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Document Type

Case Study

Case Series

Resolution and Restructuring

JEL Codes

G01, G29

Abstract

Heading into the Global Financial Crisis, JSC Parex banka was Latvia’s second-largest bank in terms of assets, comprising 13.8% of total assets in the Latvian banking sector. In autumn 2008, Parex faced a capital shortfall due to massive credit and market losses in addition to increasing liquidity problems and deposit runs of 240 million Latvian lats (USD 428.6 million). Parex had two senior syndicated loans maturing in February and June 2009, totaling EUR 775 million (USD 992 million), or nearly one-sixth of the bank’s total liabilities. Latvian authorities doubted that Parex would be able to pay back, extend, or replace these loans. Authorities intervened at the beginning of November 2008 to provide emergency liquidity, take over the management, and inject capital. The two majority shareholders, who owned 85% of the bank, were effectively wiped out, while the minority shareholders and subordinated debtholders ultimately received nothing for their investments. In August 2010, the Latvian Privatization Agency split Parex into a new good bank and a remaining bad bank; the minority shareholders remained with the bad bank. The good bank, AS Citadele banka, was sold for EUR 74.7 million to Ripplewood Advisors LLC and a group of 12 international investors in April 2015. As of the writing of this case, the bad bank, AS Reverta, is still in liquidation. Latvia’s support for Parex peaked at EUR 1.7 billion. The state had lost EUR 428.8 million in share capital and EUR 339.7 million in liquidity support for a total loss of EUR 767.5 million as of December 2022.

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