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Printed: 15.10.2019.


PrintTransferring Parex liquid assets to new bank to be complicated, likely to result in lawsuits against the state

Nina Kolyako, BC, Riga, 23.03.2010.
The restructuring model for Parex banka offered by the international consulting company Nomura – transferring all the bank's "good" assets to a new bank, which is yet to be founded, instead of separating poor-quality assets and keeping the existing credit institution, may be a risky venture, besides, it may involve lengthy litigation for the state of Latvia, according to documents which may seal the fate of Parex banka that LETA has received.

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According to the Finance Ministry, the pros of the model suggested by the consultant include its compliance with the interests and requirements of the European Commission and the European Bank for Reconstruction and Development, positive PR effect and improving the bank's reputation. The new bank would also have good liquidity and capital adequacy ratios.

 

The cons include the risk of litigation, the necessity of an investment of another LVL 100 million from the state budget, and complicated implementation of such a plan, which eventually could hamper the new bank's operations.

 

If a decision is made to establish a new bank on the basis of Parex banka, the state will have to go through the entire process – not just reaching agreements with correspondent banks and SWITF, but also developing a new banking system, making new investments in infrastructure and others. Consultant Nomura, however, suggests that the new Parex banka head offices on Citadeles Street go to the new bank.

 

The complicated process of establishing a new bank will increase operational risks, the Finance Ministry points out.

 

As for the high probability of litigation, this is due to the planned asset distribution model: an LVL 52.8 million investment into Parex banka subordinated capital by the bank's former shareholders is to be left with the current bank – which will most probably result in lawsuits being filed by these depositors as well as several pension funds. Furthermore, the asset distribution is to be done in accordance with a provision of the Law on Credit Institutions that several lawyers consider unconstitutional.

 

The bank's former shareholders have said that several pension funds and foreign banks, for instance, Deutsche Bank, had invested money into Parex banka subordinated capital, although the bulk of the investment is made up of investments by the bank's former owners, Viktors Krasovickis and Valerijs Kargins.

 

It is planned that assets worth LVL 1.5 billion will be transferred to the "good" bank, whereas Parex banka will be left with assets worth LVL 785 million – mostly made up of non-performing loans.

The restructuring strategy offered by the consultant states that EBRD would get 25 percent plus one share in both Parex banka and the suggested "good" bank. The EBRD currently has 19.7 percent stake in Parex banka. It would acquire one-fourth of the bank by investing just LVL 57.5 million.

 

The restructuring strategy does not mention the price for which Parex banka could be sold by the state. Previously unofficial reports said that the state no longer hopes to retrieve all money it has invested in Parex banka.

 

Nordea and DnB Nord Banka, which are already represented in Latvia, as well as Poland's PKO Bank Polski, Russia's Alfa Bank, Germany's Raiffeisen Bank and Erste Bank and several financial investors are mentioned as the potential buyers for the new bank.

 

The government will continue discussing the Parex banka restructuring strategy tomorrow, March 23. The plan must be handed in to the European Commission by March 31.

 

Nomura has been hired to develop and implement a Parex banka restructuring plan, and to organize sale of Parex banka and a new entity to be established as a result of the restructuring.

 

The Latvian Privatization Agency currently holds 76.6% stake in Parex banka, and EBRD has 19.7%.



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