Latvian bank Parex to be split in two

Mar 24, 2010, 14:24 GMT

Riga - Representatives of Parex Banka, the Latvian financial institution that took the Baltic state to the verge of insolvency, revealed plans to split the bank in two Wednesday.

Speaking at a press conference in Riga to explain the strategy, Parex chairman Nils Melngailis said the bank would be split into a 'new bank' containing the main assets and with a stable financial foundation, while a rump bank would focus on asset management and recovering outstanding debts.

The strategy would help to stabilize the situation in both entities and should be completed by the end of June this year, subject to approval from the European Commission, Melngailis said.

'We have to regain customers' confidence ... According to the plan, both parts of the bank will be able to meet their financial obligations,' he said.

Following a successful stabilisation, both halves of the structure could be sold to try and recoup more than 1 billion dollars pumped into Parex by the Latvian government.

'Investors are interested but not all are interested in (buying) the whole bank,' Melngailis said.

The Latvian state, which bailed out Parex, holds around three quarters of shares in the bank and is anxious to recoup as much cash as possible.

Matthew French of Nomura International, which helped draft the proposals, said the aim was to create 'a new, ordinary bank in the best sense of the word.'

Parex was founded in 1992 and spent years as a high-flying and flamboyant bank with an ability to attract sizable deposits from rich Russians as well as local clients.

However the credit crunch brought it to the edge of collapse in 2007, which in turn dragged the Latvian state to the verge of bankruptcy when Parex was nationalized in 2008.

Latvia turned to the International Monetary Fund (IMF) and other international lenders, including the European Union and World Bank, for a 7.5-billion-euro bail-out in the wake of the crisis at Parex.

Melngailis was appointed to reshape Parex and has managed to restore some stability by renegotiating the repayment terms of a large syndicated loan and attracting the European Bank for Reconstruction and Development as an investor.