only passive party to such a settlement. Such a settlement does not have and cannot have any influence on earnings or costs of CSOB’, said Tomanek.
Frequently asked questions
1. What assets did actually CSOB transfer from former IPB to the Czech Consolidation Agency and how much money did it get for it from CCA?
If the real value of the IPB assets were balanced, as its books of account stated, it should have had assets in the amount of CZK 280 billion as liabilities, and clients’ deposits should have amounted to CZK 266 billion, and for this it should have had CZK 14 billion of the capital. But the depositors’ money was lent out so irresponsibly that the debtors did not repay their debts and not even CZK 14 billion of the capital was enough to pay out all deposits with IPB. CSOB transferred to CCA from the balance sheet of IPB assets valued nominally at CZK 153 billion.
2. CSOB paid to CCA the purchase price of three accounts receivable from debtors of ex-IPB. How come CSOB finally decided to return the money after denying that CCA had reason to return the money?
In the management and transfer of the assets CSOB consistently adhered to documents of IPB, but the documents proved unreliable. For one of the three receivables CSOB named in the transfer agreement a person registered as a debtor by IPB. Then it was proved this person was joint guarantor, not the original debtor. As a result, the transfer agreement did not contain the debtor’s name. Yet the account receivable does exist and once we took it over from CCA, must be honoured by the Ministry of Finance.
The story of the other two accounts receivable is identical. They were claimed from debtors of IPB through the courts as credit receivables. It was shown in the court that records of IPB were kept badly and in fact it was a bill of exchange account receivable (enforced credit from bill of exchange). This is statute barred before credit receivables and CSOB accepts that it took the debtors to court too late.
The loss will be divided between CSOB and the government according to valuation of the debtors’ assets – all their assets would not be enough anyhow to settle the debts – which is why the debt was originally transferred from books of account of IPB to CCA.
3. Why didn’t you wait in these cases with the payment until the arbitration award? Does the voluntary reacceptance of the accounts receivable mean that you accept the interpretation of CCA that the fault was on your side?
Repayment of the purchase price of these three cases in favour of CCA cannot be seen otherwise than in the context of inaccuracies and errors in IPB records.
4. Do you plan to return money like this for other receivables from the debatable package?
One cannot put these cases on the same level and make them a precedent for all cases classified by the Agency in the category ‘assets with legal defect’. Incidentally, we don’t even have, although we asked for it CCA several times, a list of accounts receivable with legal imperfection. Nor do we know what the Agency considers a defect. We are therefore unable to give in this matter more information.
5. Are you going to claim this money in compensation from the Ministry of Finance?
Yes. If it is established that any assets have legal imperfection caused by IPB or third parties, CSOB will insists on the agreement with the government and will claim compensation from the Ministry of Finance. The contract documents envisage such a situation.
6. MF has not yet paid you compensation for return of the money for the account receivable from the firm J. Ring. You mentioned several times that you would claim the money through the courts in such cases. Have you taken any such legal steps in this case?
We paid the Consolidation Agency for the account receivable from J. Ring and the Ministry of Finance must pay us the same sum. These two institutions cannot agree from which public budget the obligations clearly underpinned by agreements are to be honoured. The agreements are clear and probative. It’s funny that the Czech Consolidation Agency enforced the takeover of accounts receivable from CSOB although we pointed out that they had legal imperfection. Now it’s pushing for their transfer back to CSOB. We can’t very well imagine the Czech government failing to honour its obligations. If it did it would say publicly not only to us but also to foreign investors that it does not honour agreements it enters into. It would be a clear signal going beyond the relation government - CSOB.
7. Are you holding talks with Ministry of Finance and CCA?
State administration has been concentrating lately on the elections and no great progress could be expected in the strained election atmosphere. It would be very unusual if the agreements under which IPB was taken over failed. But we expect no such thing. We’re leaving enough time for talks, before the elections or afterwards.