Former owners unhappy with bank plan

RIGA - Former Parex bank owners Viktors Krasovickis and Valerijs Kargins are ready to renew the bank’s normal activity in one year, stressed Krasovickis in an interview with the daily Telegraf. “Parex bank should be effectively put in order in a short period of time, and not pulled apart through restructuring. The [economic] situation will improve and the bank could return the money invested by the state, and pay taxes,” claimed the former banker.

He considers the idea of dividing up the bank and creating a new bank to be “foolish.” As the business daily Bizness&Baltija reported on March 1, Nomura International is promoting selling this new bank, into which would be put ‘good’ credit and deposits, while the ‘old’ bank would be left with problematic assets, obligations to international investors, and the real prospect of bankruptcy.

As Krasovickis emphasized, the previously discussed idea of creating a fund for ‘bad’ assets was feasible, and would not have a negative affect on investors’ interests. “This would not do any harm to the state, would not cause legal proceedings, and would not scare away clients.” He sharply criticized, however, the idea of creating a new bank, where ‘good’ assets would be included, indicating that the taxpayers’ money, invested by the state, would remain in the ‘bad’ bank, and inclusion in this section would create major problems for clients.

For example, a business which works its way through difficulties, pays taxes, provides jobs and gradually pays off debt, if included in the ‘bad’ bank, would be doomed to extinction, as everything possible would be pumped out of it. On the other hand, a bank which was geared to development would find it more in its interests to put this business back on its feet and in a better position to cover all its debts, he believes.

Parex bank management, advisors and government officials however are moving ahead in the hope of getting a deal done this year for its sale, and say there is interest from European banks interested in the Baltic region. “If we could start the selling process in the second quarter, then there definitely is a chance that most of the sales process will be done by the end of 2010,” said Parex bank chairman Nils Melngailis in the middle of February.

He said this goal could be met if the government took a decision in the next two months to split the bank into two, one with ‘good’ assets and one with non-performing, ‘bad’ assets. “Mostly they are European banks [which have expressed an interest], they see the Baltics as part of their future strategy,” said Melngailis.

Melngailis said any delays would mean the sale process would probably drag on as holidays in June and July would intervene, followed by the parliamentary election, due in October. Nomura is advising the state on the restructuring. It is not clear how much the state would get for the bank. The assets of the bank at the end of 2009 were 2.4 billion lats (3.4 billion euros).
Parex used to be owned by two of Latvia’s best known Russian-speaking businessmen and had a large client base in Russia and other former Soviet countries, though was suspected of laundering money from these countries. The Latvian government, under the prompting of the IMF, wants to stop the two former owners receiving millions of lats of interest payments they still receive from the bank.

Melngailis said that about 500 million - 1 billion lats of bad assets, mostly real estate which is not part of the bank’s core business, would be split from the bank and put into a fund, which could also be sold. “If the [sell-off] question is delayed, I would not be surprised if they [the IMF] get involved again as the stability of the banking system and the bank’s restructuring is an important part of the state’s agreement with the IMF,” said Melngailis.

Melngailis said the bank was working actively to roll over deposits worth 300 million lats, frozen after the rescue, so it can lift restrictions on making new loans and on deposit withdrawals which were restricted after the nationalization.
It was poor risk management by Krasovickis and Kargins that ultimately brought the bank to the brink of collapse in late 2008, forcing the government to step in to rescue the operations, and since then risk over 1 billion lats of taxpayer money in stabilizing it.