Wanted: An army of white knights

RIGA - Salvation Army administrator Maj. David Young can't pay the 10-lat fine the charity got for failing to clear snow off the back of its building. Young was upset and beside himself on the afternoon of March 12.

"I told them I can't pay because all of our money is in Rigas Komercbanka," Young said.

"This is terrible and unbelievable. It's about 47,000 lats ($84,000) we stand to lose. This isn't Latvian money. This is donated money in three or four currencies. It puts us in an embarrassing situation because we are accountable to our donors. They may think Latvia is unstable and decline to support any more programs."

Young and his staff need the money now to operate the agency's home for street children and six soup kitchens throughout Latvia. The charity runs a clinic for mothers and babies and distributes clothes, books and shoes.

Donations from Europe and the United States are building a new boys' home to replace the modest make-do one Young and his staff started three years ago as a temporary refuge for homeless boys. Young needs 25,000 lats right away to give to a builder to buy supplies for summer construction, he said.

He is not alone. Other charities and nonprofit groups stand to have their money in limbo for some time while Rigas Komercbanka undertakes recovery or liquidation.

Also in Rigas Komercbanka, behind locked doors, is 43,000 lats collected by a committee to restore Riga's centerpiece, the Freedom Monument, which has been standing since the '30s.

Also on hold is money belonging to a building project for Talsi Christian School, another construction fund for a school in Madona district, and nongovernmental organizations. The government of Latvia has 50,000 lats to 100,000 lats in RKB, Bank of Latvia Governor Einars Repse told reporters March 10. Latvia's budget administrators will wait in line with other depositors.

School finances officer Aldis Baumanis of the Education Ministry will have a list of frozen school accounts by the end of the week, he said.

"Regular school budgets are not affected, but a number of schools have money for special building projects in the bank. I have asked RKB for a list."

The Bank of Latvia ordered the bank to suspend its operations March 7 because it had no agreement from investors and creditors to raise necessary capital. The bank's assets exceed its liabilities.

That RKB will find a white knight investor to save it and all its depositors' money is unlikely, Repse told reporters March 12. The central bank has been working with RKB since August when the Russian crisis severely damaged its balance sheet. Involvement in Russian treasury bills and currency deals, thought to be at 14 percent of assets, has turned out to be double that amount, leaving RKB unable to write off about $45 million it invested in Russia from borrowed money, said Teodors Tverijons of the Latvian Commercial Banks Association.

After the earlier crisis, the Bank of Latvia came to the rescue with a credit line.

"The Bank of Latvia loaned Riga Komercbanka 20 million lats then. At this point, the liquidity is at its worst. More loans wouldn't help," Repse said.

In a meeting in London about two weeks ago, Repse reached a preliminary agreement with creditors and investors to keep the bank in operation, but the plan stopped in its tracks.

"We didn't receive confirmation of formal acceptance. This created a new situation, when on March 6 the Bank of Latvia had to decide to stop the bank's operations and to submit a claim to Riga District Court for insolvency," Repse said. "Not all solutions have been applied, but I am not too positive about the bank's prognosis."

Meanwhile, Young has appealed to Repse to get the Salvation Army's money back. He wrote a letter to the governor as soon as he found out the central bank board had closed RKB. Then he asked the Salvation Army's regional office in Sweden to fire off another letter to Repse. He is sitting tight, waiting for an answer.

"I just hope Mr. Repse will be sensitive to our needs, and the needs of the people we serve."

The Latvian Freedom Monument Restoration Foundation is also writing to Repse to ask for his help in getting their donations unlocked.

It is doubtful that Repse himself can be a white knight. Latvia's law on bank deposits in such cases allows private persons to get up to 500 lats reimbursed. Shortly after the closure, Repse moved pensions RKB was holding for people in Valmiera and Liepaja into the kitty with primary investors and allowed them to be paid by applying the private persons principle. Rigas Komercbanka immediately began to deliver the payments to about 10,000 pensioners at home.

Repse said that the law rules out including any other deposits in the first group

"The Bank of Latvia cannot legally go for other compromises for school budgets, institutions and hospitals," he said. "If we allow Rigas Komercbanka to pay in one case, there will not be enough money for someone else. There will be charges of favoritism."

Some small businesses have their money in the deep freeze. One is the seafood processor Banga with a factory in Roja on the northwest shore of the Gulf of Riga.

Banga has 17,000 lats, a month's payroll and social taxes for its factory workers, on deposit with RKB.

"It is not the banks' but the government's fault. Our government can't guarantee the safety of money in the bank for private persons or businesses. We have not so good a feeling about banks," said Jurijs Martinovics of Banga Seafoods, Banga's daughter company.

Keeping Banga Seafood money safe requires shopping for banks frequently, Martinovics said. "There are a few which can work at an acceptable level, but it changes. We had a local bank in Roja. We felt comfortable. But it is now not so stable, so we have put our money in Vereinsbank in Riga."

Depositors have pulled 73 million lats out of Rigas Komercbanka since August, so why did the Salvation Army leave their money?

Young said he thought of yanking it out when depositors lined up to withdraw theirs in August, but the Salvation Army's accountant found that the agency could draw out its own money only to meet payroll and to pay authentic invoices.

"Then the bank stabilized. It seemed like it was OK," he said. "Then a couple of weeks ago we started hearing things, so we paid accounts. We were told it was not urgent. The bank showed the accountant that everything was OK."