The Estonian central bank council revoked EVEA Pank's license Oct. 1. The next day, the Tallinn City Court started bankruptcy procedings against the institution, the fifth largest in Estonia.
The council based its decision on a Banking Inspectorate report showing that EVEA Pank did not meet the requirements for minimum net assets, mandatory reserve and capital adequacy.
The Bank of Estonia concluded the bank could not meet all creditors' claims in full. On the day the central bank revoked the EVEA Pak's licence, the bank could not fulfill the State Treasury's order of 20 million kroons ($1.4 million).
The central bank found a gap of about 150 million kroons when assessing EVEA Pank's assets on the balance sheet. It had overvalued its security portfolio, especially those securities related to Russia, by 100 million kroons.
The central bank's decision to close EVEA Pank surprised Anatoly Beilinson, the bank's loans and marketing director. Beilinson said the Bank of Estonia had not held any talks with EVEA about the bankruptcy. The EVEA Pank had only discussed the Russian crisis with the central bank, he said.
The bank even held a planned extraordinary meeting of shareholders Oct. 3 to discuss the extension of the bank's stock capital.
The bank's council offered Italian investor Ernesto Preatoni 60 percent of the bank's share capital for 125 million kroons, but he declined the offer. Preatoni said 125 million kroons would not be enough to pull the bank out of bankruptcy. Its current share capital is 75 million kroons.
Now the bank's officials claim they have found other international investors who are prepared to invest 60 million kroons in the bank to make sure that short-term commitments are met. The bank representatives say foreign investors will also acquire 12.5 million shares for 125 million kroons, which would ensure the bank's complete reliability.
The closing price of EVEA Pank's share was 15.50 kroons Oct. 1, the next day trading with the bank's shares was suspended.
The shareholders authorized the bank's council and board to conclude talks with new investors within two weeks and call a new shareholders' meeting on Oct. 17 to decide the stock capital extension and the issue of 12.5 million shares.
According to a Bank of Estonia spokesman, the enlargement of stock capital would have been a positive sign if this had happened before Oct. 1. Now the bank has to apply for a new license if it manages to find a new investor.
Unlike EVEA Pank officials, the central bank does not believe that after the increase of share capital the bank would have a good potential.
A Bank of Estonia press release said they took this step to avoid crisis, back the interests of depositors and preserve local and international faith in the Estonian economic and fiscal policy.
The law on Deposits Guarantee Fund guarantees deposits up to 20,000 kroons. The bank has about 615 million kroons of private deposits and about 500 million kroons of other claims. The government holds about 7.5 percent of its deposits in EVEA Pank.
The bank's assets at the end of August totaled 942 million kroons and the bank earned 5.4 million kroons profit for the first eight months this year.