Parex Plans to Return $726 Million to Latvian Government After Asset Sales

Parex Banka AS, the lender whose 2008 collapse forced Latvia to accept an international bailout, plans to return about 400 million lati ($726.1 million) to the state over the next 7 years, its chairman said.

“We would be aiming for somewhere in the region of 400 million lati,” Christopher Gwilliam, who became chairman this month, said Aug. 17 in an interview in Riga, Latvia’s capital. “Something a bit over that would be a really good result.”

Parex was Latvia’s second-biggest bank before a run on deposits forced the state to take over the lender at the end of 2008. Latvia turned to a group led by the European Commission and the International Monetary Fund for a 7.5 billion-euro ($9.7 billion) loan to avoid default, and then poured about 800 million lati in deposits into the lender to stabilize it.

Gwilliam will run Parex as a so-called bad bank that will manage the lender’s distressed assets and be responsible for paying off 432.5 million euros of Eurobonds and syndicated loans that predate the takeover. Parex’s retail banking assets have been transferred to a new entity, Citadele Banka AS, which the government plans to sell.

“The principal objective from the Latvian perspective is that we return as much money as we can from these assets to the state,” said Gwilliam said, a U.K. national who has more than 30 years experience in the financial industry and has worked in eastern Europe and Bahrain for a decade.

Parex has about 640 million lati of mostly non-performing loans, he said. Many are backed by real estate in the area around Riga, with about 25 percent in other former Soviet republics.

Investment Banks

The bank, which will hold no current accounts or deposits, may sell some of its assets to an investor.

“Principally the investment banks would be looking,” Gwilliam said. “Of course, always in the background there are vulture funds.” The possible sale is “very much in the embryonic stage of thought and discussion,” he said.

The Latvian state asset sales agency owns 81.2 percent of Parex and the European Bank for Reconstruction and Development owns 15.2 percent.

The Baltic nation’s economy is rebounding from last year’s 18 percent slump as manufacturing and exports increase. Output expanded a seasonally adjusted 0.1 percent in the second quarter after growing 0.3 percent in the first three months on a quarterly basis.

“My best guess is that the economy will improve, therefore the capital markets will improve,” Gwilliam said. “Following that, of course, the real estate market will improve,” allowing Parex to sell assets at a higher price than today and return more money to the state, he said.

The government may not recoup its entire investment in the bank, even after the sale of Parex’s assets and Citadele, Gwilliam said.

“We really have to consider that making a small loss is the most likely outcome,” Gwilliam said. A larger loss “might arise if we saw a double-dip recession and an extended period of low level of economic output” and property prices stagnate, he said.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

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