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Plans to sell major stake in Czech bank ČSOB scrapped

  9:39

Belgian owner of ČSOB finally admits it does not want to sell a large stake in the Czech bank and has put forward other plans

ČSOB převazala padlou IPB v červnu 2000. Celý případ provázejí miliardové žaloby. foto: © ČTKČeská pozice

Belgian banking group KBC ended its guessing game over its planned sale of up to 40 percent of one of the Czech Republic’s biggest banks, ČSOB, by saying it no longer wants to go ahead with the proposed initial public offering (IPO).

KBC said on Wednesday that it has applied to the European Commission for a change in its strategic plan agreed with Brussels authorities in return for state support at the height of the banking and financial crisis in late 2008 and 2009. The plan counted on the partial ČSOB float.

International bank capital adequacy rules meant that KBC would not get the benefits from the sale that it had originally counted on.

The Belgian group said changes in international bank capital adequacy rules meant that it would not get the benefits from the sale that it had originally counted on and that it had prepared an alternative plan aimed at meeting EU Commission demands.

“These changes will significantly lower the positive capital impact of floating minority stakes of ČSOB Bank and K&H Bank [a Hungarian bank unit],” KBC said in a statement. “Although the listing of the two banks could still be a way to raise capital and provide own contribution to restructuring, the result on KBC’s capital position and solvency is facing a more stringent effect under Basel III than initially planned and desired.”

Basel is financial shorthand for the capital adequacy rules drawn up by the Basel Committee of the Bank for International Settlements, the organization that fosters cooperation between countries’ central banks.

Bourse blow

The KBC move represents a major blow to the Prague Stock Exchange (BCPP), which had counted on handling a large part of the ČSOB IPO with the offer representing a major boost to an exchange that has struggled to get significant new listings.

“It would have been a significant move for the local investment market. It is a pity that it does not seem to be going ahead,” BCPP spokesman Jiří Kovařík told Czech Position.

The ČSOB placement could have represented the biggest ever share offering on the Prague bourse although final details of how the IPO would have been organized and the stake that would have been sold by KBC were never finalized.

ČSOB is by some calculations the biggest Czech bank and has around a quarter of the market for traditional loans and deposits. In May, KBC announced that it was still proceeding with the plans for the IPO but said that market conditions were not right for the move.

“Preparations to float a minority stake in our Czech banking subsidiary are on track, and we are on stand-by to launch the IPO program once optimal conditions have been identified for a successful transaction,” KBC said in a statement accompanying its first quarter 2011 results.

KBC had already stated previously that volatile market conditions had deterred it from launching the IPO earlier. But the changes in the Basel III capital rules can hardly have been a surprise for the bank, since such changes are the result of long preparations and consultations and hardly adopted overnight.

Long consultations

KBC spokeswoman Viviane Huybrecht told Czech Position that the preparation of the alternative plan had been the subject of long preparations “detailed consultations with Belgian, Flemish and European authorities.”

“We have had a constructive discussion with European authorities prior to the submission of the plan. We expect the decision from the European Commission will be in a matter of weeks, but I do not have a crystal ball,” she added.

In place of the ČSOB floatation and other measures, KBC is asking to sell Polish bank Kredyt Bank and Polish insurance company Warta as well as the sale or unwinding of asset backed securities and collateralized debt obligations and sale and lease back of its Belgian headquarters building.