Privatbank sues for USD 3 bln against PwC

Ukraine’s biggest financial institution Privatbank (PRBANK)
filed on March 30 a court claim in Cyprus against its former auditing firms
PricewaterhouseCoopers (Cyprus) and PricewaterhouseCoopers (Ukraine), according
the bank’s April 2 press release. The bank demands compensation of USD 3 bln in
damages for losses that it believes to have suffered due to the auditors’
“serious breaches” of their duties when auditing Privatbank’s accounts in
2013-2015.

Privatbank CEO Petr Krumphanzl called that claim “a
logical and necessary step, in light of the great responsibility PwC had for
auditing the bank’s financial statements.” He said the auditors “failed
absolutely to identify the ongoing operation of the huge fraud within the bank
over many years that resulted in virtually the entire corporate loan book of
the bank being non-performing.”

Recall, Privatbank was recognized insolvent and
nationalized in December 2016, which resulted in state contribution of UAH
155.3 bln (USD 5.9 bln) into its equity and bail-in of its creditors for a
total amount of UAH 29.4 bln (USD 1.1 bln). Due to the Privatbank case, the
National Bank of Ukraine banned PwC from auditing Ukrainian banksin July 2017.

Alexander Paraschiy: This is in
line with our view that
Privatbank’s former auditors should be held responsible for manipulations that
led to concealing the real situation in the bank before its nationalization. It
is hard to believe the auditors were unaware of the true situation in the bank,
so the management of the now state-controlled bank is likely to claim that PwC
was intentionally hiding the true situation there. That will add to
reputational losses to PwC globally, but we do not believe the bank will be
able to win the entire USD 3 bln claim. We believe any victory for the bank in
this case will significantly increase the chance for recovery of its bailed-in
Eurobonds.