Selling for the highest possible price has always been a priority in the sale of Citadele Bank. At the same time, conditions voiced by the European Commission and European Reconstruction and Development Bank were not taken into account sufficiently.
Those conditions limited that government’s options in making independent decisions in the bank’s selling process and could influence opinions of potential buyers about the bank’s value, as noted by the State Audit.
As a result of that, the bank’s sale was delayed to the last moment, leaving the state no room to manoeuvrer to establish favourable conditions for the sale. SA concluded in its report on the sale of state owned capital shares in Citadele Bank.
It was clear at the moment when Parex Bank was taken over that it was an unprecedented act for establishment of financial stability in the country. Knowing the importance of the deal for the country, its size and potential impact on the state budget, the government should have created special rules to govern decision-making processes in relation to the restructuring of Parex Bank, including the sale of Citadele Bank. Instead of that, the government decided to sort out the structure of the deal to comply with regulations stated in the Law on Governance of Capital Shares of a Public Person and Capital Companies, which did not come close to secure accessibility of all necessary tools to ensure realization of state interests, SA noted.
The government’s decision states that the Privatization Agency became the shareholder in Citadele Bank. As time went by, the Privatization Agency made no decisions in relation to the bank’s sale process. Moreover – board members were provided with guarantee contracts that provided for the compensation of any losses from the state side should the losses arise. The government made all conceptual decisions in relation to the bank’s sale process. The Privatization Agency served as a mailbox between the government and associated consultants. The latter were the ones to develop solutions for the government’s decisions. Ministries provided no opinions on the deal. Opinions provided by the Bank of Latvia were not taken into account for inexplicable reasons, as concluded by SA.
Auditors believe the sale of Citadele Bank provided Privatization Agency with EUR 74.7 million. Nothing of this amount was left for the state budget, because EUR 76.97 million, the amount that exceeded the EUR 74.7 million received as a result of the sale, was paid to the European Reconstruction and Development Bank.
The Privatization Agency’s realized management of Parex Bank’s restructuring, including the formation of Citadele Bank’s and its sale resulted in the state being paid at least EUR 6.5 million. EUR 5.5 million of this amount was paid to consultants. The Privatization Agency could not provide a report on the use of the remaining EUR 1 million, SA reports.
«Why is it possible to conclude that the state could have earned more? First of all, based on conclusions made by multiple independent experts, the bank’s value was 25 to 75 million euros higher that the selling price. Secondly, selling the bank at the last moment put the government in a situation when it was no longer possible to defend Latvia’s interests. To complete the deal within terms coordinated with the European Committee and realize commitments stated in cooperation agreements compiled by the European Reconstruction and Development Bank, it was necessary to accept conditions put forward by partners without questions. The State Audit also had an opportunity to learn that among contenders were also investors who offered higher prices. Nevertheless, to preserve reputation, the government should have assessed the price in accordance with other condition. Had all of those factors been taken into account, with the sales strategy planned in advance, it is possible that it would have been possible to sell the bank without delaying the sale process,» – SA reported.
The sale of Citadele Bank is not the only example of a large-scale national deal that does not provide confidence about sufficient protection of state interests. Other examples include Liepājas Metalurgs, airBaltic and upcoming decisions in regards to the future of state owned shares in Lattelecom, LMT, Rail Baltica and other matters that not only impact the national economy, but also require considerable financial investments, the State Audit notes, hoping conclusions made in the report will be taken into account and help prevent any future mistakes of that kind.