Controversial Citadele bank sales agreement signed

A sales agreement between the Latvian Privatization Agency and U.S. fund Ripplewood Holdings for the purchase of state shares in Citadele was signed today.

The agreement signed today in Riga revealed Citadele shares would be sold for around 74 million euros, 75 percent of the banks shares. The Citadele sale agreement stipulates that Ripplewood Holdings will be able to sell the shares in two years time.

The Privatization Agency currently owns 75 percent of shares in Citadele whilst 25 percent belongs to the European Bank for Reconstruction and Development.

An original sale agreement between the Privatization Agency and "Ripplewood Holdings" was originally to be signed on October 31.

However, due to the agency's board stepping down, the signing of the agreement was postponed. Former CEO of the Privatization Agency, Ansis Spridzans previously said  he was against the government's decision to sign the agreement on selling the bank and believes that it was possible to continue discussions in order to improve the terms of the agreement.

A new board was elected at the Privatization Agency this week - Vladimirs Loginovs and Girts Freibergs. Thus, the Privatization Agency became fully functional and able to sign the "Citadele" sale agreement.

In 2008, joint-stock Parex banka was the second largest bank in Latvia with total assets of 4.9 billion euros. It had been very active in the Commonwealth of Independent States, which was severely hit by the financial crisis. This resulted in a loss of confidence in "Parex" and a subsequent run on the bank in 2008, with a 36 percent fall in deposits as compared to end 2007.

In November 2008, Latvia notified a package of rescue measures in favor of "Parex". The Commission temporarily approved the measures in November 2008 based on Latvia's commitment to submit a restructuring plan. In May 2009, the Commission approved amendments to one of the measures.

In July 2010, Latvia notified a restructuring plan for Parex, which the Commission approved in September 2010. The plan included a split of "'Parex'" into a newly established "good" bank, "Citadele banka", taking over all core and some non-core assets, and a "bad bank" ("Parex", later renamed "Reverta"), which kept the remaining non-core and non-performing assets. In August 2012, the Commission approved amendments to the restructuring plan.

The agreement with the European Commission stipulates that Citadele must be sold before the end of 2014. If the Latvian government fails to do so, the European Commission will most likely take over the process and sell the bank swiftly and - most probably - for a very low price.