The Rise and Fall of Investicni a Postovni Banka (IPB)

Abstract

This book summarizes the history of the second largest Czech bank – Investicni a Postovni Banka (IPB) – from its humble beginnings in 1990 through aggressive expansion to a spectacular failure in 2000. It is a story of unsustainable expansion amid the uncertain environment of transition economy, compounded by costly attempt of IPB’s management to gain ownership control over the bank - so called privatization by incest - engineered via sophisticated furtive transactions. Although other Czech banks also suffered losses due to the financing of the transformation, IPB management’s behavior was unique in the sense that it took advantage of voucher privatization, poor regulatory environment and the absence of the state’s ownership strategy. Unlike in other cases, the government was not able to sell the bank to a strategic investors. Instead, it was maneuvered by the IPB management to sell the stake to Nomura which was not a strategic investor, but a party to a transaction that would enable the management to get complete ownership control of IPB. However, the bank was loosing credibility with counter-parties and depositors, which eventually triggered full-scale run on the bank in June 2000, followed by a conservatorship and overnight sale with state guarantees. The book provides detailed analysis of transactional schemes that practically operationalized theoretical concepts such as moral hazard and principal-agent problems in the insufficiently regulated environment of an emerging market economy.