The State Vs Karic

Dinkic placed the Karic family under receivership  and therefore launched a massive financial operation of "infinite justice" on our terrain - would be the most concise news report from the press conference held by the governor of the National Bank of Yugoslavia (NBJ) on October 10. At the moment when this text is going to press we still don't know what response the Karic family has prepared for this action and whether a "domino effect" will ensue in their companies' financial operations.

Not wishing to underestimate the number of governor Mladjan Dinkic's new decisive steps in the transition of the Serbian banking system, which he informed the journalists of on the same day, in the overall package of radical moves, the decision to "place an administration order", i.e. "receivership" in Astra Bank a.d. in Belgrade (along with the First Entrepreneurship Bank, also from Belgrade) is singled out by its cardinal significance for the financial system. Namely, on the subject of Astra Bank, what we have is the acting "connective tissue" of the famous financial empire which sprung up in Milosevic's time, which, under the name Company of the Brothers Karic beside that bank (or with the help of that bank) now controls a mixed Mobtel Serbia BK-PTT company, BK Television, BK University and a number of companies in Cyprus, Russian, Ireland, United Kingdom and god knows where else.

BALANCE SHEET: Actually, placing Karic's bank could mean that an attempt is being made to finally resolve and put under control the situation in the great "black box" in which for the past ten year Serbia's enormous "hot capital" has been "processed" - in order to provide it with a legal turnover in privileged domestic business operations or its escape abroad, only so that both here and especially there - it could be distributed primarily to the very members of the "patriotic model family" whose name has been weighing down on the economic and even public life of an entire state for a full decade.

When Dinkic's arguments for appointing an "administrator" to Astra Bank are heard, all seems very transparent - so that many people will ask how come the secret of the dizzying success of the Karic Brothers wasn't cleared up sooner - when even in that company itself everything was observed by many of our renown economic experts (including the current federal finance minister Dr. Jovan Rankovic) - and beside that, the otherwise pleasant Bogoljub Karic, the frontman of the entire Company, never ran from reporters. On the contrary.  

However, let's put the "Karic phenomenon" to the side here, which had for years served as a surrogate "photo robot" of the "ice breakers of the transition", "pioneers of a market private economy and of the new times", while in reality they were an old fetish icon of "people who arose from the masses" and "despite everything" became rich, because they trusted and looked towards "themselves only".

As it turns out, the themselves was always someone else - that is confirmed by Astra Bank's balance sheet which had until recently regularly passed all audits and controls, all until the one from June 30 caught the NBJ experts' eye. Namely, the main light on the maneuvers in Karic's bank was thrown by an analysis of NBJ's experts who followed the lead of an amazingly visible fact that in this bank's balance sheet, on the side of assets, "cash" (ready money and cash equivalents) was entered as the major, lion's share and in the amount of 7.709.201 US dollars it comprises 61.58 percent of the overall engaged capital (126.199.538 million US dollars). For those readers who believe that they don't understand assets and liabilities in a bank's balance sheet, one should explain in a simplified fashion that liabilities include the gross price of money which the bank has "bought", and assets contains a list of (potential) gross revenues from the "sale" of that money, and those sums have to add up - just like at an inventory of cash and goods in any shop.

Therefore, the fact that cash amounted to 77.7 million dollars of the assets in Astra Bank's balance sheet in the first semester - suggested (again, simplified) the conclusion that the bank didn't "sell" this enormous amount, and on the side of liabilities, what could be some kind of match for that "unused" cash, only 45.086.138 dollars "capital" was entered. This very "disproportion" seemed illogical - because, the average participation of cash in the Yugoslav banks' assets at the beginning of this year amounted to only 6.43 percent, and "capital" on the liability side participated on average with 3.28 percent. Naturally, the question of the 5 million dollars capital limit regulated by NBJ, following the first glance cast on Astra Bank's balance sheet - couldn't even have been raised.

Still, an inspection of Astra's declared balance sheet showed that unfortunately "the cash wasn't here" - but can be found in Cyprus. More specifically, the inspectors were informed that 86.83 percent of the entered cash (therefore 67.474.197 dollars) can be found on an account in Astra Bank a.d. IBU in Nicosia. It turned out that that doesn't correlate to the real situation.

FINANCING THEMSELVES: When a team of NBJ analysts went to Cyprus at the beginning of September to check out the situation in Karic's branch in Nicosia, they noticed that Mirjana Mirosavic, the director of Astra Bank, happened to be in the same plane by pure coincidence so, as they said, they thought it wasn't impossible that Karic was well informed of the moves which are made in the central bank. However, even more importantly, they determined in Astra IBU in Nicosia that 70.688.975 USD were entered on its accounts on September 11 - however this money only served as security for this branch's investment in the total amount of 72.456.138 USD (according to the official formulation that investment is "entirely secured by the deposits of Astra Bank in Belgrade). It is interesting to see who held those investments. There are only four firms. The firm Yucyco Ltd. in Nicosia was granted a credit or went into an overdraft on its current account in the amount of 29.102.520 USD. Hawkbury Financial Ltd. in Nicosia went into an overdraft on its current account up to 36.833.767 USD. Polivos Trading Ltd. in Nicosia has an overdraft of 6.300.556 USD, and Goldform Associates Ltd. from the United Kingdom, 219.294 USD. All the other investments of Astra IBU amount to around 2 million dollars.

The first problem with Astra Bank's Cypriot investments lies in the fact that, according to Mladjan Dinkic's claims, they were granted to so-called "insiders", i.e. to the Karic family members themselves. Let's also add to Dinkic's claim a marathon feuilleton in Glas Javnosti daily, on the "misuse, legal machinations and crime in the telecommunications of Serbia" (author Tihomir Zivanovic), which explained on October 9 that PTT Serbia's partner in setting up the mixed company Mobtel Serbia BK-PTT in 1994 was a Moscow company AOZT "BK-TRADE" Inc., which was founded by - Yuyuco Ltd. from Nicosia, which is, as we've mentioned, Astra bank's debtor for over 29 million dollars (meaning, around 70 million Deutsch marks). It was discovered that the risk of the Hawkbury firm investment lies in the fact that this firm "took over the debt" of DAKI International Ltd. from Ireland, even though in the year 2000 DAKI didn't have any inflow on its current account - and this firm is famous for having directly financed the construction of the Karic family members' numerous villas in Dedinje. For example, Bogoljub Karic, by DAKI International's money order, received towards the end of last year 1.7 million Deutsch marks on his personal foreign currency account (the money order was signed by Mr. Angelos Soteriou, fairly well known from the time when Mobtel Serbia was formed, acting at the same time as the director of DAKI and financial director of Yucyco). Other than that, Bogoljub Karic, after receiving a money order from DAKI, "withdrew" a total of 8.762.236 DM during 1999 and 9.690.473 DM in 2000. By similar transactions, both dinar and foreign currency loans were also granted to Dragan Karic (around 1.6 million marks), Sreten Karic (3 million DM) and Zoran Karic (2.86 DM). And so on, and so forth.

As it turns out, Astra bank and Astra IBU issued credits of over 95.7 million dollars to "insiders" in the course of 1996 and 1997 which are constantly being renewed (revolved), meaning, they aren't being paid back, which, according to all criteria, places them under "high risk" - or, to be more precise, NBJ's experts evaluated them as highly risky.

On the basis of those and a number of other data, NBJ's experts simply entered all cash entries in Cyprus in the Astra Bank in Belgrade, meaning 67.474.197 USD, under "short-term credits and investments" - where from 8.7 percent it grew to 62.17 percent of the overall bank assets. However, since those investments were evaluated as being highly risky, a change had to follow on the "liability side" of the balance sheet - i.e. the position of "long-term reserves" (reserve funds which have to be formed in order to fill up unexpected "holes" in the balance sheet following non payment of a certain claim). When liabilities were increased to 76.301.150 USD - the "successful" image of Astra Bank changed completely.  

MONETIZATION OF TRUST: Simply, in order to spare our readers the agony of "balance sheet finesse", the situation in Astra Bank is such that aside from the investments held by the Karic family themselves of 95.7 million dollars, the rest is only composed of (mainly someone else's) capital of around 45 million dollars, so that, together with those and all other data, Astra Bank has 29.2 million dollars negative capital, and its realistic monetary minus amounts to 36.2 million dollars. In actual fact, it turned out that Astra Bank doesn't have a 5 million dollar limit which is regulated as minimum. In laymen's words, it turns out that the Karic brothers have to somehow "return to the country" around 40-45 million dollars and to invest that money into Astra Bank to enable it to legally carry on with its business operations. Governor Dinkic replied to the question of why Astra Bank then didn't already lose its business license, by saying that it was evaluated that this bank has significant deposits and that in the time limit of six months, the owners and depositors could reclaim it themselves. Naturally, under the NBJ inspectors' constant supervision, to prevent the entire bank from going down the drain - i.e. into some kind of "false bankruptcy" instead of a recovery.

The very thought of preparing a "false bankruptcy" (which, in the shortest term, is carried out when a certain economic subject goes heavily into debt on purpose, removes the money and then subsequently "admits" that it had operated unsuccessfully and files for bankruptcy) comes to mind in the Karic company case for a number of reasons. First, if we look at the Belgrade stock market site, list C (which contains evidence of commercial notes, certificates and company bonds) it is easily seen that following the HIP Fertilizer Factory in Pancevo, Mobtel Serbia BK-PTT is the largest "issuer" or seller of short-term securities, i.e., in essence, a short-term money lender. Therefore, this site shows that this year Mobtel already had five significant issues of these securities (which probably means that each new issue pays off the obligations of the old one, which was nicely described in the American Trilogy and other novels which describe the crash of the financial empires, and all of it is somewhat reminiscent of the "pyramid mechanisms" which our investors had the opportunity to get to know all too well). Namely, each issue amounts to 400 or 500 million dinars, and the money is borrowed for a time period of 90 days with an interest rate of usually 3.9 percent. True, one such issue of around 407 million dinars, which is due on October 22, also promises 5.2 percent interest rates. Such high current loans, on the other hand, might mean that this company is "monetizing" the public's trust on purpose as to the successfulness of its business operations, but the circumstance that Mobtel is offering the highest interest rates on the financial market seems contrary - so one can get the impression that a well known phenomenon is in the works - that those who don't believe in their future mostly like to work with other people's money.  

ARE THERE ANY PROTECTORS: We can carry on with hypothesis here on other possible causes of an eventual preparation for a "false bankruptcy", which are more understandable. Namely, it is a well known fact that for quite some time a fiscal reprisal in accordance with the Extra Profit Law has been hanging over the Karic family's head, since, only on the basis of primary issue manipulation, they received around 114 million Deutsch marks as a present (not to mention extra profit on other basis). Even though the amount of the determined tax on that basis remains somewhat unclear, the impression stands that the Department of Revenue and the Financial Ministry of Serbia are preparing a fairly fat tax bill (some say close to 100 million marks, others mention less than 25 million). Anyone who is expecting that kind of tax hit - would take significant precautionary measures and wouldn't exclude the elementary measure of disappointment in an ungrateful Serbia - by abandoning the financial battlefield and leaving all losses to the creditors, while the money remains in a safe place. As a logical continuation of the first, the second hypothesis is also possible - that governor Mladjan Dinkic has put Karic's Astra Bank "under administration" now in order to stop the additional flight of capital from the tax scissors which Aleksandar Radovic and Bozidar Djelic hold in their hands.

Dinkic's entire operation and the measures which the Karic family will probably try to employ in their defense - will objectively cause massive financial waves in Serbia. In case the Karic family doesn't opt to return the capital to the country and cover up the revealed financial holes or simply doesn't have that amount of capital abroad, their larger depositors (for example, the Apatin Brewery) will find themselves in serious trouble, and to a somewhat lesser extent, the citizens who had entrusted them with around 9 million dollars, since the National Bank holds around 5 million dollars from Astra Bank which serves as security for the citizens. This entire affair cannot be evaluated as surprising and it seems as though all the players in it - were preparing for a clash. Since it is difficult to directly prove such things, here are some indications that in the last few months a silent battle to "consolidate" the positions was being waged for that expected clash. At the beginning it seemed as though Karic had decided to approach Kostunica's political center, as a possible "protector" from the sharks which became all too strong after October 5 of last year. A few people were "positioned" around this leader who had previously "been fed" by Karic's hand (Dragana Djuric, Aleksandar Tijanic, Jovan Rankovic etc.), and Karic received a demonstrational sign of a somewhat warmer relationship with Kostunica's club in their joint visit to Banjaluka. Later, Karic turned to Djindjic, trying on a few occasions to shower him with compliments and separate him from the "black sheep" in the Serbian government. This turnabout was allegedly the cause of a quarrel over the leadership in BK Television, the recent replacement of the previous editor Djuric, and the new appointment of the ever smiling Maric, who, over the last ten years, could always be found close to the most powerful political center and who ever so sophisticatedly pursues a comfortable life. However, that replacement was paid with public anger of Kostunica's party which condemned the "undemocratic" personnel management in BK Television, somehow directly prior to Dinkic's press conference on which an open action against Astra Bank was launched. Still, at the end of the day, these are all mere speculations which might hide various ambiguities. After Dinkic's announcement, due to a lack of time, we were unable to hear the other side, Karic's, and inform our readers of the reactions in the centers of money and power - for now, we can only note that the story of placing Astra Bank under the National Bank of Yugoslavia's "administration" is fairly complex and it will most certainly cause agitation not only on the financial but possibly also on the political scene of Serbia.

Astra's Forgery

Governor Mladjan Dinkic announced that he will file criminal charges for forgery of official documents against those responsible in Astra Bank, because he claims that someone had "added" something to the credit board's decision from December 23, when the Yucyco firm was granted a loan of 30 million dollars (i.e. over 70 million marks) for an investment. Namely, the governor says that his inspectors found the original document by which that investment is provided for with cash deposited in Astra IBU in Nicosia, signed by Kyriacos Christofi, Mirjana Mirosavic, Aleksandar Zeremski, Miroslav Lazic, Dragica Stojiljkovic, Stefan Miskoski and Goran Milic. Later, the people from NBJ were presented with practically the same document with an added on item 6 of the decision which says that the investment is granted for eight years - while in the first, no time limit was set - i.e. it remained limitless. And truly, by comparing those two papers, one gets the impression that someone had scanned the signatures from the first document and transferred the scan to the second - which, however, was written with another font - and on top of that, it seems to have been pasted somewhat lopsidedly.