Stress?Nova Ljubljanska Banka (NLB),the biggest Slovenian financialinstitution, recently announcedthat its EUR 300 m rights issuewas a success. However, thatwas not clear from the begin-ning. Immediately after the bankhad informed its shareholdersthat it would issue new sharesfor EUR 334 a piece, rumourssurfaced that the managementwas being forced to raise freshcapital because NLB had squan-dered too much of it on lossesrelated to leveraged buyoutloans. Observers ofthe industrysay that recent attempts to firstconsolidate and then take overIstrabenz, an energy and tour-ist holding, and Laško brewery,which controls the country'sbiggest retailer, Mercator, andthe leading newspaper, Delo,are in part financed by NLB.The latter probably acceptedshares of takeover targets ascollateral, just in time to be hitby the turmoil on the LjubljanaStock Exchange (LJSE), whichhas seen its leading index, theSBI20, fall by more than 20 per-cent this year.As Jožko Peterlin, the head offund management at Ilirika, abrokerage and fund manager,recently pointed out, inves-tors also took out loans to buyshares while the stock marketwas booming, but now havedifficulties meeting margincalls. Add to this mixture thefact that the economy is slow-ing down, making the servic-ing of all kinds of loans more difficult, and it is not hardto see why some economiststhought that newly issued NLBshares were too expensive.Pricing them at 2.5 times theirbook value, management wasobviously confident that in-vestors would judge the bankto be in better health than thedoomsayers claimed.The governmentto the rescueJudging by banks' rights issuesthat have swept across Europeand the US in the wake of the USfinancial crisis, Marjan Kramar,NLB's CEO. could have been accused of being too optimistic.While major international bankswere forced to lure panicky in-vestors with steep discountsto current share prices to raiseurgendy needed capital, he hadthe privilege of counting thestate itself as the bank's biggestshareholder. The government,the funds it owns and the com-panies it controls duly boughtover 90 percent of the share is-sue, drawing criticism that NLBwas in effect being bailed outwith taxpayers' money.But was it really? A comparisonwith a rights issue by SocieteGenerale (SG), a French bankinggiant, which is present in Slove-nia with its subsidiary SKB, is in-structive. Its capital battered bylosses stemming from its expo-sure to dodgy credit derivatives,SG in effect begged investors forfresh money, offering the newshares at almost a 40 percentdiscount to the current price oflisted shares. With its capital adequacy ratio below the eight per-cent required by the EU rules,SG had no other choice. NLB, incontrast, sported a comfortable10.7 percent ratio at the end of2007, i.e. before the rights issue,and had no urgent need for addi-tional capital. It is, therefore, fairto give die benefit of the doubtto the governmenfs claims thatNLB needs additional funds toexpand its operations in the re-gion. ReshufflesThe rights issue introducedchanges in the ownershipstructure ofthe bank. The stateand two state-run funds, Kadand Sod, maintained their 45percent share, while the stakeof the second biggest share-holder, the Belgian financialgroup KBC, decreased from 34to 30 percent. KBC refused tobuy the newly issued shares af-ter it had become clear that thegovernment would not sell thegroup an additional 34 percentof NLB. The Belgians are nowlooking for the buyer of theirstake, asking EUR 300 a share.The European Bank for Recon-struction and Development(EBRD) succeeded in sellingits five percent stake in NLB toPoteza, a Slovenian investmentfund, at this price, thus settinga floor for future deals. Privateequity funds Blackstone andApax have already expressedinterest in KBC's stake, but theythink the price is too high.The same cannot be said aboutthe small shareholders of thesecond biggest bank in Slovenia, NKBM, as the latter's shareprice dropped to EUR 27 in theend of June. The governmentsold 49 percent of the bank tothe general public and informedinvestors last year at EUR 27 ashare. After the IPO had beencompleted, the NKBM share price shot through the roof,reaching EUR 44 and allowingthose who sold the shares to re-alize hefty capital gains. As forthe remaining small sharehold-ers, they tried to acquire morecontrol over the managementof the bank by pushing throughtheir candidates for the su-pervisory board at the recentshareholder meeting, but theirproposals were defeated by thegovernment.The great migrationObviously, the government's ownership of financial institu-tions can be a mixed blessing,but borrowers can always becounted on to vote with theirfeet. The market share of thethree biggest domestic banks- NLB, NKBM and the govern-ment-controlled Abanka -hasbeen steadily declining by vol-ume of operations, from 53.3percent in 2003 to 48.1 per-cent injanuary this year.Foreign-owned banks have beengrowing far more briskly thandomestic ones. While the lat-ter's loans to the private sectorgrew 22 and 34 percent in 2006and 2007, respectively, subsidi-aries of foreign banks recordedgrowth rates of 34 and 40 per-cent. After the fallout from thesubprime crisis hit Europe, thistrend only became more pro-nounced. In March this year,the loans offoreign subsidiaries already .grew by 45.5 percent,compared to 32 percent loangrowth for domestic banks.As Slovenian banks increas-ingly finance their lending byborrowing the funds on in-ternational financial marketsin general and on interbankmarkets in particular, theyhave been hit by higher inter-bank rates. Interbank marketshave been periodičally seizingup because of the uncertaintywith regard to exposure ofbanks to low-quality mortgag-es and hard-to-value financialderivatives. Foreign-ownedsubsidiaries, however, can ac-cess cheaper funds provided tothem by their owners, a signifi-cant advantage in times wherelending standards are becom-ing increasingly tighter. •

Medij: The Slovenia Times
Avtorji: Vukovič Marko
Teme: NKBM - Nova Kreditna banka Maribor
Rubrika / Oddaja: Ostalo
Datum: 18. 07. 2008
Stran: 4