Lithuania Moves Ahead With Bank-Closure Process Praised by S&P

Lithuania’s smooth closing of insolvent lender Ukio Bankas AB moved ahead as rival Siauliu Bankas AB bought state debt to fund the deposit-insurance fund and said it was reopening some of Ukio’s former branches.

Siauliu will reopen 25 former Ukio branches, starting with six tomorrow, the bank based in the city of Siauliai said in an e-mailed statement today. Separately, Siauliu said today it purchased 799 million litai ($301 million) of government debt to help the state deposit-insurance fund finance a deal in which Siauliu is taking over 2.7 billion litai of Ukio deposits.

The Baltic nation has managed to renew service to most clients of the former sixth-largest bank less than three weeks after the central bank suspended the lender, saying risky lending to related parties led it to insolvency. Standard & Poor’s Rating Service last week praised Lithuania for resolving Ukio’s woes without destabilizing the country’s other banks.

“The authorities’ response serves as a demonstration of strength,” S&P said in a report on Feb. 27. “We expect the sale of Ukio’s stronger assets and guaranteed deposits to Siauliu Bankas to be managed without causing a major disruption in the sector, nor resulting in significant system-wide withdrawals of deposits.”

EBRD Support

The European Bank for Reconstruction and Development, Siauliu’s largest shareholder with a 19.6 percent stake, helped strengthen Siauliu for the partial takeover by granting it a 20 million-euro ($26 million) subordinated loan.

The deal with Siauliu allowed the deposit-insurance fund to reduce payouts related with Ukio’s collapse to 800 million litai, instead of 2.7 billion litai. The fund will seek to recover its money through bankruptcy proceedings for the Ukio assets not taken over by Siauliu, the Finance Ministry has said.

Among those assets are loans that Ukio Bankas had made to a sister investment company, Ukio Banko Investicine Grupe, or UBIG, which is controlled by Ukio Bankas majority owner Vladimir Romanov and owns 79 percent of Scottish soccer club Heart of Midlothian as well as property in other countries.

UBIG’s entire board of directors resigned last week and hasn’t been replaced, Baltic News Service reported today, citing the company registry in Vilnius. That includes both Romanov, who was chairman of UBIG, and Hearts’ Director Sergejus Fedotovas, who was also on the board, BNS said.

Fedotovas declined to comment on the board situation at UBIG in an e-mailed response to Bloomberg questions today.

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