The Slovenia Times

Rising Capital Stakes



The management of NLB - which registered a EUR 113.9m loss for the first nine months this year - last month secured the overwhelming approval of shareholders to issue 5.5 million new shares over five years. This latest attempt to raise new funds follows a EUR 250m capital injection in March, secured almost entirely by taxpayers. The management and supervisors had initially proposed a further injection of EUR 250m, only to increase the figure to EUR 400m in September in the face of poor results and failure to implement the bank's strategy.
Chief executive Božo Jašovič told shareholders that the bank needed capital to stabilise it and improve its resistance to external shocks. NLB is one of 16 European banks ordered to raise more capital after being close to failing the required five percent of Tier 1 capital ratios - the key measure of financial strength - when pan-EU stress tests were carried out on 91 financial institutions last year.
The European Banking Authority (EBA) warned that banks needed to boost their Tier 1 ratio to nine percent. "Some banks meet this criterion already, others do not," Jašovic said, adding that NLB was among the latter.
The EBA added that major European banks need EUR 106 billion in fresh capital by mid-2012, of which EUR 297m is projected for Slovenia. Jašovič argued that the figure for Slovenia failed to "take into account the special characteristics of our environment". Slovenia is facing a flood of insolvency procedures, putting NLB under pressure to set aside provisions for write-downs, he added.
Media reports suggest it is uncertain whether the bank will get the 400m cash injection it wants since the state and Belgian financial group KBC, the principal shareholders, have not yet come to an agreement. Reports suggest EUR 250m is a more likely figure.

Other problems

Another stumbling block is where the capital will come from. The management has been arguing that the increase could be secured on the basis of an agreement between the two principal shareholders. It is suggested they could secure the money themselves or together with international institutions - the World Bank's International Financial Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) have both been mentioned.
The government has also argued that there is a need to give priority to private investors and use public funds only as a last resort. Outgoing Development and European affairs minister Mitja Gaspari stated unequivocally at the end of September that the state would not provide funds for a capital increase this year.
This prompted speculation that the increase would be postponed until spring next year, not least to allow the state to preserve control in the bank in case of participation by foreign investors. Unofficially, the EBRD and IFC representatives have visited Ljubljana over the matter, but the main obstacle is said to be the price of EUR 116 per share. Other options being considered are a public share offering - which would probably see a much lower share price - or a change in the bank's strategy, which would involve an even more conservative and cautious lending policy.

Inadequate reasons

The shareholders may have backed recapitalisation but they firmly rejected a controversial proposal by the Capital Assets Management Agency (AUKN) to replace four NLB supervisors, including chief supervisor Marko Simoneti. AUKN argued the overhaul was needed to speed up restructuring at the bank. The finance ministry agreed, saying that NLB's bad business results were sufficient reason for the dismissal of the supervisors. Belgian majority shareholder KBC, however, strongly opposed the proposal. And member of the governing board of Slovenia's central bank, Stanislava Zadravec Caprirolo, stressed it was crucial in the current times of global financial instability for the owners to avoid unnecessary shocks or instability to the bank. Central bank governor Marko Kranjec added that AUKN failed to give reasons for the replacements. He was also bothered that the new candidates were not bankers.
The decision does not change the fact that NLB is under pressure from both rating agencies and investors. Both the Fitch credit rating agency and Moody's credit rating agency have downgrading the credit ratings of NLB as well those of other Slovenian banks.
It now seems that the decision on the future of NLB and how it will acquire the new capital will most likely be left for the new government. The outgoing prime minister Borut Pahor has said it is not impossible that the bank will get a strategic foreign partner which would acquire the majority ownership of the bank.
"I have said that [the new government] will have to very prudently assess what is the best way, and I do not exclude the possibility of arrival of a foreign strategic partner that would have a majority, while Slovenia retains 25 percent plus golden share," Pahor said. "However, the new government will be deciding about this."


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