Latvia to divide Parex Banka into two
24.03.2010, 09:57The Latvian government agreed to divide Parex Banka, creating a new bank that will gain most of the lender’s assets before being sold. About two-thirds, or about 1.5 billion lats, of the bank’s assets will be placed in the new company, including about half the lender’s loan portfolio, with the non- core business left in the old bank, Juris Jakobsons, of Latvia’s state asset sales department, told Bloomberg.
The plan to split the bank may open the decision to a legal challenge because the previous owner’s subordinated capital may be left in the old bank, the Diena newspaper reported today, citing a report by the government’s consultants. A group evaluating the alternatives considered the proposal to break up the bank to be “optimal,” Finance Minister Einars Repse said at the briefing.
“The government took this decision unanimously,” Prime Minister Valdis Dombrovskis told reporters today after a government meeting in Riga. Foreign Minister Maris Riekstins, whose party left the government last week, didn’t participate in the vote. The plan must still receive approval from the European Commission.
Parex, the country’s second-biggest bank, sought state help in October 2008, when a run on deposits followed the collapse of Lehman Brothers Holdings Inc. and the Swedish government’s announcement that it would support its banks, the biggest lenders in the Baltic states of Latvia, Lithuania and Estonia.
Parex’s collapse exacerbated an economic slump that forced the Latvian government to seek a 7.5 billion-euro ($10.1 billion) bailout from a group led by the European Union and the International Monetary Fund. The economy shrank 16.9 percent in the fourth quarter.
Dombrovskis’s government lost its majority in the parliament when the People’s Party’s 19 members left the coalition. The government is in talks with the Latvia’s First Party to bring its 10 members into the government and restore a majority ahead of October elections.
Waiting until after the ballot to sell Parex would be the “biggest mistake anyone could make,” Chief Executive Officer Nils Melngailis said in an interview on Feb. 17.
The government must turn in a plan for Parex to the European Commission by the end of this month, Diena reported today.
Nordea AB, DnB Nord Banka, PKO Bank Polski SA, Alfa Bank, Raiffeisen Bank were among banks mentioned as possible buyers of the new Parex, Diena said.
The Latvian state asset sales department owns 73.4 percent of Parex and the European Bank for Reconstruction and Development holds 22.4 percent. The remainder is owned by minority shareholders.