The Guardian November 22, 2000

The day the police raided a bank

by Zdenek Horeni 

It was a curious case. One day, at five minutes to noon, a squad of Prague 
policemen, masked and armed to the teeth, forced their way into the head 
office of a Czech bank. Pistols and submachine guns. Unannounced and 
without even knocking on the door, 12 policemen from a special hit squad 
burst into the office of the managing director, who could only look on 
powerlessly at what was happening.

And happen it did. The police commando had come to tell him that the bank 
was being put under enforced administration, and the administrator, who 
they'd brought with them, was introduced to him.

The institution which had aroused the police's ire was the Investment and 
Postal Bank (IPB). Earlier it had been sold to the Japanese Nomura Bank for 
three billion crowns (about US$70 million dollars at today's exchange rate 
of 40 crowns to the US dollar).

But Nomura, which made a quick profit of 20 billion crowns by selling some 
of IPB's real estate, was clearly a bad manager, the bank had become 

IPB was the third largest banking house in the Czech Republic. In a country 
of ten million people it had 3.3 million clients who had deposited more 
than 300 billion crowns with it.

For several days its offices had been besieged by a crowd of clients whose 
confidence in the bank had evaporated. IPB was threatened by a run: in 
three days its clients withdrew 23 billion crowns.

A hard nut

Why a heavily armed police commando had to storm the bank is a question 
which so far has not been satisfactorily answered. But the Czech 
Government, which had agreed to this, knew which way the wind was blowing: 
a major private bank had to all intents and purposes collapsed and only a 
miracle could save it.

The miracle took a prosaic form: IPB was taken over by its prestigious 
competitor, the Czechoslovak Commercial bank (CSOB), 66 per cent of which 
was owned by the Belgian bank KBC.

The incident, which took place in June of this year, created such a storm 
in Czech political waters that the Chamber of Deputies set up a special 
commission of inquiry to establish who specifically was to blame for IPB's 

Of course our story doesn't end there. The police and parliament are 
continuing their investigations, the political parties and the public want 
to know who bears most of the blame, and clearly it will be some time yet 
before the Czech citizen learns whose fault it really was.

Every day banks handle millions and billions, astronomical amounts far 
removed from the world in which most of the population live.

Nevertheless, the IPB affair shocked public opinion in the country and 
continues to do so, even today.

Ordinary Czechs know from the newspapers that they'll have to foot the bill 
for IPB's collapse to the tune, some say, of tens of thousands of crowns 
per head. Because the cost of rescuing the bank will be met out of the 
state budget.

In a fit of holy zeal Prime Minister Milos Zeman originally said that his 
social democratic government would not spend so much as a single crown on 
bailing the bank out, but reality forced him to change his mind.

Now the talk is of tens of billions of crowns being needed to finance IPB's 

Havel: 400 billion stolen

After IPB's collapse, the Czech newspapers published a list of 18 Czech 
banks, large and small, founded in the '90s which soon either collapsed or 
had to be "rescued" by being taken over by other banks. IPB was the 18th on 
the list.

Tens of billions of crowns were "poured" into them, either openly or in 

In a moment of frankness, on October 1, 1999, President Havel admitted that 
under his regime the state had been robbed of 400 billion crowns. A large 
part of this was attributable to machinations in the banking sector.

In the meantime, as the daily Pravo noted on May 22, the state has 
spent 160 billion crowns in making good losses by banks, but at the 
Consolidation Bank, which is the government's dumping ground for "problem 
loans", they expect the latest rescue operation to cost around 300 billion 

Tip of the iceberg

During so-called "large-scale privatisation" in the mid-'90s, Czech 
privatisers regularly bought up state property with loans granted by banks.

The government encouraged banks to make such loans: it was said that a 
private owner would always be a better manager than the state.

Loans were churned out on a conveyor belt, but not all of the the 
privatisers repaid their debts.

This decline in repayment discipline, which the government and parliament 
failed to enforce by not preparing effective legislation, led to a chain of 
collapses at Czech banking institutions.

So there was a paradoxical situation in the Czech banking sector: whatever 
the state had raised during large-scale privatisation by selling off state 
assets, accumulated when Czechoslovakia was socialist, ended up being 
poured into a bottomless pit the financial institutions which had been 
stolen by the smartest and most successful of the large-scale privatisers.

So IPB was only the tip of the iceberg of major fraud, and as all the 
circumstances show it is all the governments of the "Havel era" which are 
jointly responsible for this.

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Postmark Prague

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