Czech Republic loses appeal in 40 billion crown dispute over IPB

The Czech Republic suffered another loss on Monday in its highly-publicised dispute with the Japanese investment group Nomura. The group is suing the Czech state for failing to protect its investment in the bank IPB, which was placed under forced administration and sold off in 2000.

The fall of IPB and the dispute with Nomura is a highly complex story, a story which has not yet reached its conclusion. Stripped to its bare details, it goes as follows: IPB or Investicni a Postovni Banka, was the first Czech bank to be privatised after the fall of communism in 1989. In 2000, it was still the country's third largest bank, but also one of the country's sickest.

In June of that year, the Social Democrat government placed IPB under forced administration, over what it said was mismanagement and overly-generous loans. The manner in which the forced administration was carried out was highly controversial: images of policemen storming the bank with full body armour and sub-machine guns were flashed around the world's media.

But it was what happened next that proved to be even more controversial. The Czech authorities sold IPB to another Czech bank, Ceskoslovenska obchodni banka or CSOB, for the symbolic price of one crown. Nomura, which held a 46.15 percent stake in IPB, was outraged, and initiated arbitration proceedings. The group accused the Czech Republic of failing to protect its investment, and demanded 40 billion crowns, or 1.8 billion dollars, in compensation.

In March, the London arbitration court hearing the case ruled in Nomura's favour, saying the government had breached an obligation of "fair and equitable treatment" in a treaty on the mutual protection of investments between the Czech Republic and the Netherlands, home to the subsidiary of Nomura which owned the stake in IPB. The Czechs filed an appeal with a court in Zurich.

On Monday, the court turned down that appeal, though just how much the country will have to pay has not yet been decided. Jiri Stanik is a senior analyst at the Czech investment house Wood and Co:

"Firstly, we will have to wait and see what the penalty will be. If it is 40 billion, this is really a huge amount, and I'm sure there will be a lot of talk about who's responsible for that, and this could damage some of the parties and some of the people involved. It could be really serious. But we have to wait for the full amount. The second thing is - again, as you said it's a really complex issue - there were a number of steps that led to this forced administration and to this arbitration. I would say that the two largest parties [the Social Democrats and Civic Democrats] are heavily involved in this issue. So I think anyone can be blamed for that, it's not just that one party was responsible and this party will be punished at the next election - it's much more complex than that, and it's difficult to see the consequences."

It's six years since the Nomura saga began, and Jiri Stanik says the Czech banking sector is now a different place entirely.

"Compared to the mid 1990s, right now the Czech banking system is a completely different system. It's very sound, it's very profitable, it's basically dominated by foreign banks. It's one of the soundest banking systems in Central Europe. Right now there is nothing wrong. There were a couple of failures in the 1990s, and that was obviously very negative and it was something of a wild period. But right now, all of the banks are dominated by well-respected foreign banks."