Latvia sells Citadele bank to Ripplewood

By bne IntelliNews September 17, 2014

Mike Collier in Riga -

 

Latvia has agreed to sell  its majority stake in  Citadele bank, the rump of  Parex bank which collapsed in 2008, to US private equity firm Ripplewood Holdings.  

Following a closed cabinet meeting on Tuesday, Prime Minister Laimdota Straujuma emerged to tell journalists what had been an open secret for weeks: the buyers would be US private equity firm Ripplewood Holdings. The deal would be signed “by September 30” and was “the best we could hope for” given current market conditions and pressure from the European Commission to offload Citadele, she said, without disclosing the sum. Media have speculated that it could be around the €110m mark, with more recent reports suggesting the price has been driven down further in negotiations.

Standing alongside Straujuma was Ripplewood founder Tim Collins, who added some interesting detail to the deal – apart from how much he was paying. 

“We're delighted to be investing in Latvia and this region. It's not just an investment in a bank but in the entire economy. We believe this is going to be not just a good investment but a very important aspect for the Latvian economy that will produce a significant impact on both Latvia and the region,” Collins said.

“It can contribute across all sectors: consumers, SMEs, it has the potential to make a significant contribution,” Collins said, confirming that it would continue to operate as a general purpose retails bank.

“The investors are myself, my family, the European Bank of Reconstruction and Development [via its existing 25% share in the bank] and then other investors that are long-time investors who invest with us in other parts of the world from Tokyo to Cairo to London.

“They're famous, very successful investors: former well-regarded government officials, entrepreneurs. In the main we selected investors that we believed could not only make an investment but could make a contribution to the institution, which is a tradition we've had for years.

The current management had done “a remarkable job in a difficult environment” Collins said. “We expect them to grow and prosper and lead this bank to be a national champion if not a regional champion.”

A decision would need to be taken on whether to expand the bank's capital, Collins said, and hinted again that it could become a regional force.

“My instincts are that there's a lot of opportunity here... ultimately, without losing focus, I believe there'll be opportunities to expand in the region.”

Interestingly, Collins was also keen to draw attention to how this investment would be different to some others he had been involved in.

“I have invested in a variety of industries all around the world. Some investments have been relatively short for idiosyncratic reasons. One was nine months. Others have been 10, 12, 13 years. This investment is different. Those investments were done in a private equity fund and I decided that to have a longer-term horizon I would invest with my colleagues directly and without the constraints of a private equity fund. This is my capital and our colleagues' capital and it's not constrained by the terms and nature of a private equity fund.”

Rather than creating a special instrument to carry out the purchase he had created “a special group of friends” Collins said. “I'll lead the group of investors that owns 75% plus one share,” Collins said, with the EBRD maintaining its existing 25% stake.

“Ripplewood is an entity that I started 20 years ago that has had a series of private equity funds and a few investments like this that were my capital and others'. That's the new model. The model that I think suits my personality and circumstance better is to have capital that has fewer constraints and can have a longer horizon.”

Formed in 2010 when the government split bailed-out Parex bank in two, Citadele was the “good bank” half with the main assets, while asset recovery company Reverta was formed to try to claw back money for the state. 

It operates 37 branches and client service centres throughout Latvia with offices in Estonia, Lithuania, Kazakhstan and Ukraine, plus asset management offices in Russia, Belarus, Ukraine and a subsidiary in Switzerland.

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