Declaring the country's sixth-biggest bank insolvent, Lithuanian regulators moved swiftly on February 18 to announce that the good assets of Ukio Bankas will be sold off to rival Siauliu Bankas, which is backed by the European Bank for Reconstruction and Development (EBRD). The speed and decisiveness of the central bank's actions suggests it has learnt valuable lessons in recent years.
Bank of Lithuania Governor Vitas Vasiliauskas told a press conference that a sale to Siauliu will be the least costly and fastest way to resolve the problems posed by the insolvent lender, despite reporting the previous day that at least four banks had expressed an interest in the assets.
"We think negotiations should be concluded this week so that already next week we could talk about the gradual renewal of operations," Vasiliauskas said, according to Bloomberg.
Temporary administrator Adomas Audickas - who was ordered to deliver his recommendations inside six days when he stepped in on February 12 - told the same meeting that Ukio's liabilities exceed its assets by approximately LTL1.1bn (€319m).
Vasiliauskas insisted that a swift and decisive approach "would better protect the confidence of the shareholders in the stability and reliability of the banking system, as well as other public interests, rather than liquidation."
The EBRD, Siauliu's largest shareholder with a 19.6% stake, announced on February 14 that the bank was in negotiations with the administrator. The multilateral lender added that it was ready to back the deal with financing. Unhealthy assets will be split off and, if recovered, distributed to Ukio creditors, the central bank head said.
It is unclear whether or not Siauliu will acquire any of the foreign assets that Ukio majority owner Vladimir Romanov has pledged to the bank as loan security, Vasiliauskas said. Those include assets related to Edinburgh football club Heart of Midlothian, the Birac AD alumina producer in Bosnia-Herzegovina, real estate in Moscow and other things, he said.
The quick and the dead
The decision was reached so quickly that other potential suitors said they had no chance to consider partaking. The Bank of Lithuania said on February 15 that four suitors for Ukio assets had emerged. However, three days later, Swedish lender SEB denied media reports that it had thrown its hat in the ring. "There's not enough information or time" for SEB to assess the value of any of Ukio's assets, spokesman Arvydas Zilinskas told Bloomberg.
Earlier in the day, the Bank of Lithuania admitted in a statement that the bank is a lost cause. "The Bank of Lithuania recognised Ukio Bankas as insolvent and permanently terminated its license. Taking into account the conclusion and proposals presented by the temporary administrator regarding the restoration of the stability and reliability of Ukio Bankas, the board... decided to transfer the assets, rights, transactions and liabilities to another bank..."
The Bank of Lithuania suspended operations at Ukio and ordered Audickas to review the situation on February 12, saying the bank had crossed risk thresholds and was exposed to loans to parties related to majority shareholder Vladimir Romanov. Two days later, it began speaking with Siauliu Bankas and asked the administrator to accelerate his work, as it became clear that the regulator's worst fears may be justified.
The transfer of Ukio's assets, rights and liabilities to Siauliu, after removing the bad loans, will limit the liability of the state deposit guarantee fund to LTL800m, Vasiliauskas told the reporters, compared with LTL2.7bn in case of bankruptcy.
Speaking in November to 15min.lt, Vasiliauskas said: "After Snoras collapsed, the fund was left with LTL1.7bn, but the state did its duty. I do not see why the mechanism should not work in case something happens again." However, Vilnius clearly wants to avoid having to put its hand in its pocket again.
The swift approach of the regulator is at odds with its much-criticised performance in dealing with Snoras - the country's fifth-largest bank at the time of its collapse in November 2011. The Bank of Lithuania - as well as peers in Latvia where Snoras subsidiary Krajbanka also went under - was widely derided for its failure to spot that owner Vladimir Antonov, who was refused a banking licence in the UK and rebuffed from attempts to buy into struggling Swedish carmaker Saab, was stealing billions of euros from the bank.
The collapse of Snoras saw Vilnius forced to bailout the deposit guarantee fund, and raising concern that Lithuanian sovereign borrowing costs could be hit. Antonov is currently in the UK fighting extradition to Lithuania, as well as a law suit from Snoras' administrators. Meanwhile Vilnius is racing Latvia in scouting the globe trying to track down millions in missing assets.
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