Investors scramble after Parex assets

  • 2010-04-08
  • Staff and wire reports

RIGA - In what may be just a front for a Russian invasion into the Latvian banking market, British businessman Peter Hambro, the owner of the Russian gold mining company Petropavlovsk, appears interested in buying the yet to be formed ‘good bank,’ to be created after the expected approval by the European Commission of the Latvian government’s restructuring plan for Parex. Interest in both the good parts, or the ‘core’ assets, and the bad parts, the ‘non-core’ assets, has been shown by numerous parties as the breakup of the country’s former largest bank puts the pieces in play.

Approximately two-thirds of the current Parex bank’s assets, with book value at around 1.5 billion lats (2.1 billion euros) will be transferred to the newly-formed bank, reports More than a half of the Parex loan portfolio, valued at about 700 million lats, will also go to the new bank, as well as part of government deposits in the bank that were meant to stabilize both the situation at the bank and Latvia’s financial sector after Parex collapsed in late 2008.
The non-core and problem loans will be left in the old Parex bank to be managed separately. It is hoped that as the global economy rebounds, some or all of these assets can recover their value and the State, or the taxpayers, can recoup the ‘investment.’

The Latvian government on March 23 decided that some of the bank’s assets will be split-off into a new bank, based on the proposal developed by the consulting company Nomura International, reports the Latvian Institute. The main beneficiaries of this restructuring plan will be depositors in the existing Parex bank, whose deposits will automatically be  transferred  to  the new  bank. This will give the new bank a stable financial foundation.
Prime Minister Valdis Dombrovskis (New Era) said that “The decision on the best restructuring plan for Parex  bank was  passed  unanimously, with outgoing Foreign Minister Maris Riekstins  being  the only exception, as he has been asked not to participate in important decisions prior to leaving his office.”

The decision on selecting a restructuring model for the bank is of essential importance to facilitate the transformation of Parex. The plan has to be submitted for the approval of the European Commission. The splitting off of assets and liabilities will begin once the European Commission gives its approval to the restructuring plan.

Hambro’s offer comes as possibly a front for Russian bank M2M’s owners. His group, VMHY, has already made an offer on Parex’s Private Asset Management subsidiary in Latvia, and on its AP Anlage und Privatbank subsidiary in Switzerland. VMHY is owned by four equal partners, including Hambro and the owners of M2M bank, Andrey Vdovin and Kirill Yakubovskiy (also founders of Expobank). It is for M2M bank that Hambro is allegedly fronting on the Parex offer.
The Russian connection may not play well with EU authorities, considering Latvia’s vulnerability due to its dire economic circumstances and business and political interests that may be turning to the East, possibly marginalizing the West’s strategic interests in the region. Three of Latvia’s eight Euro-MPs are pro-Kremlin; ex-Communist strongman Alfreds Rubiks is one of them, and “is backed by both ethnic Russians and disgusted post-capitalist Latvians,” reports

The post in 2009 said that “If the purpose of [lats] peg [to the euro] is in part to keep Putin’s Russia at bay by locking [Latvia] deeper into the EU Project, the strategic gamble has gone badly wrong. It has created a reservoir of Russian irredentism in both Latvia and Estonia that gives Moscow a pretext to intervene at any time. The Baltics are being offered to Putin on a platter.

“Russia is making its move on the Baltics and is focused on Latvia because of its financial importance. And they are doing it through proxy,” says the Web site.
Nordic bank Nordea this week announced its interest in the ‘good’ bank, but has refused further comment. U.S. investment bank Morgan Stanley & Co. International has expressed interest in buying the ‘bad’ parts of the bank.
Reuters sources say that Nordea is interested in acquiring Parex’s retail banking network, while Morgan Stanley is interested in buying the ‘problem’ assets. Morgan Stanley analysts consider that the Latvian government could recover from 50 - 75 percent of the money it put into the bank.

Other interest for the ‘good’ bank has come from DnB Nord, Poland’s PKO Bank Polski, Russia’s Alfa Bank, Germany’s Raiffeisen and Erste banks, and from financial investors. Currently, the Latvian state owns 76.6 percent of Parex while the EBRD controls 19.7 percent.