The Government of the Republic of Slovenia on Thursday, 10 October 2013, ratified and  communicated, under an emergency procedure, for consideration to the National Assembly of the Republic of Slovenia, the Act Proposal regarding the Banking Law Amendment (ZBan-1L), which was in September in making at the Ministry of Finance of the Republic of Slovenia, and it explicitly retro-actively and drastically affects the rights of subordinate bond holders (hybrid instruments of the core capital, hybrid instruments of the supplementary capital, and non-hybrid instruments of the subordinated debt). It namely enables that these bonds turn into bank shares, or that they are even deleted, although these two possibilities have never been mentioned by the bonds prospects, approved by the Securities Market Agency (ATVP) as the accredited regulator and the regulator in charge. Apart from that, up to now there has never been any legal basis for the above mentioned two possibilities.  On the contrary, in case of many of such bonds the prospect explicitly states that the holder of such bonds can be at a loss only if the issuing bank goes bankrupt.

Although at least two institutions, considered to be competent and therefore invited to prepare the expert opinion, have expressed serious doubts about the ZBan-1L law proposal compliance with the Constitution of the Republic of Slovenia, the Ministry of Finance of the Republic of Slovenia has communicated this Act Proposal to the Government of the Republic of Slovenia, and the Slovenian Government ratified the Act Proposal on its meeting on 10 October 2013, and then communicated the proposal to the National Assembly of the Republic of Slovenia for consideration under an emergency procedure. Different preparers and decision makers in these procedures have emphasized that the adoption of such law is inevitable, in spite of all the well-grounded doubts, because the European Commission insists on it, and it is not willing to accept any negotiations, let alone allow any indulgence. The justification for this law amendment also contains an explanation, namely that the Constitutional Controversy of ZBan-1L - in reference to both: retro-activity, as well as incompatibility with the existing legislation – is plain enough to »pass the rigorous test of proportionality« in front of the Constitutional Court of the Republic of Slovenia. However, it is possible to have well-grounded doubts about this, due to various reasons:

Firstly, property represents a constitutional right, therefore any interference into it is constitutionally controversial.

Secondly, Law in Force regarding Measures of the Republic of Slovenia to Strengthen Bank Stability Act (ZUKSB) already defines measures for ensuring bank stability and the order in which their enforcement is to be carried out. The set of measures as well as the order of their implementation are, according to ZUKSB, completely different from ZBan-1L provisions.

Thirdly, measures anticipated by ZBan-1L are, in relation to their effects, equal to the two central measures of the compulsory settlement proceedings over a debtor company – a partial write-off of creditors' claims, and transformation of creditors' claims into equities of a debtor company. Compulsory Settlement of a Bank is explicitly forbidden in Article 318 of ZBan-1L .

Fourthly, the consequences of such an essential interference into the rights of holders of the instruments of subordinated debts would – contrary to what the authors of the legislation have been claiming, namely that the interference will not have long term system effects – cause an important change in the existing ways of bank financing, and this would be the case for all the Slovenian banks. Issuing instruments of the subordinated debt would thus – after the emergence of the until-then-non-existing risk that these instruments could be deleted or transformed into shares after the Arbitrary Judgement of the Bank of Slovenia, even if the issuing bank is insolvent – become very difficult (most probably even impossible to  carry out in reality, because even before the introduction of this change, banks had to pay to the holders the annual interest rate of 6 – 9% for most subordinate instruments). This would be the consequence for all banks (therefore systemically) and without time limits (therefore long-term as well).

Thoughtless and constitutionally questionable measures on the level of solving EURO crisis do not represent anything new, neither do their cascade annulations at the Constitutional Courts. At the Portuguese Constitutional Court almost half of the measures of the so called »troika« introduced two years ago, have been annulated in the last two years, one of them two weeks ago, retro-active abolition of holiday bonus has not been approved by the Slovenian Constitutional Court as well.

Therefore VZMD's standpoint in this matter is that it would be inevitable to render possible a wide, expert, quality discussion concerning ZBan-1L and – if really necessary – adopt it in an adequately altered form, so that it would not cause additional difficulties and instabilities, or that it will make sense and that it will be realistic, balanced and in accordance with the Constitution. Besides that, Mr Kristjan Verbič is going to tell his colleagues from the European Associations and Institutions about these questionable and problematic proposals and procedures. Mr Verbič will have an opportunity to inform his European colleagues about this situation as VZMD President, as well as a member of the Executive Board of the European Federation of Financial Services Users (EuroFinUse) during the approaching International Conference »The Financial Repression of Savers and Investors«, which will take place on 18 October 2013 in Vienna (please click here FOR APPLICATIONS).

In VZMD we will be striving to achieve protection of rights and interest of investors (also  bond investors), to establish appropriate mechanisms of supervision, regulation and standards, and we will also be trying to strengthen stability and trust into financial and capital markets – it is, namely, about the key factors, also in the perspective of our international business-investment programmes Invest to Slovenia (investo.si) and International Investors` Network (invest-to.net) which brings together 55 national associations of shareholders and investors.