Snoras to File for Protection Today After State’s Seizure
November 28, 2011, 12:59 AM ESTBy Milda Seputyte and Aaron Eglitis
(Updates with court hearing in fifth paragraph, central bank in ninth paragraph. )
Nov. 25 (Bloomberg) -- Bankas Snoras AB, the Lithuanian lender seized by the government last week, is insolvent and will file for court protection from creditors today to avoid a costly bailout for taxpayers, the central bank said.
It is “unrealistic” for Snoras to continue operating as assets are missing amid a widening fraud probe, Governor Vitas Vasiliauskas said at a news conference in the capital Vilnius. The 3.4 billion-litai ($1.3 billion) asset gap is a “conservative estimate” and the shortfall may be lowered by selling assets including loans, securities and real estate.
The government took over Snoras, the third-biggest bank by deposits, on Nov. 16 after the central bank discovered that assets reported on the bank’s balance sheet were missing. Former owners Vladimir Antonov and Raimondas Baranauskas are detained in London on suspicion of fraud and embezzlement.
“This was an institution of possibly criminal financial machinations that deceptively lured depositors and their money in semi-pyramid schemes, then used the money to finance operations by shareholders Antonov and Baranauskas,” Prime Minister Andrius Kubilius said.
Court Appearance
The two suspects are scheduled to appear before a court later today after they were apprehended on a warrant issued by Lithuanian authorities, a court clerk said.
Antonov’s lawyer, Kevin Gold at Mishcon de Reya, and Baranauskas’s lawyer, David Corker of Corker Binning, both declined to comment before the hearing.
The government said Snoras’s collapse won’t have a large effect on the economy. Lithuania’s 10-year dollar bond declined today, sending the yield up 0.11 percentage point to 6.72 percent, the highest since Oct. 5. Latvia’s 10-year dollar bond declined, sending the yield up 0.05 percentage point to a record 6.57 percent.
Shrinking Deposits
Asking prices on Latvia’s three-month Rigibor rose 31 basis points to 1.94 percent, the highest level June 15, 2010. The costs of borrowing in lats for three-months rose above the cost to borrow in euros yesterday for the first time in a year. The asking rates have climbed 92 basis points since Nov. 15.
Deposits in Lithuania’s banking system have shrunk 0.7 percent since the state takeover of Snoras, central bank board member Governor Vaidievutis Geralavicius told reporters in Vilnius. He doesn’t expect to see any further bank failures in the next three years, when the term of the current central bank board ends.
Investigations, Audits
Ernst & Young, Snoras’ auditor, is conducting an internal investigation about its previous audits at the bank, Vasiliauskas told a news conference today in Vilnius.
The government initially planned to split Snoras into two parts, with good and bad assets. Lawmakers approved legislation on Nov. 17 allowing the state to divide the assets, which would have put the bad bank under bankruptcy and the good bank with healthy assets for sale. The central bank dropped the plan after missing assets exceeded initial estimates by more than three times.
The Baltic country, which experienced the world’s second- deepest recession in 2009 after Latvia, is aiming to cut the budget deficit to 2.8 percent of gross domestic product next year from 9.5 percent in 2009.
No Foreign Aid
Lithuania won’t require international aid to deal with the situation at Snoras, Finance Minister Ingrida Simonyte said at a conference in Vilnius yesterday. The government may have to inject more liquidity into Snoras to help pay ensured depositors, she said today.
Some 90 percent deposits at Snoras will be compensated, as the government guarantees as much as 100,000 euros ($132,700) in deposits, the central bank said today. Ensured deposits by the state account for 4.1 billion litai, which will affect 387,000 depositors, it added.
There are a total of 440,000 depositors in Snoras, according to the Lithuanian central bank. The Latvian magazine Ir said that 6,382 accounts were of Russian origin, with another almost 7,000 accounts from the British Virgin Islands, Kazakhstan, the Dominican Republic and Belize, the Riga-based magazine said without saying where it got the information.
Protecting the Public
Depositors will get their money back from Snoras by the turn of the year, Simonyte said.
Premier Andrius Kubilius, appearing with the other officials today, said the central bank’s decisions will protect the public and make the financial industry more transparent. He said Snoras was “an institution of criminal financial operations.”
Fitch Ratings on Nov. 21 cut the lender’s credit grade to C from B+ because the state takeover involves losses for creditors. Snoras’s liabilities are substantially higher than its assets, the central bank said yesterday.
Snoras, which competes with Scandinavian lenders including SEB AB, Swedbank AB and Nordea AB, also controls investment bank Finasta and Latvian lender Latvijas Krajbanka AS. Krajbanka, Latvia’s sixth-biggest deposit bank, said 100 million lati ($190.7 million) was also missing. The Latvian lender is also likely to be liquidated, Simonyte said.
Different Methods
“The actions taken by the government radically differ from the methods and generally accepted rules of civilized business practices in democratic countries, and from the norms of a market economy,” Antonov and Baranauskas said in a joint statement sent by e-mail on Nov. 21.
Repeated calls by Bloomberg to Antonov’s Latvian and U.K. mobile phone numbers seeking comment were not answered.
An insolvency request for Krajbanka will most likely be submitted on Nov. 28, Latvian bank regulator Irena Krumane said today in Riga, Latvia. Krajbanka depositors are insured to as much as 100,000 euros, she said, adding that larger depositors may receive more depending on what the lender’s assets are worth.
Latvia is also ready to cover deposit insurance at the bank and could loan as much as 200 million lati, said Kaspars Abolins, head of the state treasury. The deposit insurance fund has 149 million lati in it and may need as much as 200 million additional lati to pay out the insurance.
Other Investments
Antonov, a Russian citizen who primarily resides in the U.K., was barred from investing in Sweden’s Saab Automobile AB in July by the European Investment Bank, which didn’t give a reason for its decision.
Antonov is also the controlling shareholder of the Portsmouth Football Club, with a 75 percent stake.
The U.K.’s Financial Services Authority denied Snoras permission in 2009 to operate in Britain because the bank’s executives withheld information.
--With assistance from Erik Larson and Anthony Aarons in London. Editors: Douglas Lytle, James M. Gomez
To contact the reporters on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net; Aaron Eglitis in Riga at aeglitis@bloomberg.net
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net
