Bulgarian banks stabilized with aid after 'criminal attack' to bring them down with rumors

SOFIA, Bulgaria — Two brokers have been charged with plotting to undermine Bulgaria's top banks by spreading rumors of their instability, triggering runs on deposits and forcing the government to step in with rescue aid.

Police arrested five people on Sunday for allegedly sending hundreds of text messages and e-mails last week "to spread false information that caused detriment to commercial banks and destabilized the banking system." Two of them — investment brokers from financial services firm Global Markets — were charged on Monday and could face two years of prison.

The company could not be immediately reached for comment and it was not clear if the employees acted upon their own initiative.

Rumors of liquidity shortfalls had caused widespread concern and a run began on the fourth-largest lender, Corpbank, a week ago. Bulgarian authorities allege that the two men sought to take advantage of the situation by spreading rumors about other banks, leading to a run on First Investment Bank, the country's third-largest lender, on Friday.

The government decided this weekend to offer a 3.3 billion-leva ($2.25 billion) emergency credit line to the banks to stabilize them. Shares in the banks soared Monday after the European Commission, the EU executive, cleared the move.

Prosecutors on Monday charged brokers Kiril Dzhabarov and Robert Dimitrov with "spreading false alarming information." The crime carries a sentence of two years of imprisonment. It was not immediately clear whether the three others were cleared of wrongdoing.

Officials from the National Security Agency, which is leading the investigation, said in a statement that on June 26 and 27 the men distributed hundreds of text messages and e-mails about "the risks for deposits in Bulgarian banks."

President Rosen Plevneliev, who convened party leaders at an emergency meeting on Sunday, said "there is no banking crisis but a crisis in confidence and criminal attacks."

"We have sufficient reserves, means and tools to deal with any attempt at destabilization, and we stand behind each bank that becomes the target of an attack," he said.

Some Bulgarians continued to withdraw money from First Investment Bank on Monday. But the queues were smaller than on Friday, when the bank had to close early because of the rush to withdraw deposits.

The EU Commission, the 28-nation bloc's executive, said that beyond the rumors-induced jitters, "the Bulgarian banking system is well capitalized."

Analysts agree. Georgi Ganev, an economist with the Center for Liberal Strategies, an independent think tank, said the banking systems does not face financial problems of the kind that would warrant a run. This case of jitters was caused by a specific and concerted attempt to destabilize the banks, he said.

Plevneliev said the country's currency will continue to remain pegged against the euro despite the volatility in the financial system.

In 1997, Bulgaria's currency, the lev, was pegged at a fixed rate to the euro under a currency board arrangement, which imposed strict financial rules aimed at restoring fiscal discipline, preventing deficit spending and controlling inflation.