The Latvian government have decided to split up the nations leading bank, Parex Bank. The non-core business will be kept in the old bank, but the new financial creation, containing about two third of Parex Bank’s total assets, will be put up for sale. There’s only one small problem; the Latvian bank’s assets mainly belongs to the largest Scandinavian banking groups.
“After assets and liabilities are split off, the Parex banka will need additional financial support from the State in the foreseeable future.”
The Latvian government have 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 EUR 2.1 billion, 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.
According to the Latvian newspaper Diena, 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.
A group evaluating the alternatives considered the proposal to break up the bank to be “optimal,” Finance Minister Einars Repse says.
“The government took this decision unanimously,” Prime Minister Valdis Dombrovskis told reporters Wednesday 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.
Since the early 90’s Parex banka is one of the top players in the Latvian banking sector and is now the largest in terms of deposits, 3rd largest in terms of assets with 12.7% market share and 4th largest in terms of loans with 10.7% market share
Parex sought state help in October 2008, when a run on deposits followed the collapse of Lehman Brothers Holdings Inc.
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 Latvian economy shrank by 16.9 percent in the fourth quarter of 2009.
Dombrovskis’s government lost its majority in the parliament when the People’s Party’s 19 members left the coalition last week.
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. this year.
The government must turn in a plan for Parex to the European Commission by the end of this month, the newspaper Diena report.
Other potential buyers may be the Polish PKO Bank Polski SA and the German Alfa Bank and Raiffeisen Bank.
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.
Still, about 65 percent of Parex Banka’s total assets is loans and deposits by the major Scandinavian banking groups; Swedbank, SEB, Nordea and DnB NORD/DnB NOR.
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