Latvian government gives 142 million euros to bailed-out bank Parex

Feb 9, 2010, 16:40 GMT

Riga - The government in the financially troubled Baltic state of Latvia agreed Tuesday to give 100 million lats (142 million euros) to nationalized bank Parex in order guarantee its medium-term future.

Parex needs the cash to help pay off the latest 310-million-euro tranche of a syndicated loan worth 775 million euros (1 billion dollars).

The near-collapse and government rescue of Parex in 2007 triggered a severe financial crisis in Latvia, which combined with the credit crunch and global economic crisis to create one of the most dramatic recessions in recent history.

Parex remains the largest home-grown bank in a Baltic banking scene dominated by Scandinavian financial groups. Its sudden fall from grace shocked the region and took the Latvian state to the verge of bankruptcy when the government chose to pump in more than a billion dollars to stop the bank's collapse.

Prominent local businessman Nils Melngailis was put in charge of Parex after nationalization and has improved Parex's prospects by striking revised deals with syndicated lenders and helping to get the European Bank of Reconstruction and Development to take a quarter stake in the bank.

In an interview with the Baltic News Service Tuesday, Melngailis said he was optimistic that Parex could eventually be sold off to recoup some of the money spent on its rescue, possibly after being broken into different parts.

'The interest is there. I think that everyone is waiting for the final decision about reorganization of the bank,' he said. 'The situation on the international capital markets has improved along with Latvia's reputation. Therefore I do not see any reason why we should fail to sell the bank.'

Parex had spent years as a high-flying bank with an ability to attract sizable deposits from rich Russians as well as local clients.

Founders Valery Kargin and Viktor Krasovickis sold their majority stake to the Latvian state for just 1 lat (2 dollars) each.

The rescue of Parex was one of the factors that forced Latvia to seek a 7.5-billion-euro (10.2-billion-dollar) aid package from international lenders including the European Union, the International Monetary Fund and the World Bank, with a large portion of the money earmarked to support the financial sector.