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Banking

Baltic states: In Snoras, an omen for the year ahead

Bank collapse weighs on fiscal health; Crisis spills over to Latvia

The sad tale of Bankas Snoras’s demise is both bizarre and slightly comic, involving a Russian oligarch, a trail of money stretching from the Baltic states to Panama, a second-tier English football team, and perhaps even a Twitter-led run on a Swedish bank’s Latvian operations. It is also far from over: the downfall of Lithuania’s fifth-biggest bank led to the collapse of another mid-sized Baltic lender, Krajbanka of Latvia, whose main shareholder was Snoras’s chairman and leading shareholder, Vladimir Antonov, the Russian multimillionaire at the centre of the debacle.

The year ahead will be a difficult one for both Lithuania and Snoras’s creditors – and possibly the broader Baltic region.

For regulators in the pretty Lithuanian capital of Vilnius, the immediate challenge is to work out how the bank’s creditors can be fairly compensated – and whether this small indebted nation can really afford such a large bank bailout.

After Snoras filed for administration on November 16, losses at the lender were estimated at about $400 million. Within days that figure had jumped to $1.3 billion. By November 24, regulators had officially declared the lender bankrupt.

A case for isolation

“The original plan,” says Andreas Kolbe, EEMEA credit strategist at Barclays Capital in London, “was for the government to split Snoras into a good bank and a bad bank, but this seems to have been discarded given the size of the balance-sheet holes.”

The central bank of Lithuania (BoL) acted swiftly, promising to refund around 90% of Snoras’s 425,000 clients. Analysts including Kolbe see Snoras as a singular case that can be handled in isolation “while keeping the banking sector as a whole relatively safeguarded”.

But the BoL’s rectitude creates a much bigger sovereign issue. Compensation will cost an estimated Lit4.1 billion ($1.6 billion), and Lithuania might have to raise its borrowing ceiling from Lit9.5 billion in 2012 to meet Snoras’s debts.

Finance minister Ingrida Simonyte warned on November 27 that funds allocated to refinancing a €1 billion Eurobond, maturing in May, would now have to be channelled into Lithuania’s bank insurance facility instead.

Moreover, given the Baltic states’ severe financial crisis after 2007, some believe warning signs about Snoras should have flashed long ago. Mads Thinggaard, a senior equity analyst at Denmark’s Nykredit Markets, says: “In hindsight, regulators should be embarrassed with their oversight of Snoras. They have reacted well, and honestly. But we shouldn’t have got ourselves in this [situation] anyway.”

 

Vladimir Antonov and his wife leave Westminster court at the end of 2011

Then there is the Snoras chairman himself. A Tajikistan-born naturalized Russian whose grandfather worked on the Soviet nuclear bomb, Antonov’s assets were valued at $7 billion as recently as March 2011. Antonov’s holding company, Convers Group, which he chairs along with his father, Alexander, owned shares in four banks: Snoras, Krajbanka, Ukraine’s Conversbank, and Panama-based Banco Transatlantico. Antonov, a petrolhead with a stake in Dutch supercar maker Spyker, is rumoured to have owned a collection of performance cars. He also controlled struggling English football club Portsmouth FC.

Those days might now be over. Although Antonov is officially domiciled in London, in Vilnius premier Andrius Kubilius has described Snoras as “an institution of possibly criminal financial machinations”. Antonov, who owned 67% of Snoras, and Raimondas Baranauskas, who controlled a further 25% of the Vilnius-listed lender, were both arrested on November 25 in London after Lithuanian prosecutors issued an EU arrest warrant on the pair.

At a pre-case hearing in London on December 16, where it was alleged that Antonov and Baranauskas had stolen $330 million from Snoras, and forged documents to create shadow deposits in Swiss banks, the pair asserted that the entire case was politically motivated. They both deny wrongdoing.

Antonov’s lawyer, James Lewis, compared an extradition order by Lithuanian prosecutors to methods used by Russian authorities to discredit and bankrupt political foes. Lewis highlighted charges of tax evasion levied against former Yukos owner Mikhail Khodorkovsky.

“The very same methods that were used in Russia were used by this former Soviet satellite [Lithuania] in the very same manner,” Lewis told Judge John Zani, adding ominously: “Everything will be revealed.” A preliminary hearing has been set for January 30, with a full hearing set for May 2012.

Meanwhile, reverberations from the collapse of Snoras and Krajbanka continue to be felt across the Baltic. In Latvia, a run on the local operations of Stockholm-based Swedbank over the weekend of December 10-11 was caused by rumours that the lender’s cash machines in Sweden and Estonia were out of cash, causing 126 of Swedbank’s 298 Latvian ATMs to run dry.

Combined efforts by Swedish banks and the Latvian authorities calmed the situation, although that might not last. Nykredit’s Thinggaard says: “The memory of recent [economic troubles] combined with low confidence in the authorities made it possible for the false rumours to trigger a light panic. Ultimately there is no guarantee it can’t happen again. Lack of trust combined with rumours is the nature of a bank run.”


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