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Peak Ponzi: Only 13% Of Loans In Bulgaria's Fourth Largest Bank Had Valid Collateral

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One can debate whether, by virtue of fractional reserve banking, every bank in the world is just a ponzi scheme, and where the stability of the system depends entirely on the level of counterparty faith and general confidence in the system, in other words, a grand con game in which the central bank is tasked with making sure the con works as planned when confidnce gets "a little low."

One can not debate, however, that a bank had become anything but a pure Ponzi scheme - in this case, a piggybank whose funds were embezzled by its owner as described previously in "Fourth Largest Bulgarian Bank Seized After Bank Run: "Let's Not Tear Down Our House" Central Banker Begs" - when a token review, only upon its faillure, reveals that 87% of its loans were invalid!

From Bloomberg:


And more:

Audit report of Bulgaria’s Corporate Commercial Bank, under central bank’s supervision since June 22, shows its assets of 6.66b lev as of Sept. 30 need to be written off by 4.22b lev, central bank in Sofia says on website.

The good news: the level of corruption, embezzlement and loan devastation in a country like Cyprus for example, where the entire banking sector had to be bailed out by Europe, was just a little less than what happened in Bulgaria's fourth largest bank. Actually, it is unclear if that is good news.

The bad news: the Bulgarian central bank "regulator", just like its peers across the continent, and the world, had no idea what the reality of the balance sheet was until the owner vaporized, as did nearly 90% of the bank's funds, to borrow a Corzinism.

Impressive fraud.

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Bulgaria's Corporate Commercial Bank (Corpbank) needs to write off almost two thirds of its assets due to major failings in the way it was run, an audit commissioned by the central bank found, making a rescue of the lender increasingly unlikely.

The central bank ordered the international audit after Corpbank, Bulgaria's fourth-largest lender, was hit by a run on deposits in June that triggered the country's worst financial crisis since the late 1990s.

The audit found Corpbank needed to write off 4.2 billion levs ($2.7 billion) on total assets of 6.7 billion levs, adding that only 13 percent of Corpbank's loans were properly backed by collateral. The majority of the companies to which Corpbank lent money had little or no business activities or employees, and lent the money on to third parties, the audit said.

"In the bank's activities, unusual for the banking system, bad business practices are observed, which were carried out though sophisticated operations aimed to cover the nature of deals and transactions," the central bank said on Wednesday.

"One example of this is the specific mode of lending, carried through 'special purpose vehicles' and similar holdings, in order to finance the acquisition of assets, that does not conform to standard and sound banking practices."

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I assume the banker that wrote the loans booked their profits in advance and took their bonuses.

I've been reading the Faisal Islam book "The Default Line" about the British crash. The basic method for the bankers was:

1. Bypass the regulations (the regulators simply can't keep up). Manipulation of risk analysis was the key to this.

2. Book future profits immediately and get the bonus

3. Ignore consequences, someone else's problem

.....and of course, nothing has really changed since then, Bulgaria or otherwise.

The book is highly recommended for HPC'rs. He had good access to the political/financial insiders at the time.

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  • 409 Brexit, House prices and Summer 2020

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      • down 5% +
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      • up 5%

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