Nomura sued for £5bn over Czech bank

The Czech government, which this weekend is celebrating the country's admission to the European Union, is to sue the Japanese financial giant Nomura for up to £5.3bn over a failed banking privatisation.

Prague filed an arbitration notice against Nomura earlier this month claiming up to 263bn korunas (£5.3bn) in damages over the collapse of IPB, the country's second largest bank.

It had to be bailed out by the government in 2000, two years after it was sold to Nomura's principal finance unit, a sister operation to the business run by Guy Hands, the deal maker who purchased part of the UK rail network, the Ministry of Defence housing stock and a vast portfolio of British pubs for the Japanese bank.

The Czech government is claiming that as part of the deal to buy IPB, which was 46 per cent owned by the state, Nomura agreed to sort out the bank's financial structure. But it failed to do this, and when the business ran into trouble the government was landed with massive bad debts.

Nomura claims it was not aware of how bad a state the bank was in when it was sold and how difficult it would be to restructure IPB, given the Czech Republic's arcane legal system.

George van Mehren, a partner in the US law firm Squire Sanders, which is acting for the Czech government, said: "Nomura had been involved in the country and the legal system for a number of years before it bought IPB. Here is a clear case of caveat emptor."

The case brought by the Czech government is an escalation of the rumbling row that has followed Nomura's purchase of IPB. A court case is about to open over the sale of the Pilsner Urquell brewery by Nomura. It acquired the premium Czech beer maker as part of the IPB deal, then merged it with another brewer and sold the business to South African Breweries for £385m.

The case, in which the Czech government is claiming the proceeds, opened in a UK court last week but has now been transferred to Prague.