Cartu Bank Destined To Go Bankrupt
19 July, 2012
Cartu Bank Destined To Go Bankrupt

Cartu Bank is destined to go bankrupt due to politically aligned regime enforced since July 11, 2012. Its bankruptcy is supposed to have a double impact on the country by undermining its investment climate and affecting local banking sector. 


The forced management regime introduced by the National Bureau of Enforcement (NBE) at Cartu Bank, once owned by Bidzina Ivanishvili, a billionaire leader of oppositionist political coalition Georgian Dream, is supposed to lead Cartu Bank to bankruptcy.

NBE seized 100% of Cartu Group

including the 100% of Cartu Bank within itself as well as 21.7% held by Ivanishvili at Progress Bank to impel him pay off the GEL74 325 065 penalty imposed for alleged breakage of law on Party Financing.

Ivanishvili refuses to pay for he finds the penalty unfair. Moreover, he assures that he does not appear the beneficiary owner of Cartu Group as he handed his shares to 16 foreign offshore investors companies by May of 2012. Consequently, the questioned property is arrested illegally and cannot impel Ivanishvili to pay.

Nevertheless, NBE put the illegally arrested assets along with the Progress Bank shares at auction on July 2-10, 2012 but no bidder turned around for either assets.

Before expiration of auction date lawyer of Cartu Group foreign stakeholders assessed the auction as expropriation of foreign investments and appealed to Georgian authority to stop the auction unless stakeholders would appeal to the international court.

But the statement sounded as the voice in the wilderness. However the auction failed and experts expected another auction to be announced but failed.

Authorities chose to pass the property to the forced management that implies appointment of a new manager at companies under enforcement and incremental payment of money to the creditor. Until termination of forced management the new manager has all rights of the owner, whereas the property still belongs to the owner.

Vladimer Ugulava, Irakli Zarkua and Roin Tsitsishvili make the new supervisory council members of Cartu Bank with Ugulava as the President and General Director.

New management did not disclose its strategy as of yet. Uncertainty and old faces [having dealt with other politicized bank-bankruptcy schemes] in new management lays ground to speculations that Cartu is destined to go bankrupt.

Otherwise authorities might apply to less scandalous and more effective tools to impel Ivanishvili to pay the penalty.

“If the state was really interested in the penalty payment it could bypass all these scandalous property arrest, auction, infringement of foreign investors’ rights and levy the questioned money through encashment system from Ivanishvili’s account alone without much noise and affecting other stakeholders,” said Ditrikh Muller, a financial analyst with Georgian Investment Group, “But the bad thing is the issue is politicized and real purpose is Cartu’s bankruptcy.”

Lia Eliava, a financial analyst, believes since the forced management is assigned Cartu Bank will be led to bankruptcy and sell out.

“That’s a completely political game. The state did not take over Cartu property into its ownership for it could not make bankrupt its property. Now they will lead Cartu to bankruptcy and sell it out. What’s going on with Cartu is beyond economy and comments,” she said.

Experts fear the Standard Bank scenario will be duplicated.

Zarkua was a member of temporary administration at Standard Bank [owned by late political tycoon Badri Patarkatsishvili] that went bankrupt in 2007 after Patarkatsishvili entered politics as an opposition. The NBG assigned as temporary administration at the Standard Bank, arrested its accounts and led the Bank to bankruptcy.  Giorgi Kadagidze, the incumbent President of the NBG, was the head of that temporary administration at Standard Bank. Zarkua was a member of financial inspection the NBG assigned in Cartu Bank by end of 2011.  Tsistishvili was a liquidator of the Maritime Bank in this past spring. Only Ugulava, with his backgrounds in governmental and non-governmental as well as private sector activity prior-and-post-rose-revolution periods, seems more or less neutral. But he still did not spell a word of management strategy. Besides he is in a bad company: the trio of Kadagidze, Zarkua and Tsitsishvili makes experts alert.

Eliava presumes authorities need Cartu bankruptcy to cut funding channel to its key political opponent Georgian Dream in the parliamentary elections scheduled this October. But Muller thinks there are other much simpler tools besides bank transfers to get due financing and finds Cartu bankruptcy absolutely unreasonable move from both political and economic points of view.

“First and foremost it will affect the image of the ruling party and I cannot understand how they think to attract USD 4 billion of investments as the new PM plans after that. Politicizing economic things scares investors off for they no longer can be sure their assets in Georgia are safe, that if the ruling party does not like some other investor tomorrow it can expropriate its property too. The more so that Cartu is not the single precedent,” he said.

Except Cartu and Standard banks, there were other banks that suffered from mind-change of Rose-Government during its first office-term. Such volatility of approach undermines trust of local people toward Georgian banks that may face competition problems.

As a matter of fact clientele of Cartu Bank is standing in long queues since the Bank was subjected to the forced management to withdraw their deposits. That can be contagious, Muller warns.

“People may think that other Georgian banks favored by government now can also face difficulties tomorrow if government changes, or the incumbent authorities do not like someone. Ultimately, they will prefer to keep their money home or make saving at foreign-based banks operating in Georgia that are less vulnerable for they have foreign founders and  Georgian banks may face problems,” Muller elaborates.

As to progress Bank, it has a chance to escape more or less unscratched as only 21.7% of it is at the stake and forced management cannot get its full control at hands.

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