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The ghosts of the 1990s

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The entire Czechoslovak banking sector was nationalised after the second world war, and its services were reduced to family savings and the financing of the state-run businesses. Mortgages, bonds and mutual funds only started re-emerging after 1989. In the 1990s, the still mostly state-run banks lent money left and right to businesses hoping to restructure, expand or buy each other up. But many went bust or their bosses embezzled the cash and shut shop without ever paying back. The state spent dozens of billions of crowns bailing out cash-starved banks and compensating clients of those financial institutions that went out of business.

In the 1990s, Viktor Kožený, a Harvard graduate and the author of one of the largest scams of the transition era, promised investors in his mutual fund 1000% returns, only to funnel their savings to offshore tax havens. He also stole over USD 400 million from US corporate investors in Azerbaijan. Kožený has since been at large, living in the Bahamas and fighting off extradition requests by Czech and US authorities.

Yet the most dramatic collapse in the financial sector was that of Investiční a poštovní banka (IPB), partially privatised in 1998 by the Japanese investment bank Nomura. In June 2000 clients ran on their savings after reports that IPB was sinking due to toxic assets and mismanagement. Four days later a special police unit stormed the Prague headquarters, followed by administrators, who in another three days sold the bank to ČSOB. Described by shareholders and some politicians as a “robbery in broad daylight”, the rescue operation was followed by years of court battles between the Czech state and Nomura. The government used more taxpayer money to remove bad debts from the former IPB and other banks awaiting privatisation by international groups.

ČSOB was taken over by Belgium’s KBC in 1999 and is now the largest bank in central Europe by assets. Česká spořitelna, which has the country’s largest clientele (more than 5 million) and branch network (more than 600), was sold in 2000 to Austria’s Erste Bank. Komerční banka was acquired by France’s Société Générale in 2001, and a year later Živnostenská banka became part of Italy’s UniCredit and adopted its new owner’s name.

Read Defying the crunch for an overview of the current banking situation in the Czech Republic.

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