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The minority shareholders of Agrobanka AD (AGBN), the unprofitable lender that had its license revoked after five months in receivership, are considering legal action against the Serbian government.
The Belgrade-based Narodna Banka Srbije pulled Agrobanka’s license on May 25 and transferred its deposits and some claims to a new institution to operate as Nova Agrobanka AD Beograd. The central bank issued a license to Nova Agrobanka during the weekend, “to ensure the continuity and implementation of business activities and to fully protect the interests of all its depositors and other lenders,” it said on its website.
“A new special-purpose bridge bank has been established, which is much better in terms of liquidity and solvency than the old bank,” central bank Governor Dejan Soskic said by phone today. The new bank is financially backed by a government bond issue, which can be used “as collateral for additional liquidity” and there is “nothing that can endanger the financial stability,” he said.
The new, fully state-owned bank has capital of 90 million euros ($113.2 million), according to the Serbian Business Registers Agency. The capital comprises 9.84 billion dinars ($106.8 million) worth of long-term dinar bonds issued by the outgoing Cabinet of Prime Minister Mirko Cvetkovic “to protect the financial stability” and a cash portion of 578.7 million dinars.
Minority shareholders are exploring “all options, but it seems that the legal option is all they’ve got,” Branislav Bogdanovic, chairman of AC Broker, a Belgrade-based brokerage representing more than 20 percent of the mostly foreign institutional investors with stakes in Agrobanka, said by phone today.
The bond issue is “just the first step toward saving the bank,” Deputy Finance Minister Goran Radosavljevic, said by phone. “Within six months, the bank will be offered for sale and recapitalized again because the bridge bank cannot last long, or merged with another bank,” he said, adding decisions will be made by the next government.
The government sold a three-year bond, yielding 2 percentage points over the consumer price index, and then used the notes to back the bank’s capital in exchange for shares, he said.
The bonds were part of a shareholders agreement with the government and the central bank earlier this year meant to “replace Agrobanka’s non-performing loans, especially because those non-performing assets had been provisioned for,” Bogdanovic said. The investors will “need to decide how to proceed” as this was the first such case in Serbia, he said.
“The aim of the whole operation was to protect the deposits and prevent any further deterioration of the bank,” Radosavljevic said. “The alternative was to spend 300 million euros of taxpayers’ money to save the bank and its shareholders. It wasn’t worth it.”
Authorities fired Agrobanka’s management on Dec. 29 and placed it in receivership after inspectors discovered its capital didn’t match the risk it had assumed. The bank, in which the government held a 20 percent stake, had an unaudited 2011 loss of 29.7 billion dinars. Agrobanka reported the loss after a full-year pretax profit of 1.18 billion dinars in 2010 and a loss of 2.27 billion dinars at the end of September 2011.
“We were aware that legal action on behalf of the minority shareholders could follow, but the government of Serbia is the wrong address,” Radosavljevic said. “They can take action either against the central bank or Agrobanka’s former management which brought the bank to collapse,” he said, adding that “we would join such legal action.”
Minority shareholders tried three times to hold shareholder meetings demanding a new audit to scrutinize the 2010 financial statement signed by KPMG’s Serbian unit. Their efforts failed as no government representative attended the scheduled meetings.
The bank had a market share of 2.3 percent in 2011, ranking 12th in assets among 33 banks operating in the Balkan country.
The Belgrade Stock Exchange halted the trade in Agrobanka’s shares, which rose 2.2 percent to 904 dinars on May 25. The stock has lost 70 percent so far this year, after a 58 percent decline in 2011.
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