Regulators move to take over Snoras Bank

  • 2011-11-24
  • From wire reports

VILNIUS - Alleged irregularities found during an inspection at Lithuania’s fifth largest bank - Snoras Bank - including false accounting, forgery, abusive acts, misappropriation of assets and money laundering, says the central bank, have led to the state installing a temporary administrator as it moved in to take over control of operations. No allegations have been officially brought against anyone yet, and the bank has announced that it is ready to cooperate with law enforcement institutions, reports ELTA.

President Dalia Grybauskaite signed the legal acts necessary for the restructuring of the bank, which were adopted by the Seimas last Thursday. The Seimas adopted amendments to such laws as the Law on Insurance of Deposits and Liabilities to Investors, the Law on Banks and others to allow restructuring the problem bank into a new state bank so that it could continue its operations. The amendments were approved by 77 MPs to one, with four abstentions.
Though the bank reopened its doors on Nov. 17 allowing transfers and withdrawels of up to 500 litas (144.7 euros) a day from each account by payment card, authorities now say the situation is worse than expected. According to central bank data, there are more financial irregularities and fewer assets than initially reported.
Snoras had repeatedly ignored requests for more information from authorities and warnings to reduce its risk levels and halt “irresponsible behavior.”

Lithuania’s banking regulator initially warned that hundreds of millions of dollars in assets may be missing from Snoras, which the government fears may be insolvent, reports Bloomberg. More than
1 billion litas of assets may be unaccounted for, central bank Governor Vitas Vasiliauskas said on Nov. 16.

The bank’s collapse comes at an inopportune time - the Baltic region is recovering from the worst recession in the European Union - and follows on the heels of Latvia’s Parex Bank’s implosion in 2008, which forced a rescue where the state had to turn to an international group of lenders for a 7.5 billion euro bailout package, in part to protect against a run on deposits.
With 5.6 billion euros in foreign-currency reserves, Lithuania can handle the takeover of Snoras, the country’s largest locally owned bank, according to DnB Bank economist Jekaterina Rojaka. “This isn’t a systemic problem for the banking sector,” Rojaka said in a telephone interview from Vilnius. Still, “the situation requires speedy and smooth action to contain panic and prevent a fall in government bonds.”

Lithuania’s 10-year dollar bond declined upon the news, sending the yield 4 basis points (0.04 percent) higher to 6.26 percent, the highest since Oct. 14.
The takeover won’t have “a substantial effect” on the economy because “this is a problem of one bank and it’s possible to solve the problem with minimal costs for taxpayers,” Finance Minister Ingrida Simonyte told LNK television.
Prime Minister Andrius Kubilius said he doesn’t plan to ask the International Monetary Fund or other international lenders for financial help.

Snoras, which competes with Scandinavian lenders including SEB, Swedbank and Nordea, also controls investment bank Finasta and Latvian lender Latvijas Krajbanka. It held 6.05 billion litas in deposits and had assets of 8.14 billion litas at the end of September, according to the Lithuanian Banking Association. The government guarantees bank deposits of up to 100,000 euros each.

“The decision was taken to effectively protect the interests of the bank’s clients and the public interest to ensure confidence in the domestic banking system and its stability,” the central bank said.
Snoras “ignored the instructions of the Bank of Lithuania to reduce operational risks” and made no changes to its business activities following advice from the central bank, the regulator said. The lender also “avoided providing information needed for supervisory purposes,” according to the central bank, which said “there are indications that information submitted to the supervisory institution was false.”

Some of the property owned by the heads of Snoras Bank has already been seized, a prosecutor said on Nov. 17. “Homes of the people who allegedly contributed to the illegal activities of Snoras were seized. At the moment, foreign assets of natural persons are being sought,” Deputy Prosecutor General Darius Raulusaitis said.

Prosecutors started collecting evidence for the investigation into possible fraud and embezzlement on Nov. 9, after receiving a report about the situation at Snoras from the central bank. They are also looking into a news report about the situation in Lithuanian banks and its influence on Snoras which was published in one of the dailies on Tuesday last week.
Some securities reported as assets by the bank don’t exist, the regulator said. “An investigation will show how responsible a commercial bank it was and how much of it was a vehicle for shady financial dealings,” added Kubilius.

Lawmakers approved legislation on Nov. 17 allowing the government to split Snoras into two banks, with good and bad assets. The bad bank plans to file for protection from creditors, while the government will seek an investor for the good bank with healthy assets and insured deposits “as soon as possible,” the Finance Ministry said on Nov. 18. No public money will be required to save Snoras because the bank has sufficient assets to cover insured deposits, the ministry said. Uninsured liabilities such as bonds will receive “a substantial haircut,” it added.

Kubilius has also urged the President of the Bank Raimondas Baranauskas to return to Lithuania and explain the disappearance of a billion litas that was invested in securities. It is estimated that over 80 percent of the companies having accounts and deposits at Snoras have assets under the insured amount of 100,000 euros. More than 200 companies hold accounts which exceed this sum. In total, Snoras has 4.2 billion litas in insured deposits guaranteed by the state.
Regarding other banks, Kubilius said that the state takeover of a leading bank was a limited problem and other banks were “safe.”

As spokesperson from the Snoras-owned Latvijas Krajbanka (LK) Dace Duze, explained that the decisions pertain only to Snoras in Lithuania, and “will have no impact on LK operations in Latvia.”    

Nonetheless, Latvia’s Financial and Capital Market’s Commission Monday evening decided to suspend all of the financial services provided by Latvijas Krajbanka. The decision was taken as a large amount of money - about 100 million lats (142 million euros) - was missing from the bank and the Financial and Capital Market’s Commission has notified the prosecutor’s office.

The bank’s board and council were also suspended, replaced by a group of the Financial and Capital Market Commission’s proxies to manage it. The commission’s deputy chairman Janis Brazovskis will head the proxy group.
CEO Ivars Prieditis is being held in custody.
Latvijas Krajbanka is the 10th largest bank in Latvia by market share, with an extensive branch network. Snoras and Krajbanka are also important backers of Baltic Aviation Systems, which in turn owns 47.2 percent in the state-controlled Latvian flag carrier airBaltic.

Financial consultant IBS Prudentia partner Girts Rungainis said that “there should be no impact on the stability of Latvia’s banking and financial systems.” He points out that there will be changes, however, connected to Krajbanka’s ownership. “Right now, Krajbanka is owned by the Lithuanian state,” he adds.
Estonians have 7.8 million euros of deposits in the Estonian branch office of Snoras, reports Postimees Online. The Estonian Financial Supervision Authority (FSA) said that deposits in EU banks plus accumulated interest are guaranteed on the basis of an EU directive.

Snoras’ Tallinn office was closed early this week. The manager of the branch office, Igor Novakov, refused any comments, referring to orders from head office.
Temporary administrator Simon Freakley, Zolfo Cooper LLP senior partner, was appointed to take over the functions of the Snoras Supervisory Council, its board and heads of its administration. The administrator has the task to perform additional analysis and evaluation of the bank’s financial situation and possibilities for implementing effective measures to protect the interests of the depositors, other creditors and clients, as well as ensure the stability and reliability of the entire banking system.

Snoras is 68.1 percent-owned by Vladimir Antonov, a 36-year-old Russian who resides primarily in London and is the controlling shareholder of Portsmouth Football Club, with a 75 percent stake. Antonov was barred from investing in Sweden’s Saab Automobile in July by the European Investment Bank, which didn’t give a reason for its decision. The U.K.’s Financial Services Authority denied Snoras permission to operate in Britain because the bank’s executives withheld information, calling the tactic “an ongoing pattern of behavior by institutions controlled by Mr. Antonov” in a February 2009 statement.
Snoras’ other main shareholder is Raimondas Baranauskas (Lithuanian) with 25.31 percent.

The bank is the 5th biggest by assets and the biggest non-Western European capital bank by assets in Lithuania.