Ripplewood Holdings group named as Citadele buyer

  • 2014-10-01
  • From wire report

RIGA - The European Bank for Reconstruction and Development (EBRD) said it welcomes the decision by the government of Latvia to sell its stake in Citadele bank to a group of international investors led by the U.S. investment fund Ripplewood Holdings and Tim Collins, the founder and CEO of the fund, reports LETA.
“Transferring Citadele into private ownership is a big success for the bank and the country. Citadele bank is a strong financial institution in one of Europe’s fastest growing economies. Its sound business model and high standards of corporate governance have now attracted a leading investor who has expressed his long-term commitment to the bank,” said Jean-Marc Peterschmitt, EBRD managing director, Central and South Eastern Europe.

Strategic partner
“The EBRD welcomes the investor’s announcement and also intends, subject to approval of our board of directors, to contribute to the future development of Citadele by retaining our stake in the bank for the next phase of its development. We view Ripplewood Holdings as a good partner for the bank with a strategy that is consistent with that of the bank’s management and current shareholders,” Peterschmitt added.
The U.S. investment group plans to acquire the 75 percent stake in Citadele bank presently held by the government of Latvia, while the EBRD intends to remain as a shareholder in the bank.
The price has not yet been announced.

The EBRD joined the international community’s efforts to save Latvia from the impact of the global financial crisis when it became a shareholder in Parex bank, then the country’s second largest lender, after it collapsed in 2008.
The Latvian government since then has invested 1.7 billion euros in the bank. The bank’s collapse also worsened the country’s economic crisis as Latvia picked up its debts, which it couldn’t afford to do, and which led directly to the IMF and EU-led 7.5 billion euro bailout loan.
After restructuring the institution was split into Citadele bank – the ‘good’ bank – established in August 2010, which was prepared for re-privatization, while the troubled assets were transferred to the asset management company Reverta – the ‘bad’ bank.

The government announced its decision to sell to the Collins’ group on Sept. 16 after a comprehensive bidding process. The EU Commission had set a deadline for the privatization of Citadele bank by end-2014.
According to the government, the purchase agreement was expected to be signed by the end of September (after TBT went to press).

The big rush
But doubts remain as to the transparency of the deal, and potential new owners.
The Greens and Farmers’ Union board has decided to urge Prime Minister Laimdota Straujuma (Unity) explain to the public the purchase process of the bank, said party press secretary Dace Karklina.
Prime Minister Straujuma ought to do this in order to eliminate speculation, and stop the “spreading of delusional statements and allegations,” says the Greens and Farmers’ Union. The party feels that the deal is currently “entangled in a veil of secrecy” which is “fodder for speculation.”
The political party has also urged Straujuma to explain the government’s decision about the bank’s future.
“We expect to sign as soon as possible, we’re in a big hurry to sign it,” said Collins at a news conference, reports Bloomberg.

In a phone interview, he asserted, “This bank has got a platform for a lot of growth, and we are going to develop that.”
Citadele bank, the Baltic nation’s fifth-biggest lender by deposits competes in the market with banking majors that include Swedbank and SEB. Nordic lenders control about half of Latvian banking assets, according to the national banking association.

The sale price was expected to be disclosed, along with the roster of the other investors, at the end of September. The group includes Collins himself, and others “who invested with us from Tokyo to Cairo to London,” he said.
Ripplewood, which has bought banks in Japan and Egypt, beat out rivals including Norvik Banka and Yuri Shefler for the government’s support.
“Ripplewood Holdings seems to be a rather aggressive private equity firm, so a deal would certainly increase the competitive situation” in Latvia, Sven Kunsing, who manages 1 billion euros of eastern European assets for SEB, said by e-mail.

“As a strong institutional owner with a private-equity background isn’t a common sight in Baltic banking, this transaction could potentially be a game changer in all of the Baltics.”

Long term investors?
But the buyout won’t be done by the private equity fund; instead, it will be done as a purchase by individuals.
The Wall Street Journal wrote: “Mr. Collins said his company, Ripplewood Holdings, wasn’t a buyer of Citadele, but that his family would acquire 25 percent of the bank, while a group of ‘famous and successful investors,’ who he would represent, would buy 50 percent plus one share. The remaining 25 percent of Citadele will still be owned by the European Bank for Reconstruction and Development.”

The identities of these famous investors has not yet been disclosed either.
Collins’ reasoning on buying the bank outside of the equity fund? “This investment is different... I decided that to have a longer term horizon I would invest with my colleagues directly and without the constraints of a private equity fund,” Collins said.

“This is my capital and my colleagues’ capital,” he notes.
Though the price for the bank hasn’t been announced, maybe not even finalized, the Latvian portal wrote that the government could sell its shares for 74 million euros, according to a copy of the Ripplewood Holdings offer posted on the site.

The offer indicates a full value of the bank at 98.6 million euros.
Prime Minister Straujuma, though, previously told the Latvian Television show ‘Rita panorama’ that Citadele bank will be sold for a much higher price than that named by the financial consultant.
According to Pietiek, the price the investor group hoped for ranged between 90 - 100 million euros, significantly below the price the government mentioned as the minimum for the state not to suffer losses – 113 million euros.
This is because Ripplewood, upon a closer look at the bank’s financial results, decided that the data demonstrates worse financial results than the government has claimed.

Process review
The Corruption Prevention Bureau (CPB) now says it will look into the sale process, confirmed CPB spokeswoman Laura Dusa. She says that the CPB has received a claim from MP Andrejs Elksnins (Harmony Center), and that the bureau will examine the information provided.

The Prosecutor General’s Office has also received Elksnins’ claim, office spokeswoman Una Reke confirmed to LETA. The Prosecutor General’s Office will also get acquainted with the available information before deciding on further action.
In an interview on Latvian Radio on Sept. 23, Bank of Latvia President Ilmars Rimsevics said that incoming U.S. capital will strengthen the Latvian banking system. He said that with the entrance of Ripplewood Holdings into the Latvian banking system, the system will not only become more varied, but also reduce the flow of criminal money through state financial channels.

Rimsevics added that additional stability to the financial institution will be ensured by its engagement in the U.S. market.
Hopes are high that with this deal, the Latvian government can finally rid itself of a great and costly burden it took on at the start of the global crisis, and get out of the banking business at the same time.