Disputed Euro-Area Bank Rescue to Be Audited by Slovene Court

(Bloomberg) -- Slovenia’s Court of Audit will start a “complex” probe of the country’s central bank next week over its decisions during a 2013 rescue that has pitted former policy makers against investors trying to recoup losses.

The euro-area country executed the 3.2 billion euro ($3.7 billion) cash injection to shore up state-owned banks and avoid a Greek-style international bailout. The central bank, led by then-Governor Bostjan Jazbec, endorsed imposing losses on investors by wiping out stock and writing down about 600 million euros in debt, a measure the European Commission also supported to ensure taxpayers wouldn’t bear the entire burden.

The investors who suffered losses are now pushing to get that money back and have called for a review of the central bank’s decisions. The central bank’s new governor, Bostjan Vasle, appointed last month, said he wouldn’t oppose a review. The head of the Court of Audit said an assessment would begin next week and could take several months.

“Since small investors lost about 600 million euros in the 2013 bail-in, it is logical that it’s in their interest to find out the reasons for such a drastic decision that has had no parallel in other European Union countries,” court President Tomaz Vesel said by phone in Ljubljana on Wednesday.

Police Probe

Jazbec, who stepped down in May, has borne the brunt of criticism for the bailout and is facing a criminal complaint along with four members of his board. Police raided his office in 2016, drawing condemnation from the Bank of Slovenia and the European Central Bank as infringing the authority’s independence. Slovenian police have declined to comment on the investigation, citing privacy laws.

Jazbec has defended the actions taken during the bailout and the resulting decision to impose losses on junior bond holders. A stress test conducted by the ECB the following year still found capital shortfalls at two institutions, which shows that he and his colleagues weren’t too strict, he told Bloomberg in September.

After Jazbec’s departure, the central bank withdrew an appeal he made to the Constitutional Court on the grounds of central bank independence to prevent the Court of Audit from reviewing the bailout.

Also, the central bank’s office of the governor was dissolved and the heads of business development and supervision, along with Jazbec’s spokeswoman and legal counsel, left the bank. The government changed its law on central bank, as well, subjecting it to assessments by the Court of Audit, except in activities related to banking supervision.

‘Political Dimension’

Upon the announcement of the audit, Banka Slovenije said it needs to consider a reaction. It has eight days to respond before the audit can start.

“We first have to see what the methodology was behind the bail-in decision, and which were the key elements used in the decision making,” Vesel said. He added that the audit would not be political, but: “later, perhaps, we may be able to discuss a political dimension, as that was a political decision at the time."

The leader of one of the ruling coalition parties Alenka Bratusek, who was prime minister at the time of the rescue, declined to comment, her spokesman said Tuesday. In a Bloomberg interview in September, she said that the government’s actions at the time were fully appropriate.

The European Commission last week sued Slovenia for seizing ECB documents in a raid at the central bank in Ljubljana three years ago as investigators looked into its role in bank bailouts.

To contact the reporters on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net;Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Michael Winfrey

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