Banks, Financial Services, Latvia, Legislation

The Supreme Court on June 13 ruled to satisfy Rems Kargins’ claim against Reverta, the court’s spokeswoman, Rasma Zvejniece, told LETA. The company will have to pay to Kargins principal of his term deposit with Parex Banka, EUR 15 million, as well as the state duty of EUR 10,687 and legal expenses amounting to EUR 18,150.

"For now we can only express our bewilderment over the court’s ruling,” Reverta’s legal representative Agris Bitans told LETA, adding that they were waiting for the release of the full text of the verdict with the court’s reasoning because only the short version of the verdict had been announced so far.

If the Supreme Court ruling takes effect, it would ”seriously affect the interests of the state and tax payers,” the lawyer said, pointing out that in that case EUR 15 million from the money recovered by Reverta would be paid not into the state budget but to the family of the former Parex Bank shareholder. Moreover, the European Commission most probably will deem the payment to be unlawful state aid which might lead to harsh sanctions, Bitans said.

"It is clear that Reverta will file an appeal after receiving the full text of the verdict,” he said.

Under the amendments to the Law on Control over Support to Business that took effect on July 1, 2014, Reverta is to pay its subordinated debt only after it has fully repaid the state aid poured into Parex Bank. Maksims Kargins, another son of Valerijs Kargins, and Viktors Krasovickis, who used to own Parex Bank together with Valerijs Kargins, contested the legislative amendments before the Latvian Constitutional Court, which last year ruled that the amendments were constitutional.

In fall 2008, Parex Bank, the second largest bank in Latvia at the time, sought government assistance to stave off financial trouble brought about by the global financial crisis. To support the failing bank, the Latvian government decided to take over Parex Bank from the bank's founders, major shareholders and top executives Valerijs Kargins and Viktors Krasovickis.

In 2010, Parex Bank was split into a good bank and a bad bank. The good bank was called the Citadele Bank and successfully continued the banking business, but the bad bank, left with the distressed assets of Parex Bank and later named Reverta, ceased to provide commercial banking services and instead focused on restructuring of loans, recovery of debts and management of repossessed real estate in order to recover the money invested by the Latvian government in the Parex Bank bail-out.

Reverta’s shareholders are the Latvian Privatization Agency (84.15%), the European Reconstruction and Development Bank (12.74%) and other shareholders (3.11%).