November 18, 2011 / 7:12 PM / 8 years ago

UPDATE 2-Lithuania sees no need for public money in Snoras restructuring

* Finmin says likely no public money needed to restructure Snoras bank

* Snoras has sufficient assets to cover insured deposits

* Liabilities not covered by insurance to receive “substantial haircut”

* C.bank says no run on other banks, board meeting on Sunday (Adds central bank, quotes, background)

By Nerijus Adomaitis

VILNIUS, Nov 18 (Reuters) - Lithuania probably won’t need to inject public money in the restructuring of the country’s third-largest bank Snoras, which it took over on Wednesday, the finance ministry said on Friday.

Lithuania unexpectedly took control of Snoras — the country’s fifth largest bank by assets and the third by deposits — at the request of the central bank, which said it found a 1 billion litas ($391.7 million) hole in the bank’s assets, and prosecutors said they opened a probe.

The scenario of the government having to inject public money into Snoras, which is to be split into a “good” bank with healthy assets and insured deposits, and a “bad” bank to be put under bankruptcy, was “extremely unlikely”, the Finance ministry said in a presentation material on the takeover.

“Public money will only be needed in the event that the misreported amount in Snoras’ balance sheet exceeds 1.5 billion euros, or 62 percent of assets reported on the balance sheet as of Q3 2011,” it said.

However, liabilities not covered by a deposit insurance mechanism, such as bonds, would receive “a substantial haircut”, it added.

The presentation showed insured liabilities may approximately total 1.4 billion euros compared to total liabilities of about 2 billion euros of September.

The insurance deposit facility of over 0.5 billion euros could be used to settle insured liabilities in case available assets would not be available.

Bank assets totaled 2.4 billion euros as of September, but the central bank suspects Snoras over-reported in the balance sheet about 300 million euros.

“LB (Lithuania central bank) suspects that Snoras was engaged in gross fraud and knowingly reported false financial statements,” the presentation said.

Snoras was 68 percent owned by Russian businessman Vladimir Antonov, who had also tried and failed to buy Swedish car maker Saab after being denied ownership by a Saab creditor, the European Investment Bank.

Antonov’s Lithuanian business partner in Snoras, Raimondas Baranauskas, has called the bank’s takeover “robbery” and said he was considering legal action to defend his interests.

In neighboring Latvia, banking authorities slapped on Thursday restrictions on taking deposits out of Snoras’ local subsidiary Latvijas Krajbanka.

Both Snoras and Latvijas Krajbanka were involved in recapitalizing Latvia’s national carrier airBaltic earlier this year.

“Since Snoras, as Latvijas Krajbanka shareholder, has issued a large loan to airBaltic, in the future we might have also a national airliner,” Stasys Kropas, head of Lithuania commercial banks association, told BTV television.

Latvian government owns majority of shares at airBaltic.

Snoras is also the major shareholder of Lithuanian national daily Lietuvos Rytas.

NO RUN ON BANKS

Snoras has been put under temporary administration, while most of its operations were restricted until the central bank’s ruling expected on Sunday.

The immediate impact of the takeover on the real economy was unclear, and while some companies experienced problems due to frozen accounts at Snoras, there were no signs of run on other banks.

The level of deposits withdrawal from the country’s banking system, dominated by Scandinavian banking groups, was close to usual, the central bank said on Friday.

“There is absolutely no panic. The total amount of deposits at the country’s banks declined by 100 million Lithuanian litas on Thursday. That’s 0.2 percent of total deposits,” Vaidievutis Geralavicius, a board member of the central bank, told reporters on Friday.

The central bank would decide on Sunday evening on further restrictions on money withdrawal from Snoras, after hearing a report from Snoras temporary administrator on its assets, he added.

The Finance ministry said in the presentation Snoras takeover was no threat to the banking system because its total exposure to interbank lending was less than 23 million euros.

The other domestic banks had substantial liquidity buffers, while the central bank was ready to provide liquidity loans if needed, but now such request were made.

The presentation has said Lithuania banking sector’s aggregate capital adequacy ratio was 14.1 percent, including Tier 1 capital at 11.2 percent, as of October 1.

Analysts said earlier in the week a need to inject capital into the restructured bank would force Lithuania to borrow more next year, while the country already has to refinance a billion euro Eurobond next May.

Algirdas Semeta, the European budget and tax commissioner, told reporters the European Commission (EC) was ready to act quickly if Lithuania request permission to provide state assistance to Bank Snoras.

The Finance ministry said preliminary contacts regarding possible support to Snoras were made with the EC, but no decisions have been taken.

The takeover is the first major Baltic bank crisis since Latvia rescued a top bank in 2008, forcing it to seek a 7.5 billion euro bailout. ($1 = 2.553 Lithuanian Litass) (Reporting by Nerijus Adomaitis; editing by Ron Askew)

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