Snoras acquired by Russia's nuclear interests

  • 2003-04-03
  • Steven Paulikas
VILNIUS

The conditions for finalizing the acquisition of Lithuania's fourth largest bank by a significantly smaller Russian financial institution have been approved amid uncertainty about the purchaser's motives.

Leaders of Bankas Snoras met in Vilnius with officials from Konversbank, Russia's 43rd largest financial institution in terms of own capital, on March 27 to sign the deal that will make Konversbank the nominal majority shareholder in Snoras.

Following deliberations, Konversbank President Vladimir Antonov announced to reporters that his team agreed to invest the equivalent of $50 million U.S. in Snoras over a one- to three-year period.

Konversbank's long-term investment will follow up an initial injection of 25 million litas (7.8 million euros) into Snoras' coffers.

Antonov stated that Snoras was the best possible partner for his bank in its plans to expand operations beyond Russia. He also confirmed his intentions for Snoras to cross Lithuania's borders, telling reporters that the bank would soon be opening branches in Latvia and eventually in Estonia as well.

"We looked at several alternative banks in Latvia and Estonia, but Snoras' financial assets, good administration, extensive domestic network, and retail product line were perfect for us," said Antonov.

Konversbank will not take direct control of Snoras immediately due to Central Bank of Russia regulations stipulating that the amount of capital a Russian bank invests in a foreign financial institution must be subtracted from the Russian bank's domestic holdings.

To circumvent the rule, Konversbank purchased 100 percent of Luxembourg-registered Incorion Investment Holding Company, a move that also exempts the deal from initial regulation by the Bank of Lithuania.

Of immediate public concern regarding the takeover has been the relative inequality of size between the institutions—in addition to its relative obscurity in the Russian banking market, Konversbank is dwarfed by Snoras itself, which holds three times the assets of its purchaser.

According to both banks' most recent audited reports, Snoras' current assets are valued at 1.1 billion litas (318.8 million euros) whereas Konversbank's amount to only 2.9 billion rubles (89.2 million euros).

When asked by reporters how it felt hand over control to a bank one-third the size of his, Snoras president Raimondas Baranauskas told reporters, "small doesn't mean poor."

By allowing itself to be acquired by a smaller partner from a much larger country, Snoras shareholders may be hoping to benefit from the increased exposure to the Russian banking market, which is still regarded as highly underdeveloped.

Yet another question that remains unanswered is the extent to which Konversbank's unconventional history as a financial institution will help it to successfully control a retail banking outfit.

According to reports compiled by the U.S. Embassy in Moscow, Konversbank's role as the main creditor to the Russian Ministry of Nuclear Energy in financing civil nuclear energy projects was abruptly changed roughly a year ago.

In late January 2002, the Central Bank of Russia negated the bank's share issue, revoked its state registration and reportedly instructed its board to replace leaders who had come to Konversbank from MDM, a Russian financial giant with close ties to the Kremlin, which at the time owned a controlling share in Konversbank.

This string events roughly coincided with the ouster of Evgenii Adamov as Minister of Nuclear Energy amid allegations that he had earlier forced the nominally independent Konversbank to sell its controlling share to MDM, which then gained control of billions of dollars worth of contracts through Konversbank, including a $12 billion dollar deal with a U.S. firm to process weapons-grade uranium.

While under MDM control, Konversbank's assets were estimated to be $400 million - $500 million.

Adamov's replacement, Aleksander Rumyantsev, reportedly wanted to separate Konversbank from MDM, and in February 2002, MDM announced the sale of Konversbank to Akademkhimbank, a much smaller institution also involved in crediting government scientific ventures.

Antonov became president of Konversbank after leaving Akademkhimbank's top post in February 2002.

At the Mar. 27 press conference, Antonov denied claims that the Central Bank of Russia still had a hand in Konversbank management and defended his bank's flexibility in numerous financial capacities.

"Konversbank has always been a universal bank," said Antonov. "We intend for our relations with Snoras to expand our range of financial operations," he said.

Yet according to industry insiders, the deal is far from being as straightforward as Konversbank and Snoras officials have claimed.

"It's clear that Akademkhimbank is just a shell for larger interests who need a structure they can export through," said a banking expert who asked to remain anonymous.

"Large Russian banks and industries don't have a direct outlet for exports, and they need to establish themselves in Western countries as a means of cashing out," said the expert, adding that once Lithuania joins the EU in 2004, Konversbank, thorough Snoras, will have an even freer hand in European financial markets.