UNIONBANK AND CREDIT AGRICOL INDOSUEZ ENTAGLED IN ZUNK SCANDAL
THE FRENCH FINANCIAL GIANT SUES THE BULGARIAN BANK FOR A FRUSTRATED DEAL IN SECURITIESThe French investment bank Credit Agricol Indosuez (owned by the top French financial group Credit Agricol), has been at law with the Bulgarian UNIONBANK for five years. Trivial or not the reason for the lawsuit, according to the French, is UNIONBANK's failure to fulfill an offer for the purchase of ZUNK bonds under the Act on the Settlement of Non-Performed Credits, Contracted before December 31, 1990, worth a total pf USD15MN.In May 1997 UNIONBANK and Credit Agricol Indosuez agreed that the Bulgarian financial institution would buy ZUNKs on the Bulgarian market and sell them to the French bank at USD0.515 per USD1. However, the deal failed because UNIONBANK could not obtain the bonds. The French claim this caused them losses, estimated at USD3,012,500 and BGL765,315,440 (prior the Bulgarian lev's denomination), equal to BGN765,315.44 after the denomination. UNIONBANK refused to pay for these injuries. Therefore, in October 1997, through the lawyers office Borsilav Boyanov Co, Credit Agricol Indosuez filed a claim against its Bulgarian partner. UNIONBANK's lawyer Georgi Atanassov moved heaven and earth for winning such complicated cases - judges are changed, lawyers do not appear in court, investigations are carried out, etc. The lawsuits has been dragging on for years and has not yet come out of teh Sofia City Court. The most recent hearing of the case was on March 6, 2002, when UNIONBANK's defence demanded from the lawyers of Credit Agricol Indosuez to present original documents of the deal, which was closed through the banking system Reuters Dealing 2000 Screen. Some lawyers joke that in order to present at court the original documents of the deal the defence of the French bank should bring in court Credit Agricol Indosuez's hardware of the banking system Reuters Dealing 2000 Screen. According to UNIONBANK's defence, an expert on telecommunications should establish if the system is capable of storing the information which goes through it and reproduce it precisely after several years. The lawyers of the French bank have a month and a half to counteract Georgi Atanassov's requirements at the next hearing of the case at the Sofia City Court, scheduled for May 10. However, the outcome of this legal battle is not likely to become clear in the near future. The speed at which things are going on suggests that the final ruling on the case may be postponed for years on end.The background of the conflict between UNIONBANK and Credit Agricol Indosuez leads back to May 13, 1997 when UNIONBANK's Chief Dealer Philip Fotev contacted the French bank's dealers through Reuters Dealer 2000 Screen, offering to sell them ZUNKs of USD10MN par value. The deal was to be effected at the price of USD0.515 per USD1. Mr. Fotev advised his French colleagues that he did not have the bonds at hand, but there would be no problem in providing them, as he had an offer from a client who was selling such bonds. Later on, it became clear there was a problem and UNIONBANK failed to obtain the ZUNKs.On May 20, 1997 the Bulgarian credit institution again offered Credit Agricol Indosuez to sell it ZUNK bonds, worth a total of USD15MN, at a price of USD0,525 per USD1. The French accepted the offer and the two banks exchanged a fax message, specifying the main clauses of the deal. The lawyers of Credit Agricol Indosuez entered corrections in it, which they claim were insignificant, but later on it turned out they became trump-cards in the hands of UNIONBANK's defence (as according to the Bulgarian bank's lawyers, the changes are essencial to the contract). However, the Bulgarian credit institution again faced a problem in providing the promised ZUNKs. Things became more serious after it became known that Credit Agricol Indosuez had alerady agreed to sell the bonds at USD0.53 per USD1 to its Geneve branch Indosuez International Finance.The French became quite nervous after receiving a second polite notice from UNIONBANK that they would not get the agreed bonds. The Bulgarian bank again asked for a postponement and after exchanging messages an agreement was reached that UNIONBANK would transfer the ZUNKs to Credit Agricol Indosuez by July 15, 1997 at the latest. Two days after that date UNIONBANK for the third time excused it had not purchased the package of ZUNK bonds (worth USD15MN par), but was trying to buy them at matket prices, which had already reached USD0.70 per USD1.Meanwhile, two weeks before the last exchange of messages between the two banks, 6-month interest on the ZUNKs was paid, amounting to BGL765,315,440. The French claim that this circumstance has caused them additional losses.The patience of Credit Agricol Indosuez wore out and in order to fulfil its commitment to the Geneva branch of its subsidiary Indosuez International Finance bought on July 29, 1997 the necessary ZUNKs (worth USD15MN par) from BULBANK, paying for them USD10,887,500. The French bank insists that UNION BANK should pay for the damages from the failed deal. They claim to have been inflicted losses of USD3,125,500, which is the difference between the price of the bonds when the French received the initial selling offer of USD0.515 per USD1, and the amount paid to BULBANK by Credit Agricol Indosuez. In addition, the French claimed the missed interest of BGL765,315,440 on the ZUNKs.In August 1997 the Sofia District Court levied a distraint on some foreign and Bulgarian currency accounts of UNIONBANK up to the amount of USD3,012,000. The bank's lawyers immediately counteracted by appealing against that measure at the Sofia City Court. On August 26, 1997 it ruled that the distraint on UNIONBANK's accounts should be lifted. The magistrates justified their ruling by the motive that the distraint on the bank's accounts would impede its operation. The Supreme Court of Cassation does not accept for hearing the claim from the lawyers of Credit Agricol Indosuez against the ruiling of the Sofia City Court. The real battle between the two banks began on November 23, 1997 when the French placed at the Sofia City Court their claims for USD3,012,500 and BGL765,315,440. This was also the beginning of the long tramping through the Bulgarian court labyrinth. The case was heard at about a dozen of court sessions over the next four yeasr and a half. UNIONBANK's lawyer Georgi Atanassov demand additional evidence and places counter apeals. On his insistance the International Orthodox Bank Saint Nikola, which refused to sell the ZUNK bonds to UNIONBANK and thus, according to Mr. Atanassov frustrated the deal with Credit Agricol Indosuez, was also approached.