Latvia takes control of country’s second-largest bank

November 10, 2008

RIGA (AFP) — The Latvian government has effectively nationalised the country’s second-largest bank, Parex Banka — acquiring a controlling 51 percent stake for the symbolic sum of just a few dollars, Prime Minister Ivars Godmanis said Saturday.

“The government of Latvia today made a decision that the state will become a majority stakeholder in Parex Banka to secure the stability of Latvia’s financial system and not disturb the work of Parex Banka,” Godmanis told reporters Saturday evening, following a nine-hour marathon government session.

The government plans to purchase 51 percent of Parex shares for 2 lats (2.85 euros, 3.65 dollars) through the state-owned Hipoteku Banka.

The world banking crisis and the management’s inability to handle the situation forced the government’s decision, Finance Minister Atis Slakteris said Saturday, further explaining the decision.

“This was the choice: to allow the bank to go bankrupt or to secure the financial system,” Slakteris said, further explaining the decision.

The government could wait for the bank’s bankruptcy, but it would cost the taxpayers 600 million lats (1 billion euros) in compensation to guarantee the Parex bank accounts, he said.

Godmanis insisted the decision to take over Parex, the largest Baltic bank without a Western owner, was in line with moves by other European Union countries to support their banks.

“It is necessary to do everything to avert disruptions of the bank and the financial system,” Godmanis stressed.

“The government’s support means the bank will have access to many means to secure the bank’s liquidity,” Parex Banka’s senior vice president Martins Jaunarajs told reporters at a hastily organized press conference following the government’s decision.

The prime minister denied that similar action could face other banks operating in Latvia.

In a market dominated by Scandinavian banks, Parex Banka is Latvia’s second largest bank by assets.

It earned 12.4 million lats in after-tax profit in the first nine months of 2008. Its account holders include state-run energy company Latvenergy and state-run forest service, Latvijas Vasts Mezi.

Founded in 1992, Parex Banka has branches and representatives in 15 countries, including Germany, Sweden, Estonia, Lithuania, and Russia.

Once an economically vibrant 2004 EU newcomer, experts warn Latvia will fall deeper into recession next year.
The International Monetary Fund expects the Latvian economy to shrink by 2.2 percent in 2009 from its prediction of a 0.9 percent contraction this year.

Previously dubbed a “Baltic EU Tiger,” the former Soviet republic’s economy grew by 10.2 percent in 2007.