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Analysts unimpressed by IRB takeover

The June 10 takeover by the biggest Slovak insurer, Slovenská Poisťovňa (SP), of a majority stake in the troubled Investičná a rozvojová banka (IRB) bank left local analysts unimpressed and strengthened their belief that the bank's agony will continue until a strong foreign investor salvages it.
"I think this will help the bank temporarily, but I don't see this as a final solution," said Ján Laluha of ČSOB bank.
The SP took a 66.6% stake in the IRB by subscribing the entire volume of a new, two billion Sk share issue on June 10. The IRB, whose basic capital is now three billion Sk ($86.1 million), had been under caretaker administration by the National Bank of Slovakia (NBS) since last December due to liquidity problems.

The June 10 takeover by the biggest Slovak insurer, Slovenská Poisťovňa (SP), of a majority stake in the troubled Investičná a rozvojová banka (IRB) bank left local analysts unimpressed and strengthened their belief that the bank's agony will continue until a strong foreign investor salvages it.

"I think this will help the bank temporarily, but I don't see this as a final solution," said Ján Laluha of ČSOB bank.

The SP took a 66.6% stake in the IRB by subscribing the entire volume of a new, two billion Sk share issue on June 10. The IRB, whose basic capital is now three billion Sk ($86.1 million), had been under caretaker administration by the National Bank of Slovakia (NBS) since last December due to liquidity problems.

The NBS had said it wanted any new owner to allow other investors, preferably foreign, to take stakes in the IRB to boost its basic capital.

"What we are seeing so far is not exactly what the NBS had declared a couple of months ago," said one local analyst who did not want to be named.

"Two billion [crowns] is not enough to save the IRB, and the whole thing could even hurt Slovenská Poisťovňa in the end," he added.

Other analysts pointed out that the SP was controlled by companies that had had large stakes in the IRB before the capital increase, which effectively maintained a very similar ownership structure in the bank.

After the move, the IRB stake held by the state privatization agency, the National Property Fund (FNM), decreased to 11.3% from the original 34%, while that of steel maker VSŽ Holding was cut to 5% from the original 15%. However, the FNM currently holds a 50.5% share in the SP, while VSŽ holds around 20%.

"The situation...could go full circle, with the ownership structure of the bank not changing much compared to the past," said Dušan Sýkora of CA IB. "Apparently, VSŽ just does not want to lose its position in the IRB. It is hard to say whether this could help the IRB," he added.

Sýkora continued that without the support of a strong foreign entity, the bank was unlikely to regain the confidence of retail depositors. "I think the bank needs a strong foreign shareholder to lead it definitely out of trouble, or just change its strategy," he said. "The IRB has an enormous branch office network around the country, which could become expensive , if [retail depositors] do not come back."

The IRB was partially privatized under the voucher scheme in 1992-1993. It swung into the red in 1996 after heavy loan provisioning, mostly to VSŽ, and recorded a loss of about 1.2 billion Sk after a net profit of 167.5 million in 1995. Last year, the bank posted a preliminary loss of 3.06 billion Sk.

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