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Parex fails to find Western investor

  • 2001-08-30
  • TBT staff
RIGA - Parex, Latvia's largest commercial bank, has decided to give up the search for an international investor after failing to agree on a price with potential bidders, the British daily newspaper The Financial Times reported Aug. 22.

Parex bank no longer expects to find a strategic investor in the near future, said Valery Kargin, president and co-owner of Parex, bringing an end to the search for a Western European partner.

"Those investors who expressed a wish to buy part of the shares did not correspond to our expectations," said Kargin. "Basically, it was a question of the valuation of the cost of the group." Kargin blamed Western fears about Latvia's relations with Russia for the low valuations.

The small Baltic market is attractive to big Western groups only as an interface between the European Union and Russia, according to the bank's president.

Parex, which still runs a significant part of its business with clients from Russia and offshore, considers its ties with Russia an advantage, while Westerners see it as a great risk, some experts have observed.

"We continue to regard this project as critical to the long term development of the bank," Parex leaders said in their 2000 management report. Now, the failure of the sale will force Parex bank to find a new way to consolidate its position in the local market, for which there is fierce competition from Swedish-owned Pan-Baltic groups, according to The Financial Times.

This year, SEB and Swedbank, two Swedish banks with large Baltic portfolios, announced their intention to merge, thereby bringing Parex bank's main Latvian competitors under one roof.

But anti-monopoly action could also force the merging Swedes to put some Baltic holdings up for sale. Most analysts see Hansapank, the Swedbank-owned Estonian bank, as the prize Baltic asset and most appealing to international buyers should it come up for sale (see related article on page 14).

Some analysts say Western investors are more concerned about problems with transparency than security when dealing with Russian-related banking.

Last year, Parex hired ABN-Amro, the Dutch bank, to assist in the search for an investor and advise Parex on restructuring the group along more Western lines in the hope of making it more salable.

However, it will take time and effort to bring Parex up to Western standards. If the other top Latvian banks were already restructured a couple of years ago, in Parex "there is still a Soviet Union," as one of the banks' employees put it.

Parex bank started looking for a strategic investor early last year. In interviews the bank's managers mentioned preferable investors from the United States and Germany, but, according to unofficial information, the last bidder was ABN-Amro itself.

"We consider ourselves market leaders, so we made an offer to those international financial structures able and willing to enter this market in a number-one position, rather than just hoisting a flag and developing for many years," Gene Zolotarev, vice president of Parex, told the Riga-based Russian business daily Bizness&Baltija. "So the price under consideration is different and not everybody is ready to pay it."

The Parex Group consists of Parex bank, Parex brokerage company, an insurance company, leasing companies in Latvia and Lithuania, and Parex Bankas in Lithuania. Parex reported a net profit of 10 million lats ($16 million) in 2000 and interim results of 6.5 lats for the first seven months of 2001. In July, the bank's assets were 635.2 million lats. Parex bank employs 1,200 people.

Parex bank is 50.93 percent owned by Europe Holding Ltd., based in the Isle of Man, but its founders, Valery Kargin and Viktor Krasovitsky, each own 24.53 percent. The bank was built with profits made in Latvia's first officially sanctioned foreign currency exchange offices. It also enjoyed links with former members of the Komsomol organization and other Soviet-era structures. Throughout the former Soviet countries such people led the transformation from a centrally-planned economy to a market economy.