Citadele Bank

The Government of Latvia Postpones Sale of Citadele Bank Shares; Citadele to Continue Stable Development

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The Cabinet of Ministers of the Republic of Latvia has decided not to restart the sale of Citadele Bank at this time, which means that until further decisions are taken by shareholders, Citadele will remain under the ownership of its current shareholders – the state stock company Privatisation Agency and the European Bank for Reconstruction and Development. Citadele Bank will also continue to develop as successfully as it has done in the past.

Citadele will continue to grow and develop in terms of providing a full spectrum of financial services, providing them to individuals, companies and institutions and also working in the sector of private capital management.

The Cabinet of Ministers decided not to restart the sale of shares in the bank on the basis of a recommendation from its consultant, Nomura International plc (Nomura). The recommendation was based on a detailed analysis of the market and the situation. The Cabinet of Ministers decided to return to the issue of selling the bank next May, when Nomura and the Privatisation Agency will submit their evaluation on the matter.

The Privatisation Agency Chairman of the board Ansis Spridzans: “Stable development and profitable operation of Citadele Bank affords the government flexibility to choose the best timing for the sale, thus maximizing funds expected from the sale process.”

Pursuant to the approved restructuring plan the Citadele Bank sale process was launched in July last year. Further to the recommendation of the financial advisor Nomura and the Privatisation Agency in December 2011, the sale process was delayed because parties considered that the state would not be able to get the maximum possible amount of proceeds from the sale transaction. The government decided to review possibility to restart the bank's sale process in October 2012, when the Privatisation Agency and Nomura were required to report on the prevailing conditions in the financial markets and provide recommendations on the further sale process.

The latest report submitted to the government by the financial advisor Nomura stated that the current dynamics of the banking sector is not conducive to the resumption of the sale process because of limited M&A activity, as well as weak macroeconomic situation and debt crises in the European Union. In addition, the regulatory framework (Basel III) introduced this year reduces the resources available to European banks for potential business expansion. Given that the M&A market has not shown a significant improvement since the last strategy review, the financial advisor Nomura has recommended not to restart the sale process.

During the first half of 2012 Citadele Bank and its subsidiaries continued the stable development path, operating profitably at the group level. In the first half of 2012 the bank achieved profit before provisions and taxes of LVL 9.6 million (at group level – LVL 11.4 million), showing significantly better results than the previous year's first half. After taxes the bank's profit in the first half of 2012 was LVL 2.5 million (at group level LVL 4.6 million). Citadele in the first half of 2012 received the highest score in the Baltic Institute of Corporate Governance study "State corporate governance in the Baltic countries", where Citadele was recognized as the best-governed state-owned enterprise in the Baltic countries. Citadele Bank in the first two years of its operation has proven to be an active player in the lending business, especially in providing support for agriculture and industrial sectors, the bank is the third largest bank by number of customers and one of the leaders in the credit card market (2nd place by the number of issued credit cards).

Citadele Bank Chairman Guntis Beļavskis said: "Citadele Bank continues to strengthen its position in the market and fulfils the obligations towards the state better than expected. This year the bank has managed to repay before the deadline all state deposits in total of LVL 143.13 million. In addition to state deposits the bank has repaid to the state LVL 25 million."

The decision on the postponement of the sale complies with the overall objectives of the restructuring plan, which provides for the sale of the bank to be completed by 2014. The bank will continue to operate as a fully licensed universal bank and will implement the approved business plan.

The government also decided to support the opening of negotiations with the EC on the amendment of the restructuring plan for the development of a number of possible solutions to the bank's sale, which currently the plan does not provide for. Given that the sale process according to the restructuring plan has to be completed within the specified time limit, the government believes that the plan should be more flexible and appropriate to meet the current situation in the financial markets.

75% minus one Citadele Bank’s shares are possessed by the State Joint Stock Company Privatization agency on behalf of the Latvian State and the owner of 25% plus one share is the European Bank for Reconstruction and Development (EBRD).

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