Dermot Desmond has made a career turning business heads.

But news that he had taken a one-third stake in Latvian bank Rietumu - which translates as "Western Bank" - raised more investor eyebrows than usual.

Behind the announcement is a link that goes back to 1980s Dublin and NCB Stockbrokers. Michael J Bourke, president of Rietumu and chairman of the executive board, worked from 1987 to 1990 at NCB as Mr Desmond's capital director.

"We'd kept in contact over the years," said Mr Bourke. "When we approached him, he was very positive. Most people are still nervous about eastern Europe and it still takes some selling, but it didn't take any time to get Mr Desmond interested. It just took time to find a structure that worked for everyone."

Rietumu was established as recently as 1992 and is now Latvia's fourth-largest bank in asset terms.

It concentrates on corporate business: short and medium-term loans, import/export and larger investment projects. The bank has an equity capital of €71 million and announced net profits before tax for the six months to June 30th last of 10 million lats (€14.4 million), a 43 per cent increase on the same period last year.

"Rietumu is well-respected and has a good reputation. It is also one of the last independents and if it wants to remain that way, then this investment is a good move," said one analyst who declined to be named.

"The Baltic markets are growing and the clever people are going to make some big money. This is the last chance to get into the market before they become very professional."

Latvia, along with its Baltic neighbours, has one of the strongest growth rates in the EU.

Last year, the economy grew 8 per cent, with foreign and domestic investment exceeding 30 per cent of GDP (gross domestic product).

The national debt is just 0.7 per cent of GDP, although inflation has risen to over 6 per cent.

Just days before Mr Desmond's investment was announced, international ratings agency Fitch gave Latvia a "stable A" rating, and raised its country outlook from "stable" to "positive".

"The key thing that is dawning on people is that this is a huge economic trade flow area," said Mr Bourke.

"The people on the other side of the border in Russia and Kazakhstan are oil producers and everyone knows where oil prices are going these days. They need everything the West can offer them in capital and consumer goods. That all comes through the ports here."

There are 22 banks operating in Latvia, but the biggest players are the Scandinavians, in particular Skandinavska Ensilda Banken (SEB) and Swedbank.

Unlike Rietumu, the Scandanavian-owned banks are hitting the retail market, pushing credit cards and home loans - mortgage lending increased by 78 per cent in 2004.

Together with the domestically-owned Parex Bank, SEB and Swedbank control over half the assets, equity and deposits in the Latvian banking sector. The sector performed well in 2004, with an overall increase in assets by 37 per cent to €11.1 billion.

It's a far cry from 1995, when four major banks filed for insolvency and closed down, sparking an industry-wide crisis. That prompted regulators to introduce stricter regulations, tighter supervision and a deposit insurance scheme.

But just as banks were recovering, the Russian economic crisis struck in 1998, and even more banks went to the wall.

"Rietumu was over-exposed to Russian government securities and consequently, the bank suffered a significant loss of €18.5 million," said Viesturs Bernans, associate banker of the European Bank for Reconstruction and Development (EBRD) in Riga.

"Consequently, the council and board decided to decrease Rietumu's exposure to Russia."

There is general agreement that the surviving banks, including Rietumu, are in sturdier shape as a result. "The Russian crisis shook us apart," said Mr Bourke. He joined the bank in 1997 after a time working for the EU Phare programme and as a consultant to the president of the Bank of Latvia.

The opportunity to bring aboard Mr Desmond arose when Rietumu co-founder Tony Levin, a former vice-president of Diners Club, decided to spend more time with his family in Chicago.

Mr Desmond bought out Mr Levin and some other smaller shareholders to give him a 33.1 per cent stake - equal to one other Latvian shareholder - and the right to appoint two members to the supervisory council, equivalent to the board.

His appointees are likely to be from "within Mr Desmond's own structures", according to Mr Bourke, who sees the investment as a chance to attract more western funds and break the bank's dependence on money from Latvia and further east.

Latvian analysts estimate that more than half the cash on deposit in Riga comes from eastern Europe, Russia in particular, giving Latvia a reputation for money laundering and corruption.

That has made international watchdogs nervous in the past, but authorities say that the problem has been addressed by anti-corruption EU directives and domestic legislation.

"It has been brought under control," said Uldis Cerps, chairman of the FCMC, the Latvian financial regulatory commission. "There is always a possibility that criminals can surface. The most important thing is that systems are in place to address that, from a legislative level down to the banking level, and those systems are in place."

In a statement, Mr Desmond praised Rietumu's "tremendous track record".

"We share a common vision for the future development of the bank - to be the leading corporate and wealth management bank in the Baltic region and CIS."

Mr Desmond said he has no interest in increasing his shareholding in the bank.

Mr Bourke said: "That's open to increase as in any business. At the moment, though, it's important to bed down the investment and continue to increase its value."

Rietumu's future is looking for western funding and staff, he said, but not as a subsidiary of a larger bank .

"It would be more attractive to bring in private equity funds. We are prepared to let someone have a passive minority stake," he said.

"The money's only the beginning, though. Mr Desmond's contacts, reputation, his charisma and vision all come into play," said Mr Bourke."It's really true, it's not just bull."