The "good" banker

By bne IntelliNews February 16, 2011

Mike Collier in Riga -

Crime scene investigators, pathologists and psychological profilers all have their own TV series these days, but no-one's ever made a cop show about the cleaners who arrive at the blood-soaked murder scene with mop, bucket and disinfectant. Similarly, while the public gaze remains directed against bankers who managed to bring highly profitable businesses to their knees, much less attention has been paid to the band of professionals performing the opposite function: removing failed banks from the public balance sheet and getting money back for the taxpayers.

Christopher Gwilliam is one of this unsung band of financial fixer-uppers. When a good bank meets an untimely demise, the 58-year-old's phone starts ringing, and over the years he has had clients in Hungary, Serbia, Croatia and Romania on the other end of the line asking him to bring his mop and bucket.

In 2010, the call came from Riga, where the Latvian government had decided to split the notorious Parex Banka down the middle into a functioning "good" bank that has been rebranded Citadele, and a "bad" bank containing Parex's more problematic assets, such as its heavily devalued real estate holdings and portfolio of problem loans. "I think the job was a magnificent fit for my previous experience. The match was perfect in that sense," Gwilliam tells bne of the reasons he became Parex chairman.

The British banker's manner is friendly and informal, but "bad bank" is not a term he likes. "We're not a bad bank," he insists. "We're a properly run, regulated, well-run organisation with a very good team. But we are full of 'bad', or rather 'non-paying', assets. That's the point - we are getting some of them to pay. We are creating value for the state. Every day that we go forward, we are adding value to the bank, although selling today I seriously believe would be a disaster."

Troubled times

Disaster was certainly the word in 2008 when the collapse of the high-flying Parex pushed the entire Latvian state to the brink of bankruptcy and necessitated a €7.5bn bailout from the International Monetary Fund (IMF) and EU. Over the next two years, the state pumped more than €1bn into propping up Parex and making payments on outstanding syndicated loans, the last of which (worth €232m) is due in May.

On the face of it, Gwilliam's modus operandi seems simple enough: "Establish what's in the book, identify the easy to sell assets at most value immediately, identify the medium value ones that need some polishing and may take some time to sell, and then put aside the ones that will have value in the future but are not worth doing anything with at the moment, like all the holes in the ground we have dotted around the country."

"It's probably what a liquidator would do, except a liquidator would move faster and wouldn't care about losing more money," he says.

In the first five months after the bank launched its operations on August 1, Gwilliam's team managed to claw back €85m by loan restructuring and sale of securities. That may not seem like a huge sum, but bearing in mind that the IMF is currently asking Latvia for supplementary budget cuts of €71m, its significance is clear.

Despite his 20 years' experience, Gwilliam admits to being "absolutely amazed" when he saw the extent of Latvia's problems in the real estate sector after its hugely inflated property bubble burst. "This is probably the worst I have ever seen where very ordinary people had suddenly become property speculators. I have never before seen the range nor volume of people involved, from university students to 80-year-old pensioners."

Rampant property speculation managed to drag in many other sectors of the economy too, leaving a complex web of debt and collateral on Parex's books. "There's the mortgage book which is completely like this, or the commercial book where the loan is the principal claim that we have but behind it is a bunch of real estate for which the company was set up essentially to do property transactions. Further, we have some commercial industrial transactions which actually relate to business, but which will always have some property behind them. That I think is what we will end up dealing with because it has to be realised we are a bank: we don't do new business, we don't take deposits, we don't make loans and our purpose is to realise the cash. We are a very unusual animal in that respect. We can only spend money on the assets we have acquired in order to maintain or enhance their value."

To many Latvians, the mere mention of the word "Parex" is enough to provoke apoplexy. Some find it impossible to believe that a bank that became synonymous with dodgy dealing by arrogant oligarchs could have any redemption. Gwilliam refuses to let the problematic Parex name obstruct his efforts and finds it hard to understand why elements of the Latvian media seem unable to accept the new reality. "Surely there's been enough in the press by now that the people realise that the people here running this bank are completely different?" he asks. "They are nothing to do with the Parex before. We have stated so many times: our job is to get the cash so we can repay first the syndicated loan in May, and then the state as we gather the money in."

"I knew nothing about Parex until March last year when someone first mentioned it as a possibility. By the time I got appointed in July, I had read a bit more, but I had no knowledge of the innards of it until August 2nd when I arrived in my office and the first thing that dropped on my desk - literally - was an action against the previous managers and owners. You can imagine how happy I was."

Baltic welshers

If changing public perceptions of Parex is a tough ask, it is a doddle compared to the task of making politically-connected businesspeople pay up. Some, it turns out, were being less than exemplary with their Parex accounts while simultaneously pontificating to society about how to make money. Several of these former captains of capitalism have declared bankruptcy and are making every effort to wriggle out of their obligations. "If we believe there are real attempts to avoid responsibilities where corporate structures are set up quite blatantly with the objective of avoiding paying, then we will do what we can to chase those down. If necessary the full weight of the law will appear before these people and their companies," Gwilliam asserts.

However, the slow pace of the legal process in Latvia combined with the limited scope of his remit - by 2017 Parex will be liquidated - makes the prospect of long and ultimately fruitless litigation a real possibility.

Perhaps Gwilliam's major contribution to Latvia so far has been to provide some much-needed perspective. Rather than being a national humiliation or some sort of righteous punishment from on high, the failure of a bank and its subsequent clean-up is a rather prosaic process, he insists. "It's a well-worn path for me. But it's new for Latvia and it's new for everybody who's in charge in Latvia. That's why it's a bit frightening and unknown - and that's part of the problem. It's a lack of experience [among policymakers] which has not educated the public well enough in what they're actually doing. This is a very, very normal transaction."

On what is literally the billion-dollar question of whether the state will ever recoup the money it has used to prop up Parex, he is candid: "We'll do our best to get all the money back, but that I think would be a miracle. The comprehension of the public has to be that it was always extremely unlikely that all of the money would be got back. However, if the market goes stupid again, then yes it would be possible. But I don't expect the market to go stupid again in the next seven years - it will take another three before it goes stupid..."


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