Bulgarian Oligarch to Be Charged over Abuses at Sofia Municipal Bank

Finance | March 30, 2012, Friday // 19:29|  views

Sofia municipal councilor Orlin Aleksiev said oligarch Hristo Kovachki will face charges over abuses at Sofia Municipal Bank. Photo by BGNES

Bulgarian energy oligarch Hristo Kovachki has siphoned off funds from the Sofia Municipal Bank, and has laundered them through his firms, an auditing report has found.

Kovachki, who already has a suspended sentence, is now expected to be charged over the abuses at the Sofia Municipal Bank that was under his control, based on an auditing report of Ernst & Young for the period from January 2010 and November 2011.

This was announced Friday afternoon by Sofia municipal councilor from the ruling Bulgarian center right party GERB, Orlin Aleksiev, the CEO of Sofia Municipal Bank Sasho Chakalski, and the head of the bank's Supervisory Board Stefan Nenov, who presented the auditing report of Ernst & Young.

The Sofia Municipal Bank used to work completely in the interest of Hristo Kovachki, who was a minority shareholder, and the businessman used money that he siphoned off from it in order to fund his own political party, LIDER, which was created in 2009 but failed to gain much traction.

Over 20 firms connected with Kovachki got a total of BGN 26 M in credits; the total credit portfolio of the bank is BGN 370 M, and of those 12.5% are loans that are more than 90 days overdue.

The Bulgarian National Bank discovered this problem in 2007 and placed the Sofia Municipal Bank under supervision but the mismanagement continued over the next 5 years, according to Stefan Nenov.

Another problem with Kovachki's involvement with the management of the Sofia bank is that the bank bought real estate properties from his companies at much higher prices. Two of these cases have already been referred to the Prosecutor's Office, Sofia Mayor Yordanka Fandakova said, as quoted by Mediapool.

According to the auditors, some of the bank executives were direct accomplices in the abuses. What is more, Kovachki's firms performed all outside services for the bank, which is why the municipal bank had some of the highest operational costs in Bulgaria, Aleksiev explained.

The current CEO of the bank Sasho Chakalski pointed out that as a result of the abuses, the Sofia bank ended 2011 with a loss of BGN 11.4 M.

Kovachki was in control of the Sofia Municipal Bank until November 2011 even though he had a minority share of 25%. This was ended when the Bulgarian National Bank intervened, and provided for changing the statutes of the Sofia bank, allowing the Sofia Municipality to take over and appoint new management.

Aleksiev announced that the Sofia Municipality is not going to sell the bank because of the unfavorable market but is going to make a non-financial contribution in order to stabilize it.

The Sofia Municipality regained control of Municipal Bank AD after a general shareholders' meeting held on November 11, 2012.

On November 10, the Bulgarian National Bank (BNB) deprived from voting rights five of Municipal Bank's minority shareholders - companies connected to businessman Hristo Kovachki - thereby invalidating the blocking quota in the general shareholders' meeting, where decisions are taken with a ? majority of the represented capital.

At the general shareholders' meeting held on November 11, the representatives of the Sofia Municipality voted for an amendment to the articles of association providing that decisions shall be taken by a majority vote, while decisions involving changes in the capital or the articles of association, etc, shall require a 2/3 majority to pass.

The Sofia Municipality holds a 67.51% stake in Municipal Bank AD, meaning that it can already take key decisions single-handedly.

The City Hall lost their authority over the Bank, established in 1996, during the term of Mayor Stefan Sofiyanski.

In 2004, part of the shareholders were changed through the privatization of municipal companies; resale of their stake at the bank to other companies, and a change of the Bank code i.e. the 2/3 majority.

It became clear shortly after that that Kovachki's businesses have a blocking quota of 27%, which helped him take over control on the Bank, making the majority owner – Sofia City Hall a hostage of its own deposits.

On November 29, Municipal Bank reshuffled its management structure, appointing Georgi Belovski and Alexander Chakalski (former Director of the Bulgarian Development Bank) as executive directors and Borislav Moyanov (former CEO of Post Bank) and Ivanka Popova (Branch Manager at United Bulgarian Bank) as members of the Management Board.

The new management of Municipal Bank has voiced plans to impose staff cuts and focus on energy efficiency projects.

Municipal Bank also intends to get actively involved in retail banking and providing financing to small and medium-sized enterprises.

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Tags: municipal bank, Hristo Kovachki, Sofia Municipality, Alexander Chakalski, Bulgarian National Bank, BNB, Stefan Nenov, Orlin Aleksiev, Yordanka Fandakova, GERB, oligarch, tax evasion


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