Minister quits in furore over Polish bank: Privatisation deal cost state dearly and spun huge instant profits for a select few

THE BIGGEST privatisation scandal in post-Communist Poland caused the resignation yesterday of Stefan Kawalec, a deputy finance minister who had played a big part in transforming the country into a market economy. Mr Kawalec gave up his job after politicians expressed outrage at the way in which Poland's third biggest bank, Bank Slaski, was converted from a state institution into a company quoted on the new Warsaw Stock Exchange.

About 3 million of Bank Slaski's 9.2 million shares were sold to the public for 500,000 zlotys (almost pounds 17) each when the bank was privatised in November. But when the shares were quoted for the first time on the stock exchange on Tuesday, they fetched 6.75m zlotys each. Small investors were allowed to buy only three shares each but even so, the price rise was a fantasy come true.

'This is a world record in under-estimating the value of a stock,' said Bogdan Pek, a member of the Polish Peasants' Party, who chairs the parliament's privatisation committee. He blamed Mr Kawalec and Slawomir Sikora, a finance ministry director who supervised the deal, for 'the disastrous valuation of the shares'.

At its current price, Bank Slaski is worth about pounds 2bn, as much as a large Western bank. That is extraordinary for a bank that has only 4,500 employees and assets that pale into insignificance compared with those of heavyweight financial institutions in the West. The shares may fall at the stock exchange's next sesson on Monday, but daily price movements are limited by law to 10 per cent in each direction.

If the losses to the Polish state treasury are enormous, the gains for bank Slaski's managers and staff are correspondingly high. According to Mr Pek, the employees, who were allocated 10 per cent of the shares, have made an instant profit equivalent to pounds 200m. He estimates that managers have made up to pounds 500,000 each and staff up to pounds 50,000 each.

Another happy investor is an Amsterdam-based company, Internationale Neder landen Groep BV, which took a 25.9 per cent stake in Bank Slaski when it was privatised. Rarely can a foreign investment have reaped such rapid returns. However, since the Dutch group has agreed with the Polish government to hold on to its stake for at least three years, it cannot realise its capital gains for the moment.

The Bank Slaski affair has raised questions over whether Poland is in the grip of a speculative frenzy that will one day produce a fin ancial disaster. The stock exchange, though flourishing, still bears little resemblance to Western equivalents. Last year the number of stocks listed on the floor of the stock exchange rose from a mere 16 to 21. Trading is limited to three days a week.

The result is that a lot of money is sloshing around Poland in search of too few healthy publicly quoted companies. Stock prices, which rose sevenfold in hard- currency terms last year, do not accurately reflect the real performance of every company. People are wondering when the bubble will burst.