The State Property Fund said it would not recognize the only bidder, reportedly Germany's Norddeutsche Landesbank (NORD/LB), as winner of the privatization tender, unless the institution improved its initial offer. Officials hinted that even if direct negotiations are begun with the foreign investor, they will likely not be fast or easy.
"The application for the tender did not fully meet the requirements, so the tender commission decided to give the potential investor a chance to revise it," Antanas Malikenas, privatization director at the State Property Fund, told The Baltic Times on Oct. 15. "By law they have up to 30 days to do so, but we expect an answer within the week," he added.
Neither the Property Fund nor the German bank has confirmed or denied press reports that NORD/LB is in fact the bidder. The Nordic institutions Sampo and Nordea, and Austria's RZB Bank had also purchased tender documentation and were eligible to bid. "This is still in process and we can't make any comment," a NORD/LB spokesman in Hanover said.
Local press reports said NORD/LB was offering significantly less than the 107 million litas ($26.75 million) reportedly offered for the same stake last year by a consortium of Italy's UniCredito Italiano and Poland's Bank Pekao. Those banks ultimately pulled out of negotiations.
In the fall of 1998, an initial tender to privatize the bank collapsed when Latvia's Parex Bank submitted the only bid, which Lithuanian officials said was ridiculously small.
Malikenas said he hoped the new potential buyer agreed to raise the price it was offering, though this was not technically required to win the tender and enter direct negotiations. He said Lithuania had nothing to gain from rushing the process or setting strict deadlines, as this would only help the buyer knock the price down further. The government has been hoping to complete this sale of the last state bank by year-end in order to receive payment in the first quarter of 2002.
Analysts said Zemes Ukio Bankas was rather different from the local savings bank Taupomasis Bankas, which the Lithuanian state sold to the Estonia-based but Swedish-owned Hansapank in early summer. A market share of about 15 percent makes it only half as big, though its finances and management are thought to be in better shape.
Zemes Ukio Bankas boasts the second most extensive branch network in Lithuania and has made a name for itself in leasing and trading Lithuanian treasury securities. None the less, it is often considered to lack focus and a development strategy.
"This is an important financial institution in Lithuania," said Mark Horton, the International Monetary Fund representative in Lithuania. "You have to admire what the management has done for several years to develop the bank under uncertain circumstances, but it is important to clearly resolve its status, as Lithuania needs a third solid and competitive bank."
Horton told The Baltic Times it was significant that four high-quality European banks had shown an interest in the Zemes Ukio Bankas. It was almost irrelevant which had actually submitted a bid, since any of them would be a suitable strategic investor. "More important is just to end this period of uncertainty," he said.
Horton said 2002 was likely to be a good year for Lithuania's banking sector. Businesses are cautiously optimistic that economic growth will continue to pick up from current moderate levels, while local banks have much more money than they are now lending out. After two years of restructuring, including the acquisition of Hermis Bankas by the Swedish SEB-owned Vilniaus Bankas plus Hansapank's purchase of the savings bank, the sector seems set to run full steam ahead and possibly to leave Zemes Ukio Bankas behind.
Some Lithuanian officials have questioned the seriousness of NORD/LB's long-discussed intention of acquiring a bank in the southernmost Baltic country, pointing out that it never before bid in a privatization tender. On the other hand, they would be glad for some German capital to lessen Swedish dominance of the banking sector.
NORD/LB is the 10th largest bank in Germany and north Germany's leading commercial bank. In 1999 it announced a strategy to expand into northern and northeastern Europe, opening branches in Stockholm and Vilnius. In mid-2000 it became the strategic investor in Latvia's Pirma Bank where it now owns over 97 percent of the shares. The Latvian bank had earlier been rescued from near collapse after losses related to the 1998 financial crisis in Russia.
NORD/LB announced on Oct. 15 that it was buying an 80 percent stake plus one share in the Frankfurt-based Mitteleuropaeische Handelsbank. It said MHB was due to open a subsidiary in Warsaw by the end of 2001, giving NORD/LB direct access to the Polish financial market. NORD/LB now has a representative office in Warsaw and another in Helsinki. It expects to establish representations in Norway during November and in Tallinn by the end of December.