Latvian bank fights off deposit run

[December 12, 2011]  RIGA, Latvia (AP) -- Latvia's largest bank scrambled Monday to head off a run among depositors who were gripped by rumors of the bank's imminent ruin.

Weekend rumors that Swedbank was facing legal and liquidity problems in Estonia and Sweden sent thousands of Latvians to bank machines on Sunday, with some lines reaching as many as 50 people.

Latvians are particularly sensitive to speculation about banks' health. Latvijas Krajbanka, the country's 10th largest bank, was nationalized last month after regulators discovered evidence of massive fraud allegedly carried out by the bank's former owner, Russian businessman Vladimir Antonov. Depositors were deprived of access to their funds for days.

And three years ago the country's second largest bank, Parex Bank, entered technical default and had to be taken over by the government, which in turn forced Latvia to appeal to international creditors and the European Union for a euro7.5 billion ($10.5 billion) bailout.

Prime Minister Vladis Dombrovskis told journalists that the rumors were spread maliciously with the intent to harm Latvia's banking system, the Baltic News Service reported. Interior Minister Rihards Kozlovskis said that police have opened a criminal investigation.

The rumors were contained to Latvia and did not spread to neighboring Estonia and Lithuania, which also have affiliates of the Swedish-controlled Swedbank.

Maris Mancinskis, Swedbank's Latvian chief, slammed the rumors as "absurd" and said in a statement that the bank was functioning normally and that all deposit holders would have full access to their money via bank machines and branch offices.

Mancinskis told LNT television that the rumors started last week and proliferated over the weekend, culminating in Sunday's rush to bank machines.

Kristine Jakubovska, a spokeswoman for Swedbank, said that depositors had withdrawn 24 million lats ($48 million) by Monday morning, or about 1.5 percent of all deposits in the bank, according to data of the Latvian Commercial Bank Association at the end of September.

Swedbank passed the European Banking Authority's most recent stress test, the results of which were announced in July.

The Latvian branch of Swedbank had assets of 3.8 billion lats ($7.4 billion) as of Sept. 30, or nearly one-fifth of the country's banking assets.

[Associated Press]

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.