Recovering Parex investments a ‘long shot’

  • 2010-08-18
  • Staff and wire reports

RIGA - It will be a “miracle” if Parex bank is sold anytime soon, said the bank’s new CEO Chris Gwilliam in an interview, reports Gwilliam believes though that selling the bank is less important than recovering the money that the state has invested into it.

Although several potential buyers have inquired about Parex shares, the prices that they offered were not good enough. The main emphasis must be laid not on selling the bank though, but on recovering the money that the state has invested in the bank. This can only be done through maximizing the value of the bank’s assets. Selling the bank is not realistic at the moment, said Gwilliam.

He also said that the restructured Parex bank had been left with only the problem assets, therefore, the debt collection process would have to be “optimized.” Selling the problem loans to other investors could be less advantageous than keeping them until the economic recovery is over and the debtors become solvent again, he speculates.

If the borrowers will still be unable to pay their debts, Parex bank will consider selling these assets, taking into account the market situation. Either way, the situation will be appraised and all the necessary calculations will be made before these assets are sold, said Gwilliam.

According to Gwilliam, analyses of the current situation suggests that now is not the right time for selling the bank’s distressed assets. It is very unlikely that a buyer would show up prepared to pay out a large sum of money that would be enough to cover all that the state has invested in it, he added.

However, looking past these difficulties, the future of Parex, after it achieves its objective of recovering the money invested in it by the state, is difficult to predict, and it may even cease its activity, notes Gwilliam. He refrains from predicting what would happen to Parex after it had reached its objective, indicating that “this is a solutions bank and the end result could be anything.”

In a similar company which Gwilliam worked for in London, the last employee who was left to turn off the lights and close the doors in the end acquired the company’s remaining assets and continued its operations, despite the plan being to close it down, said Gwilliam, adding that it was too early to predict such a scenario for Parex. There’s still a long way to go, he says.

Looking back to the 17th and 18th centuries, companies then were created to carry out just one project. For example, a person founded a glass-production company, invested money in it, worked for a few years, earned some profit and closed the factory. However, with time people began to understand that entrepreneurship could also be profitable in the long term, and later companies began to live longer than people. Waxing philosophic, Gwilliam says that companies do not have to work forever. Sometimes banks cease their activity.

The new Parex is also going after the old bank chiefs in its effort to reclaim lost funds. The Riga Regional Court on Aug. 16 decided to secure the claim by the bank against its former owners and board members Valerijs Kargins and Viktors Krasovickis for compensation of more than 62 million lats (88.5 million euros) for losses incurred while the two were in office.

In accordance with the court’s decision, seizure will be made of real estate, moveable property, payments from third persons, cash and deposits which belong to Kargins and Krasovickis. This includes payments made by third persons and money held in financial institutions, including Parex bank. The ruling means that the two will no longer receive significant interest payments on their deposits in Parex.

Judge Gvido Ungurs has been appointed to preside over the case.
Parex bank on July 30 filed a suit in court against these two former board members, seeking to collect compensation for losses caused to the bank when they were in office, said the head of the bank’s communications department, Indra Zinkevica.

“The bank has analyzed loan and deposit agreements that were concluded between January 1, 1995, and December 5, 2008, between the bank and its two former board members, who were also the bank’s majority shareholders, as well as with other persons related them. The bank has identified a series of transactions which were concluded in violation of the bank’s interests. Terms applied to the bank were particularly disadvantageous and much different than those which would usually apply to agreements concluded by unrelated parties,” Zinkevica explained.

She also points out that analysis of these transactions shows that during the stated period, the two former board members enriched themselves at the bank’s expense.
These conclusions are based on a legal and financial audit and a detailed and competent analysis of the circumstances which have prevailed. The audit and analysis was done at the bank’s request by financial and legal consultants from Latvia and abroad - the legal firm Herbert Smith LLP (London), the auditing company KPMG (London), and the legal firm of Eversheds Bitans (Latvia).

“It is of key importance that, according to the information that is at the bank’s disposal, the stated agreements were concluded in a way which represented a conflict of interest for Kargins and Krasovickis, while also violating a number of legal norms,” said Zinkevica.

As part of the lawsuit, the bank is also seeking compensation from Kargins and Krasovickis for losses related to violations of the investment agreement that was concluded in November 2008. The government took over the capital shares of Kargins and Krasovickis on Dec. 5, 2008.

Since the end of 2008, the state has invested around 800 million lats in order to save the bank, and Latvia’s banking system at the time. According to Gwilliam, these investments should be recovered by 2017, at the latest.