Lithuania to sell last state-owned bank in Baltics

Baltic Business Weekly, VILNIUS - The privatization tender for Lithuania's last state-owned bank, the agricultural bank Lietuvos Zemes Ukio Bankas, was announced in the international business daily Financial Times on August 14. Under the privatization program, approved by the Lithuanian government on August 8, potential investors will be able to submit their bid documents during the period from September 13 to October 3. The applications will be considered on October 3.

This is the third time in as many years that LZUB has been offered for sale, however, now it has a much better chance to succeed mainly due to growing competition on the market by international players. LZUB is the third-largest Lithuanian bank and is in fact the last big remaining state-owned bank in all three Baltic countries. A potential investor in LZUB must have a long-term foreign currency rating of at least BBB, assigned by the international rating agency Fitch, or a corresponding rating assigned by the international agencies Standard & Poor's or Moody's, and it must maintain the minimum equity requirement of $150 million.

The program's terms, approved by the government, restrict Lithuanian banks from participating in the tender. Vilniaus Bankas, the country's largest commercial bank, is the only bank with an equity amount above the required level ($153.5 million), but its credit rating is only BBB-.

Just days before the program was approved, Snoras, Lithuania's fourth-largest commercial bank, had announced its intention to acquire LZUB.

According to the daily Lietuvos Rytas, Snoras has found supporters among the Parliament's Social Democrats presently in power and is trying to push the idea of a Snoras and LZUB merger. Snoras does not meet the major qualification requirements stipulated in the scenario, as it has only a BB- rating, assigned by Thomson Bank Watch. Moreover, Snoras' equity comes to just $35.2 million. In spite of this, the government is reviewing Snoras' offer in which it would not privatize LZUB but instead affiliate itself with or lease it from the state for a period of 10 years.

The program provides that if the bidder for LZUB is an insurance company or any other financial institution, it should have at least 10 years of banking experience, and if it is a consortium, its leader must comply with the above requirements and control at least 70 percent of the votes. The privatization agreement also stipulates that the purchaser must retain at least 75 percent of jobs in LZUB over the next year. Currently, the bank has a staff of 1,677 employees. Milasauskas said that at best the bank could be sold in late 2001, but he did not rule out the possibility that it might not happen until the first quarter of 2002.

Milasauskas said there are 4 or 5 potential investors in LZUB. Reportedly, the Finnish financial concern Sampo-Leonia, Poland's Bank Handlowy, a subsidiary of U.S.-based Citibank, Germany's Nord L/B as well as the French banks Societe Generale and Credit Agricole are interested in acquiring a stake in LZUB. Baltic bankers have widely speculated that German banks would one day launch an aggressive onslaught on the Baltic market to counterbalance the Swedish influence here.

Nord/LB is the owner of the small Latvian Pirma Banka (formerly Pirma Latvijas Komercbanka) while a branch of Nord/LB is currently operating in Lithuania. The state owns 76.01 percent of shares in LZUB. The nominal value of this stake is 78.1 million litas ($19.5 million). LZUB, which is ranked third in terms of assets (1.7 billion litas), posted an unaudited net profit of 12.1 million litas for the first half of this year. In 2000, the bank had a net profit of 3.9 million litas and had an 11.5 percent share of the total deposits, with a 15 percent share of the loan market.

LZUB has 46 branches and in this respect is ranked second after the savings bank Taupomasis Bankas which was recently taken over by Swedbank-controlled Estonian Hansapank. In attempts to sell LZUB in 1998, Latvian Parex Bank, the only bidder, offered 2 million litas for the shares, but officials rejected the bid as too low. The government announced the new tender to sell LZUB in April 2000, with a view to signing a deal by the end of September. A consortium comprising of Poland's Pekao SA and Italy's UniCredito Italiano submitted the only bid to acquire the stake and were invited to negotiate. Pekao SA, Poland's fourth-largest bank, is controlled by UniCredito. According to the press, Pekao and UniCredito were ready to pay 107 million litas for a 76 percent stake, approximately 130 litas per share, with a face value of 95 litas. However, the talks dragged on and the consortium withdrew from negotiations in November. It is believed that UniCredito Italiano, which is rapidly expanding in Central Europe, was forced to abandon its investment plans in Lithuania due to its acquisitions in other countries. Italy's central bank reportedly became concerned about the possible effects of the expansion on UniCredito's financial strength.

Nord/LB did not take part in the second privatization tender and reportedly wanted to hold direct negotiations. According to unofficial data, the Germans were offering a lower price.