October 4, 2018 / 12:36 PM / a year ago

Slovenia ruling raises hopes of bank bail-in repayments

LJUBLJANA, Oct 4 (Reuters) - A Slovenian court has ruled a local bank has to repay owners of subordinated bonds scrapped during Slovenia’s 2013/14 bank overhaul, raising the possibility these and other bondholders might be repaid.

The Celje District Court told Reuters that its intermediate ruling was that state-owned bank Abanka should repay about 1.3 million euros ($1.49 million) to two owners of scrapped subordinated bonds.

The bank has appealed to the ruling.

“The plaintiffs argued mainly that the bank did not inform the plaintiffs about all characteristics of the deal and about risks regarding subordinated bonds,” the court said. The ruling was reached in June but the court confirmed it to Reuters this week.

In 2013 and 2014 the government put more than 3 billion euros into several, mostly state-owned banks, scrapping subordinated bonds issued by those banks to the value of some 600 million euros, as well as shares held by some 100,000 investors.

If the ruling is upheld in the appeals court and followed by similar rulings, three major banks could end up paying millions in compensation to former holders of subordinated bonds, analysts have said.

The three banks include state-owned Nova Ljubljanska Banka and Abanka, which are due to be privatised by the end of 2019, and Nova KBM (NKBM) which was sold to U.S. investment firm Apollo Global Management in 2015.

Kristjan Verbic, the president of the PanSlovenian Shareholder’ Association (VZMD), which represents a number of holders of scrapped subordinated bonds, said that the verdict, “was a positive signal”.

“We hope for a general settlement which would be sensible to avoid long court procedures and also cheaper (for all),” Verbic told Reuters.

Verbic said individual investors who bought some 100 million euros of subordinated bonds were unaware of the risks of those bonds and should get repaid in full.

“We were offered those bonds by the bank and had no idea that such bonds exist and that they are risky. The bank presented them as a safe investment,” a former holder of subordinated bonds, who hopes to get repaid and did not want to be named, told Reuters.

The Slovenian Constitutional Court ruled in 2016 that parliament must in six months change part of a bank bail-in law to give greater legal protection to holders of scrapped bank bonds and shares but the law has not yet been changed.

The Finance Ministry told Reuters it wanted to reach an agreement on the changes needed between the coalition parties and have the new centre-left government, which took power last month, approve them.

The ministry pointed out that the ruling of the Celje court does not question the government’s bank overhaul but is based on the bank’s breach of its duty to inform customers of the characteristics and risks of the bonds.

Deputy governor of the Bank of Slovenia, Primoz Dolenc, who is running to replace former governor Bostjan Jazbec, told reporters last month he hoped a change in the law would be a priority for the parliament.

“Maybe an agreement could be reached that would reduce the burden on the judicial system,” Dolenc said, without elaborating.

Abanka said that the ruling will have no influence on the business of the bank, refusing any further comment until the judicial process has been fully completed. NKBM said it was following events but refused to comment on them. NLB gave no comment.

$1 = 0.8708 euros Reporting By Marja Novak; Editing by Elaine Hardcastle

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