Lithuanian Lender Ukio Suspended in Latest Baltic Bank Blow

Lithuania suspended the operations of Ukio Bankas AB, the nation’s sixth-largest lender by assets, threatening the existence of a fourth Baltic bank in less than five years.

Ukio had insufficient capital and liquidity and refused to stop lending money to companies associated with majority owner Vladimir Romanov, who also owns Edinburgh soccer club Heart of Midlothian Plc, the central bank, based in Vilnius, the capital, said today in an e-mailed statement. Prosecutors said they’d investigate “suspicious transactions” in 2005 to 2012.

The central bank’s move follows the demise of Lithuania’s Snoras Bankas AB, which was declared insolvent and nationalized in 2011. Its Latvijas Krajbanka AS unit in neighboring Latvia, where Parex Banka AS needed a government bailout in 2008, was also shut down. Ukio’s shares have plunged 40 percent since October amid net losses, concerns about loan quality and probes into alleged money laundering that the bank denies.

“Bankruptcy is the last option -- our priority is for Ukio Bankas to continue operating after a restructuring,” central bank Chairman Vitas Vasiliauskas told reporters today in Vilnius. “All other banks operating in Lithuania and foreign bank branches implement prudential requirements and there’s no risk to their stability.”

Shares Halted

The Nasdaq OMX Vilnius stock exchange said today in a statement that it had suspended trading of Ukio shares at the central bank’s request. They last traded at 12:58 p.m. in Vilnius at 0.093 euro each.

Romanov called the regulator’s claims “nonsense” and said he’d done “everything they said,” the news portal reported. Aukse Armonaite, a spokeswoman for Ukio, didn’t answer repeated calls to her mobile phone or e-mails seeking comment.

Russian-born Romanov owns 64.9 percent of Ukio, which lost 44 million litai ($17 million) in the first nine months of 2012. Loans to companies related to him comprise the largest part of Ukio’s problem-loan portfolio, according to the central bank.

“The shareholders and management of Ukio didn’t fulfill the loan-restructuring plan and disregarded the Bank of Lithuania’s order to reduce the part of the loan portfolio related to the main shareholder,” it said in its statement.

Soccer Club

Romanov said Feb. 8 that he’s ceding ownership of the Kaunas-based Zalgiris basketball club, which Ukio had backed, the Verslo Zinios newspaper reported. While his Scottish football club, known as Hearts, has outstanding loans from Ukio, it said today on its website that the lender’s suspension probably wouldn’t affect day-to-day business.

The Kaunas-based bank’s situation is better than that of Snoras, Vasiliauskas said. The central bank appointed Adomas Audickas, a former deputy economy minister, as temporary administrator to assess and report on Ukio within six days.

Ukio had assets of 4.1 billion litai on Sept. 30, equal to about 5 percent of Lithuania’s total, according to the Association of Lithuanian Banks’ website.

Money held at the bank by residents is covered by state deposit insurance, Prime Minister Algirdas Butkevicius said today. The lender’s deposits totaled 3.5 billion litai at the end of the third quarter.

‘Suspicious’ Loans

Prosecutors have begun a probe into possible fraud at Ukio in 2005-2012 based on information provided by the central bank. “Suspicious” loans, unprofitable real estate contracts and unreasonably high rents on premises the bank never used may have cost Ukio “dozens of millions” of litai, prosecutor Simonas Minkevicius told reporters today in Vilnius.

Prosecutors are also investigating claims that $13 million allegedly stemming from a Russian tax fraud may have been laundered through Ukio, the Baltic News Service reported last month. The probe was initiated in response to a request by investment fund Hermitage Capital Management, where deceased lawyer Sergei Magnitsky uncovered the alleged embezzlement, the newswire said. Ukio has denied that it’s under investigation.

Siauliu Bankas, a Lithuanian lender whose biggest shareholder is the European Bank for Reconstruction and Development, told the central bank today that it would be prepared to participate in any possible restructuring of Ukio, according to Vasiliauskas.

The EBRD “is monitoring the situation carefully,” London-based EBRD spokesman Axel Reiserer said by phone. “We stand by what we’ve said before about having a firm commitment to support the Lithuanian banking sector.”

Vasiliauskas said a merger of some sort with Siauliu was one of three or four possible resolutions to the Ukio situation.