Lithuania's central bank announced on February 12 that it has suspended operations at Ukio Bankas, the Lithuanian lender controlled by Heart of Midlothian FC owner Vladimir Romanov, and appointed an administrator.
Despite ongoing speculation about the bank's involvement in suspect money flows from Russia, the central bank was at pains to stress that the problems at Ukio are not in the same league as those at Bank Snoras, which was seized and put into bankruptcy 14 months ago. Even so, it represents yet another huge setback for Lithuania's banking sector, and for the Baltic region's as a whole, which have been plagued by widespread accusations of excessive risk-taking, fraud, corruption and inept supervision.
Citing irregularities at Lithuania's sixth biggest bank, and claiming that it no longer meets capital-adequacy and liquidity requirements, the Bank of Lithuania said it has halted operations and appointed a state administrator. "The board of the Bank of Lithuania adopted the decision to announce the restriction of the activities of AB Ukio bankas and appointed a temporary administrator," the central bank said in a statement. "The decision... to restrict the bank's operation was made after assessing the risky tendencies of Ukio bankas in recent years, actions of shareholders that were harmful to the bank, non-compliance with the instructions of the Supervision Service, and the consequent rising threat to the stable and reliable operation of the bank."
"The decision was approved once it was clear that other statutory enforcement measures would not be sufficient in ensuring the security of the interests of depositors and the general public," the statement added.
Administrator Adomas Audickas has been given six days to assess Ukio and submit proposals on how to ensure that the bank meets its obligations. "A lot will depend on the actual financial standing of the bank, which will be registered by the administrator and the auditors who inspect the bank, but our priority is clear-continuity of the operation of the bank in fulfilling obligations to its clients and ensuring that the restructuring would be the most effective, rational and cheapest means for the state in solving the problem," Bank of Lithuania's chairman, Vitas Vasiliauskas, said.
Prime Minister Algirdas Butkevicius said he supported the central bank's action and insisted it would not have a major impact on the economy. He also vowed the government would fulfill its obligation to guarantee customers' deposits up to €100,000, reports Reuters. It was just such a state guarantee that cost Vilnius millions of euros just over a year ago following the collapse of Snoras. That payout forced Lithuania to issue additional debt in order to cover the bill. Vasiliauskas told 15min.lt in November that: "After Snoras collapsed, the [Deposit Insurance Fund] was left with LTL1.7bn (€492m), but the state did its duty. I do not see why the mechanism should not work in case something happens again."
Snoras was nationalised in November 2011, then declared bankrupt, and is now being liquidated. Former Russian owner Vladimir Antonov is currently fighting extradition to Lithuania on criminal charges that he misappropriated millions of the bank's assets. With Snoras' Latvian subsidiary Krajbanka collapsing shortly afterwards, the actions of Baltic banking regulators have been severely questioned in the aftermath.
However, Vasiliauskas insists that the situation with Ukio is very different. "We have clearly seen intentional actions [at Snoras], and here it's more misconduct," he said.
Ukio has been haunted by a seemingly endless run of bad news recently, and reported a net loss of LTL44m for the first nine months of 2012 in October. It has been questioned by investors over the quality of its loans, valuations of real estate assets, and has starred in reports following warnings from the EU and International Monetary Fund (IMF) over the use of banks in the Baltic states by dubious depositors from Russia and other former-Soviet states.
Lithuanian prosecutors said in January that they had frozen offshore accounts while investigating claims that $13m from the alleged Russian tax fraud connected to the so-called "Magnitsky case" was laundered through Ukio. The probe was initiated in response to a request by investment fund Hermitage Capital Management, for whom lawyer Sergei Magnitsky was working when he uncovered the alleged embezzlement. The lawyer later died in pre-trial detention in Russia amid accusations he was beaten and denied medical treatment.
Russian born-businessman Vladimir Romanov owns 64.9% of Snoras and is chairman of the board. Also the owner of Edinburgh football team Hearts, Romanov spooked the market on February 8 when he said he is set to relinquish ownership of the Kaunas Zalgiris basketball club. Investors baulked at the thought that the main shareholder of the bank is unable to support stability at a mere sports club, and Ukio lost 25% of its capitalization through the week.
The Nasdaq OMX Vilnius stock exchange announced in a statement that it has suspended trading in Ukio shares at the central bank's request. However, that order was not carried out before the stock plunged another 12% in Vilnius. It's current market capitalisation of €32.9m is less than half of its valuation a year ago.