Krajbanka in whirlwind of conspiracy theories

RIGA - The decision by the government to take over the 47.2 percent of airBaltic shares, which were held as collateral in Latvijas Krajbanka, is not in the interest of Krajbanka creditors and depositors, says Riga City Council, reports LETA. The municipality, which had 10 million lats (14.2 million euros) in unsecured deposits in the bank, much of which may be lost, wants to see the government’s decision revoked.

Riga City Council will turn to the bank’s administrator, claiming that the deal be called off, to instead find a buyer for airBaltic shares, someone who would be ready to buy them for as high a price as possible. Considering that the airline is in financial and operational difficulties and is losing money, there is no guarantee that a higher price can be achieved.
Krajbanka’s decision to sell the stake in airBaltic to the government, for just 224,453 lats (the nominal value of the shares) may be seen as damaging to the other Krajbanka creditors, including Latvian businesses, local governments, municipal and state companies, believes the city council. The government has in fact made a decision to bail out one company - airBaltic - at the expense of all bank depositors and creditors, thereby reducing their chances of getting their money back. This decision may be interpreted as a gross violation of the law, which is why the Riga City Council will turn to the bank’s administrator, claiming that the decision on selling airBaltic shares to the government be revoked, and other opportunities considered for rescuing the airline.

It may be, however, that the city council was negligent in not being more careful or diligent in deciding which bank to keep these funds in.
The Transport Ministry, saying it was using its pre-emptive right, last week bought airBaltic shares that previously belonged to the airline’s now-former minority shareholder Baltijas Aviacijas Sistemas (BAS), but were pledged as security at Krajbanka for loans. The public was told that this was done to ensure efficient protection of Krajbanka depositor interests and prevent a decrease in the value of the bank’s assets. The state now holds 99.8 percent of airBaltic shares.

One issue this raises is: how could the bank sell the collateral (the shares), instead of the loan, if the loan was still considered ‘good,’ as BAS part-owner and former airBaltic president Bertolt Flick claims.
Riga City Council continues, though mistakenly, stating that “As far as we know, 47.2 percent of airBaltic shares were pledged as security with Latvijas Krajbanka for several loans worth dozens of millions altogether, including 15 million lats meant for increasing the airline’s share capital. Therefore, the price of the security should have been determined not according to the nominal value of the shares, but the amount of the loans.”

Not so. The value of the shares is not dependent on the “amount of the loans,” but rather on the value of the underlying assets of the airline, as a going concern. The loans may very well be worthless, or much less than their face value. Any current valuation of airBaltic shares has to take into consideration the airline’s money-losing status, and the massive investment likely needed to bring it to profitability. Therefore, the 47.2 percent may, in actuality, be worth very little.
Riga City Council highlights its ignorance again when it claims that 47.2 percent of airBaltic shares “do not cost 224,453 lats, but at least 50 million lats.” Therefore, Krajbanka unsecured creditors “may suffer substantial losses.”

They may suffer substantial losses, but it was they (unsecured creditors) who, at their own risk, invested money into Krajbanka. They seem not to have done proper due diligence on the bank or its owners before putting their money into it. The Latvian government has no obligation to ‘bail them out,’ with taxpayer money, for their mistakes.

The council notes that the Financial and Capital Market Commission announced that it would file for Krajbanka’s insolvency on Nov. 28; however, this was only done in the afternoon of Dec. 1, which indicates that the Commission had been waiting for the government to buy airBaltic shares, because after insolvency procedures commenced, no transactions with Krajbanka property would be permitted.