Czech state in countersuit against CSOB bank

Relations between the Czech state and the country's biggest bank - CSOB - seem to be going from bad to worse. The Finance Ministry has announced it's suing CSOB for almost 27 billion crowns (1.3 billion dollars), in retaliation for CSOB's own 1.7 billion crown lawsuit against the Czech state. The tit-for-tat lawsuits are the result of a dispute over the terms of the handover of the collapsed IPB bank to CSOB in 2000.

Miroslav Kalousek

Finance Minister Miroslav Kalousek admitted to Hospodarske Noviny newspaper that relations between the Czech state and CSOB had collapsed following the bank's decision to file a lawsuit against the Czech Republic at a court of arbitration in Paris. Mr Kalousek said he'd met CSOB's general director and offered an out-of-court settlement, but had not received a reply. He said the Czech state would now sue CSOB, following the procedures laid down by the arbitration court.

The dispute revolves around the terms of CSOB's takeover in 2000 of the collapsed IPB bank, the first Czech bank to be privatised after the fall of communism in 1989. By 2000, IPB was the Czech Republic's third largest bank, but also one of the country's sickest. In a highly controversial move, the Social Democrat government placed IPB under forced administration before selling the bank - and its scores of bad loans - to CSOB for a symbolic one crown.

The terms of that handover are at the core of today's dispute. Under the deal, the state agreed to offer CSOB guarantees for some of IPB's bad loans. One of them was for 1.7 billion crowns for the collapsed J.Ring company, which the Czech state refused to guarantee, claiming that procedural mistakes were committed by CSOB. After failing to extract the sum from the Finance Ministry, the bank turned to the court of arbitration in Paris.

The Finance Ministry's retaliatory lawsuit rests on claims that CSOB had profited unlawfully from the handover, saying that the bank had misused state funds meant to protect accounts held in the fallen IPB bank.

CSOB rejects the allegations, describing them as nonsensical. The bank's general director also points out that independent analysis had proven IPB's value was negative at the time CSOB took it over.

CSOB - which has almost three million customers - has shrugged off fears of the potential effects of losing the lawsuit. Even if the court of arbitration ruled in the Czech state's favour, said the bank's spokesman, CSOB's new owners - Belgium's KBC - could easily absorb the 27-billion-crown compensation claim.

But CSOB's director categorically rules out the chance of losing in Paris, pointing out that the transfer of IPB was carried out according to the law. How the Czech state can claim public funds were misused, he says, is hard to fathom.