ImAGe Alpha Case

Most frequent myth circulated in media

CKA is illegitimately claiming from imAGe Alpha, as a guarantor for IPB Group Holding (ended up in liquidation), the payment of loans totalling almost CZK 12 billion. According to Image Alpha, however, CKA should be claiming the aforementioned amount from CSOB.

IPB Group Holding, to which Image Alpha sold its enterprise before the bank failed, allegedly had enough assets to settle its obligations. CSOB then obtained IPB Group Holding in 2000. Image Alpha claims, “If damage has arisen, it should be paid by the entity which caused it. Which is CSOB. It is incorrect, illogical and possibly illegal for the money to remain with CSOB. That's why imAGe Alpha filed an action against CSOB.”

CSOB quote on the problem

“The statutory representatives of Image Alpha are responsible for the N-IPB project, by which they helped distort the bank's accounting records and circumvent the capital adequacy rules. CSOB will not allow the consequence of the unlawful steps taken then to be presented as a failure by CSOB. CSOB was never in any legal relationship with Image Alpha and is not responsible for conduct by its management,” said Milan Tomanek, executive director of External Communications at CSOB.

Background information

1. Image Alpha worked as a related party with IPB on the “N-IPB” project, the basis of which was taking around 500 bad loans out of IPB bank, so that the insufficient capital adequacy of the former IPB was masked from the regulator.
   
   
2. Subsequently, so that Image Alpha was able to pay IPB the money for purchasing the loans, it sold itself (“its enterprise”) to IPB Group Holding (IPBGH). This transferred to IPBGH, in addition to other things, the obligation to pay IPB more than CZK 9 billion for the purchase of the bad loans.
   
   
   • By purchasing Image Alpha, IPBGH also obtained markedly over-valued interests in IPB subsidiaries, in addition to the worthless set of loans.
     
     
   • The difference between the market value of what IPBGH obtained and the obligation to IPB was approximately CZK 6.8 billion (IPBGH therefore lost almost CZK 7 billion in the transaction).
   
   
3. The result of the transaction was that IPB did not have the bad loans on its balance sheet+ instead it had a receivable from IPB Group Holding in the same amount. Image Alpha remained – under the contract on the sale of its enterprise – a guarantor for IPBGH meeting its obligations to IPB. This is the Image Alpha guarantee that CKA is referring to today when it claims approximately CZK 9 billion from Image Alpha.
   
   
4. IPB Group Holding – as was found after the fall of IPB – had fewer assets than it declared and ended up in liquidation. The liquidation of its assets only gave CKA part of what it was owed – approximately CZK 700 million. The remaining part of the obligation should be paid by the guarantors – i.e. Image Alpha.
   
   
   • On 23 December 2003 CKA claimed a receivable from Image Alpha in an action filed with the District Court for Prague 2 and Image Alpha is therefore one of the largest debtors to the Czech government;
     
     
   • In its response to the action by CKA for the recovery of its receivable, Image Alpha issued a voucher entitling CKA, as the beneficiary, to receive from CSOB, as the payee, the alleged amount owed totalling CZK 11,226,123.84.
     
     
     
5. CSOB's role: Under the contract on the sale of the enterprise IPB, IPB Group Holding was transferred to CSOB. CSOB therefore obtained the duty to recover from IPBGH the obligation the company had to the former IPB – the more than CZK 9 billion plus interest – and, under the government guarantees, it was transferred to CKA.
   
   
   • In January 2003 CSOB filed a criminal complaint for suspicion of the criminal offence of distorting information about financial management and assets under Section 125 of the Criminal Code, breach of binding rules in economic relations under Section 127 of the Criminal Code and loan fraud under Section 250b, in connection with the “N-IPB” transaction.
   
   
6. Image Alpha claims that CSOB reduced the assets of IPBGH by interests in IPB Pojistovna and CMPF. but CSOB did not obtain majority interests in IPB Pojistovna and CMPF as a part of the enterprise IPB – it purchased them in 2002. After the takeover of IPB it came to light that the interests in the two companies were taken out of the reach of the former IPB Group and they had to be obtained outside the “takeover of the enterprise IPB”.
   
   
   Historical background to the IPB Group Holding (“IPBGH”)
7. On 27th December 1999 IPBGH bought the company IMAGE Alpha (sale “in the overheads of ex-IPB”). Although IPBGH paid 5 million CZK for IMAGE Alpha, the property transferred to IPBGH through the purchase of this enterprise did in no way correspond to this sum. This is verified by the statement of assets and liabilities of the transferred enterprise:
   
   
   • On the side of liabilities IPBGH took over with the company IMAGE Alpha a debt to IPB (and later to CSOB and then the Czech Consolidation Agency (CKA)) of 10, 1 billion CZK, for which interest was still being charged and further debts to an amount of almost CZK 65 million
     
     
   • On the side of assets the following items should have entered the accounts of IPBGH:
     
     
     • Money in accounts – 205 million CZK
       • At the time CSOB took over IPB on 19. 6. 2000 IPBGH did not have more than 140 million CZK in its accounts
         
         
     • Bill of exchange– 720 million CZK
       
       • The bill debtor was the company Apollon Holding, a.s. from the IMAGE Group, its ability to pay was very doubtful. To wit the company Apollon Holding, in the first half of June 2000 before the imposition of forced administration on IPB, paid the option on the sale of a minority package of IPB shares for a pre-arranged price of 720 million CZK (the arrangement was made in December 1999 between IMAGE Alpha and Apollon Holding). The realisation of the options led to the credit of mutual receivables for IPBGH (receivables from the bill of exchange) and Apollon Holding (the right to pay the purchase price for IPB shares). Thus IPBGH’s property, in the form of the bill of exchange, disappeared before the collapse of IPB and IPBGH could not realise the bill of exchange after June 2000, when its owner became CSOB.
         
       • This explains the logically nonsensical assertion that IPBGH – professedly for nonsensical reasons – did not transfer over 950 million CZK to CKA, which should have gone into the account of IPBGH with the company Image Alpha (this nonsense is being disseminated by IMAGE Alpha).
       
       
       
     • The package of receivables advanced from IPB – 3100 million CZK
       
       • In the framework of the operation N-IPB, IPBGH acquired several hundred credit receivables at a nominal value of 13.3 billion CZK, generally it concerned written off or arduously reclaimable receivables from credits, provided by IPB. During the purchase of the company IMAGE Alpha the receivables were transferred to the accounts of IPBGH to an amount of CZK 3.1 billion.
         
       • In February 2000 IPBGH had an analysis of the state and structure of the receivables made by an external expert. According to the conclusions the real value of the asset receivables (credits) was at most 4.5 % of their nominal value and the real value of the off balance sheet receivables (warranties and other instruments) was only 0.2 % of their nominal value.
         
       • At the start of May 2000 the IPBGH auditor made the same conclusion on the absolute non-solvency of these receivables. The auditor experts calculated the actual return on the receivables to be 0.34 % of their nominal value.
         
       • In the end IPBGH managed to sell the receivables, on the basis of a selection procedure, for 90 million CZK, the purchase price was transferred to the CKA to cover IPBGH’s liabilities from the loans.
       
       
       
     • Options on 100 % of the shares from IPB Pojistovna (the Insurance Company) – 5.856 million CZK
       
       • The actual value of the options was nought, even so IPBGH managed to make a profit on the options
         
       • IPBGH had option agreements on the available IPB Pojistovna (the Insurance Company) shares. It acquired them through the purchase of IMAGE Alpha. According to the options IPBGH should have obtained 65 % of the IPB Pojistovna (the Insurance Company) shares for almost CZK 500 million from the “first counterparty”; according to other options a further 35 % of the IPB Pojistovna (the Insurance Company) shares should have been acquired for CZK 1.129 billion plus interests from the “second counterparty”.
         
       • However in contrast to this in December 1999, during the sale of IMAGE Alpha, the options on IPB Pojistovna (the Insurance Company) went to the accounts of IPBGH for a value of CZK 5.9 billion. This happened thanks to the “expert appraisal” compiled by Audit & Consulting Experts. This set the value of IPB Pojistovna (the Insurance Company) at a breathtaking CZK 7.55 billion. However it is noteworthy that the same expert firm had previously assessed IPB Pojistovna (the Insurance Company) at roughly a third of this price – CZK 2.7 billion – in June 1999. The renowned investment bank CAIB then assessed IPB Pojistovna (the Insurance Company) at a mere CZK 1 billion.
         
       • Before CSOB took over IPBGH the management of IPBGH exercised both options on the IPB Pojistovna (the Insurance Company) shares, however with regards to the debt they did not have enough resources nor the possibility of obtaining a bank loan, to realise the deal.
         
       • After CSOB took over IPBGH the “first counterparty” at first announced its consent to the transfer of the option rights from IPBGH to CSOB and then the settlement of the real purchase price on the 65 % of the IPB Pojistovna (the Insurance Company) shares, however it soon withdrew from the option contract and demanded the shares be returned. Similarly in the case of the options on the 35 % of the IPB Pojistovna (the Insurance Company) shares the “second counterparty” did not transfer these shares.
         
       • The legal actions on the IPB Pojistovna (the Insurance Company) shares ended in February 2002 with a comprehensive settlement, thanks to which the “first counterparty” ceased calling into question CSOB’s possession of 65 % of the IPB Pojistovna (the Insurance Company) shares and the “second counterparty” sold its 35 % of the IPB Pojistovna (the Insurance Company) shares directly to CSOB for the price set by the expert judgement – IPBGH did not have the resources for the purchase.
       
       
       
     • The options on the majority stake in the CMPF shares – CZK 416 million
       • The owners of the decisive package in the Ceskomoravskeho penzijniho fondu (CMPF) shares were the same companies as in the case of the IPB Pojistovna (the Insurance Company) shares, these companies should have transferred the CMPF shares to IPBGH
         
       • IPBGH paid the “first counterparty” for the transfer of 30.25 % of the shares – CZK 156.7 million; however the counterparty soon withdrew from the contract and at the courts demanded the shares be returned. The same scenario was repeated in the case of the “second counterparty” which held 41.17 % of the CMPF shares.
         
       • In the framework of the comprehensive settlement in 2002 the “first counterparty” ceased calling into question IPBGH’s possession of the CMPF shares and the “second counterparty” sold its CMPF shares directly to CSOB for the price set by the expert judgement – CZK 412 million (IPBGH did not have so much money).
         
       • At the end of 2002 the CMPF shares were transferred to CSOB at the price determined by the expert judgement set by the Court and following the prior agreement with the CKA as the only creditor of IPBGH. All of the profits from this transaction were transferred to CKA by IPBGH to cover its liabilities from the credit agreements.
         
       • Thus it is not so true IMAGE Alpha’s assertions that IPBGH gratuitously did not realise the options rights on the IPB Pojistovna (the Insurance Company) and CMPF shares.
       
       
       
     • Options on 100 % of Domeana – CZK 150 thousand
       
       • Together with the purchase of IMAGE Alpha IPBGH should have obtained the options on 100 % of a business share in the company Domeana, which should control the licence holder for broadcasting TV Prima.
         
       • In May 2000, i.e. before IPB was taken over by CSOB, the board of IPBGH stated, on the basis of analyses, that the option agreement has so many legal shortcomings that it is absolutely invalid. Neither IPBGH nor CSOB managed to gain a business share in Domeana. There were no options in IPBGH that would have ensured control of the television company.
   
   
   

   As the shareholder in IPBGH CSOB proceeded transparently and utterly in accordance with the Czech legal code. It always handled the property of IPBGH with the participation of experts and under the supervision of the creditor i.e. CKA. Through expending great care IPBGH managed to defray for reducing its liabilities to CKA just a part of the receivables of CKA. The arguments of IMAGE Alpha, that this was not so are refuted above.
   
   Press releases issued on this topic:

    

   CSOB is the sole owner of IPB Pojistovna  (62 kB)
   
   

   For further information on this topic see:

   
   

   Unfounded speculation about the ownership of IPB Pojistovna  (39 kB)
   
   CSOB group increases its interest in CMPF  (55 kB)

   
   

   Supplementary pensions insurance  (62 kB)

   
   

   CSOB sole owner of IPB Pojistovna  (62 kB)

   
   

   Merger of IPB Pojistovna and CSOB Pojistovna gives birth to another leader on the Czech insurance market  (63 kB)