Disgruntled shareholders claim rights

RIGA - Seven Parex bank minority shareholders sent an open letter on Feb. 22 to Prime Minister Valdis Dombrovskis (Unity), several ministers and the Latvian Privatization Agency, asking the Latvian government to take action to protect the investments made by Parex Bank minority shareholders, reports Nozare.lv. The minority shareholders want a dialogue to begin between them and the state of Latvia, say the bunch.

The minority shareholders claim that their rights are being infringed upon, which is why they have also requested assistance from the United States, Swedish and Belgian governments regarding violations of bilateral investment protection agreements signed by the state of Latvia, and will also file a complaint with the European Commission.

In their letters to the foreign governments, Parex Bank minority shareholders request that an international arbitration be started so they could receive compensation from the state of Latvia over minority shareholders’ investments.
The shareholders realize that the state of Latvia has to try to recover its money invested in Parex Bank, however, this cannot justify actions by the state of Latvia or Parex bank management that violate minority shareholders’ rights, as they note in the letter. The value of investment by Parex Bank minority shareholders has reduced significantly since the government bailed the bank out in 2008.

The transfer of Parex Bank so-called ‘good’ assets to Citadele Bank was also done without the minority shareholders’ consent.
Parex Bank was taken over by the Latvian government in 2008 as the bank collapsed at the height of the global financial crisis. Parex suffered from poor management and high risk-taking policies for years, as it borrowed huge sums in syndicated loans from Western banks and, in turn, made questionable loans to its customers with this money. When the economy collapsed, the Latvian state had to step in, guarantee and pay off these borrowings, now at taxpayer expense.

These minority shareholders may have been negligent during Latvia’s economic boom years, as owners in Parex, due to their lack of sufficient oversight of borrowing and lending operations which led to its crisis.
In cases such as this, looking to Bear Stearns or Lehman Brothers in the U.S., equity holders are generally fully wiped out of their ownership, or end up with very little interest in the bank after a meltdown.

The minority shareholders state in the letter that, unfortunately, the government, in “destroying Parex bank,” did not take into consideration that this would have a negative effect on almost all key foreign portfolio investors that had shown interest in Latvia, and the government did not offer them any kind of compensation.

Nevertheless, their shares would have been close to worthless after the bank collapsed.
The statement also says that the minority shareholders had attempted to start a constructive dialogue with the government and nominated a representative to work on the Parex Bank council. The investment funds also insist that they were prepared to invest extra capital in the bank.

Parex was taken over by the state and split into a new retail bank called Citadele and a resolution bank which plans to sell off non-performing assets. Latvia poured 1.1 billion lats (1.5 billion euros) of state guarantees, capital and liquidity support into Parex after the state rescue, which forced the country to turn to a group led by the European Commission and the International Monetary Fund for a 7.5 billion euro bailout loan facility, reports Bloomberg.
Minority shareholders’ stakes in the bank dropped to 2 percent from 8 percent. They were not allowed to purchase new shares or decide on capital increases, they complained in the statement.

The letter to Dombrovskis, Economy Minister Artis Kampars (Unity), Justice Minister Aigars Stokenbergs (Unity), Foreign Minister Girts Valdis Kristovskis (Unity) and the Privatization Agency has been sent by international investment funds Amber Trust, KJK Fund, Firebird Republics Fund, Firebird New Russia Fund, Firebird Avrora Fund, as well as East Capital and East Capital Asset Management on behalf of their investment funds in Russia and Eastern Europe.