Law aims to limit bank interest payouts

  • 2010-02-17
  • Staff and wire reports

EASY MONEY: Former Parex owners should take responsibility for their own actions in failed bank.

RIGA - The government approved on Feb. 16 the Finance Ministry’s amendments to the Law on Credit Institutions limiting benefits that shareholders derive from banks that have received state aid, reports news agency LETA. This may be primarily targeted at former Parex bank owners Valerijs Kargins and Viktors Krasovickis, who have managed to maintain significant amounts of money on deposit at the bank, despite the bank’s near collapse in 2008 under their tutelage, now earning them substantial monthly interest payments.

The amendments to the law limit benefits that shareholders derive from state-supported banks, and will be in force as long as the given bank receives state support. The new regulation will come into force on June 1 this year, therefore there is a sufficient transition period provided in the bill. The amendments were drawn up by the Financial and Capital Market Commission.
The only bank in Latvia that is currently receiving state aid, and which has certain restrictions imposed on its operations, is Parex bank, and the new provision concerns any liabilities of the bank that date back to before Nov. 10, 2008, when the bank moved to take it over and provide state aid.

The amendments still have to be approved by Saeima.
Krasovickis previously said that the new regulation comes as a result of New Era’s desire to increase its popularity before the elections. “It is unfortunate that, because of the elections and saving a couple thousand lats, a bank is being destroyed that used to be the best bank in the country, and billions of lats are being lost.”

If the amendments are passed, “Parex bank will never be sold,” Krasovickis warned. Pension funds and foreign banks, for instance, Deutsche Bank, have invested money in Parex bank subordinated capital. If they stop receiving money from Parex bank, a scandal will occur that will destroy the reputation of the bank completely.
Krasovickis warned, in an interview with the newspaper Biznes&Baltija, that the said regulation would be a unilateral breach of the agreement that the bank’s shareholders had signed with the state. “We are ready to file a claim against the state. No one will buy Parex bank because of the lawsuit. What is left then? Probably a gradual bankruptcy procedure will be drawn up for the bank. I see no other explanation.”

Most believe that Parex bank, under these two former owners, was poorly run and was allegedly laundering Russian money on a grand scale, as well as carrying on other criminal activities. A recent book by Latvia’s investigative journalist, Lato Lapsa, attempts to illuminate their shady business.
Latvian Prosecutor General Janis Maizitis has said that his office is working on a criminal case on possible violations by state officials regarding the Parex bank takeover deal, and on what sort of ‘deal’ was made between the government leadership at the time, and the two bank owners and their families.

Maizitis said that the investigation will probe actions by state officials, including politicians and executive officers at Parex, before and after the bank takeover. As regards the politicians, the prosecutor’s office will analyze their public statements on the subject which, as Maizitis pointed out, were quite contradictory.
The Latvian government has invested close to 1.0 billion lats (1.4 billion euros) of taxpayers’ money in the bank’s rescue so far.
Finance Minister Einars Repse has rejected criticism from Krasovickis, and suggests that he and Kargins should “take at least some of the responsibility” for what happened at the bank, as “the negative aspects of its nationalization are being felt by every resident of Latvia.”

Repse declared, via his press secretary, that Krasovickis and Kargins must assume “moral responsibility in the face of the entire community, and admit that the bank was led to ruin during their leadership.” This, instead of releasing groundless statements to the press, the finance minister added.
Krasovickis claims that it was Repse and his New Era party that “led Parex to bankruptcy.”
Parex bank posted a pre-audit loss of 107.5 million lats last year. The bank’s loan portfolio was 1.45 billion lats at year end 2009; deposits at the bank stood at 1.54 billion lats; total assets at 2.48 billion lats; capital and reserves of 156.5 million lats. Last week the government agreed to deposit another 102 million lats in the bank so that it would be able to repay loans to syndicated lenders.

The Latvian Privatization Agency holds 73.4 percent of Parex bank shares, and 22.4 percent of the shares belong to the European Bank for Reconstruction and Development.