Customers unable to access accounts as Union Banka teeters on the edge of collapse

L'Union banka, photo: CTK

Last week saw bad news for customers of the Ostrava-based bank Union banka, after the cash-strapped bank announced Friday it had shut the doors of more than 100 branches and stopped payments. The decision left some 250,000 customers and businesses unable to access their accounts, at least for the time being, and the bank is now teetering on the edge of collapse. The bank's majority shareholder Invesmart is currently hoping to reach a compromise with the Czech government.

An Union banka customer, photo: CTK
A bad Friday morning for Union banka customers - most of whom could only stare in disbelief at notices at all of its branches saying financial operations had stopped and consultations with the Czech National Bank were underway. Those coming to make withdrawals or payments for their businesses could do little but accept the knowledge they will have to wait up to three months before they will see a single crown of their deposits returned. Even then, funds are only insured to a ceiling of 25,000 Euros minus 10 percent - All customers with greater deposits: now left little choice but to stomach a grim reality - that everything above that line was irretrievably lost.

Jan Sykora, head of the brokerage firm Wood and Company, indicates rumors about poor management at Union banka had been circulating for some time:

"The investors, public, and the depositors, I think we don't have the full access to the sort of 'guts' of the bank, but the overall situation in the Union Banka has been rumored to be not very good for several years. The question is whether these problems occurred at the time when the Union Banka took over some of the smaller banks. What we are also hearing is that some of the shareholders were basically borrowing money from the bank. So the most important thing will be to find out from where this gap in the bank's balance sheet is coming from."

Union Banka, photo: CTK
What steps will be taken in order to find out that information at this point in time?

"I would assume that the Czech National Bank and its supervision department would carry out an investigation and should there be an indication of gross negligence or criminal charges then of course the police should probably step in, as was the case in some of the other banks. Right now it is a little bit too early to put a finger on where exactly the problem came from. Sadly, the shutting down of the branches and the automatic teller machines was a culmination of these problems."

Meanwhile, the bank's largest shareholder, the Italian investment firm Invesmart, has asked the government for a 38-million-dollar bailout to help cover old debts in the bank portfolio. But many analysts are skeptical the government will step in to help out a private institution. Invesmart paid almost three billion crowns for a majority stake in Union banka last year, saying it aimed to restructure the bank and resell it later. After the purchase Invesmart began negotiations for government financial assistance. Now, the Czech National Bank has given Invesmart ten days to settle the bailout dispute with the government or risk losing Union banka completely.