"The Bank of Lithuania's board, after hearing the temporary administrator's report and proposed options for solving the problem of Ūkio Bankas, decided to choose number three of the four proposed options, which is to suggest that the temporary administrator begin negotiations with Šiaulių Bankas on the transfer of the assets, rights and liabilities," Vitas Vasiliauskas, the central bank governor, told a news briefing on Monday evening.
Vasiliauskas spoke after the central bank board meeting, which lasted slightly more than three hours.
Based on the report from Adomas Audickas, Ūkio Bankas' temporary administrator, the bank's liabilities exceed its assets by 1.1 billion litas (EUR 320m). After considering all options, it was decided that the cheapest alternative was to transfer the lender's assets and liabilities to another bank operating in Lithuania.
"It was decided to solve Ūkio Bankas' insolvency situation by transferring the business as a complex to existing market players, at the same time, responding to the offer by Šiaulių Bankas, that is, by instructing the temporary administrator to open negotiations with Šiaulių Bankas," the chairman of the central bank's board said.
Vytautas Valvonis, director of the central bank's Supervisory Service, said that it was established during an audit of Ūkio Bankas that its main losses were due to loans issued to companies that were linked to the bank's majority shareholder, businessman Vladimir Romanov.
"Speaking about liabilities, the insured liabilities are taken out, in this case, all insured deposits. (To cover) these liabilities, the bank's healthy assets are taken out. Given the hole (in assets) identified by the temporary administrator, even if the bank is split up, there is a gap between the insured liabilities that are being transferred and the assets that are being transferred. That gap has to be closed. We estimate that this could be around 800 million litas," Vasiliauskas said.
The governor said that Ūkio Bankas' temporary administrator, Šiaulių Bankas, and the state-owned Indėlių ir Investicijų Draudimas (Deposit and Investment Insurance), which should cover the 800-million-litas shortfall, would take part in the negotiations.
"We think that the talks should be completed by the end of this week so that we can speak about a gradual resumption of operations in the course of next week," he said.
The Bank of Lithuania's board on Monday also recognized Ūkio Bankas as insolvent and permanently terminated its operating license.
Ūkio Bankas was Lithuania's sixth-largest bank by assets until the central bank suspended its operations on February 12.
Šiaulių Bankas started non-binding talks on taking over Ūkio Bankas' business last Wednesday. It signed a letter of intent with Audickas on that day. On Friday, Šiaulių Bankas applied to the Competition Council for regulatory clearance of its takeover of a part of Ūkio Bankas' assets and liabilities, as well as 100 percent of shares in its subsidiaries, including Ūkio Banko Lizingas (Ūkio Bank Leasing), the life insurance company Bonum Publicum, and Sporto Klubų Investicijos (Sports Clubs Investments).
Seventeen shareholders, acting in concert, held a combined stake of 43.46 percent in Šiaulių Bankas at the end of September 2012, including the European Bank for Reconstruction and Development with 19.57 percent.
Experts laud the decision
Experts say that the Bank of Lithuania made the right choice when it decided to split Ūkio Bankas' assets into "good" and "bad" parts, the business daily Verslo Žinios reports.
"The central bank chose a salvage option that is the least painful. If it acted the same way as with Snoras, that would be the worst option. Now, even with the bank's license revoked, the continuity of its operations is ensured," it quoted Linas Sesickas, a partner with the Lithuanian bureau of the law firm Bernotas & Dominas Glimstedt, as saying.
The key issue now is fair compensation to shareholders, both large and small, he added.
Valdemaras Katkus, a financial analyst, estimates that Šiaulių Bankas will need 150 million to 200 million litas (EUR 43.5-58m) in additional financial resources.
The analyst sees the central bank's decision on Ūkio Bankas as the right one.
"I also think that it was the proper decision, because this is the simplest and fastest way of solving the problems. Besides, it is the most understandable decision both to depositors and customers. Most importantly, the banking system will be able to clean itself up without dumping all of its problems on taxpayers. The state will not have to borrow much and lend the money on to the deposit insurance fund," he said.
Civilized option
Stasys Kropas, the president of the Lithuanian Banks' Association, says that the central bank's decision is a civilized step that will cause less inconvenience to customers.
"Compared with Snoras, we will achieve that civilized level. In many countries, banks do not go bankrupt and, basically, the goal of good risk management is a bank's takeover, and the continuity of operations, causing practically no inconvenience to customers," he told BNS.
Kropas expects that negotiations with Šiaulių Bankas will improve the situation in the banking system and will reduce the closure shock.
"I believe this is a logical, optimal option. It is good for the banking system that some of the members take on these activities. Šiaulių Bankas has been working on that and it is ready. For example, if Ūkio Bankas went bankrupt, practically all of its deposit portfolio and the loan portfolio would go out of the banking system. Certainly, deposits would return after some time, but their share would be much lower," he said.
