Refco exposure for Desmond's Latvian bank

A bankrupt US futures and currency dealer owes more than €126 million to the Latvian bank one-third owned by financier Dermot Desmond, according to court documents.

However the bank, Riga-based Rietumu, disputes the figure and has issued a statement saying that its exposure is actually closer to €100,000.

The US firm, Refco Inc and 23 of its subsidiaries, began Chapter 11 bankruptcy proceedings in the US federal court in New York this week. Documents filed with the court show that it has a $300 million (€251 million) shortfall between assets and liabilities, which it estimates at $16.5 billion and $16.8 billion respectively.

A petition lodged on October 17th shows that its unsecured creditors include Rietumu Bank and one of its subsidiaries, RB Securities.

The document states that Refco owes $100.8 million to Rietumu Banka and a further $50.6 million to RB Securities, a total equivalent to €126.8 million.

However, Rietumu has issued a statement saying that on October 17th, Refco owed it just $125,347, or €104,000.

"The news about multimillion exposure of Rietumu Banka to Refco is not true as it is based on old and unreliable information," the bank said.

The statement pointed out that Refco made a new petition on October 19th. Rietumu said that the information in the original petition was based on data from last February.

"Rietumu Bank once again makes it clear that neither the bank, nor RB Securities, has unsecured own assets in Refco, excluding $125,347 which the bank has already written off as possible losses," it stressed.

However it added that clients' funds were tied up in Refco bank accounts that were frozen as a result of the bankruptcy.

"Unfortunately, part of the RB Securities clients' assets in the form of securities have appeared in Refco's temporarily frozen accounts," it said. The statement did not put a value on the funds.

It said that the bank was working with one of the biggest law firms in the US in an effort to retrieve its clients' assets and transfer them to other financial institutions as soon as possible.

Rietumu is Latvia's fourth-biggest financial institution with assets over €1 billion. Mr Desmond bought a one-third stake in the business last August.

Neither he nor the bank said how much he had paid but analysts suggested that it could be as much as €300 million. Rietumu bank is chaired by Irishman Michael J Bourke, a former colleague of Mr Desmond.

Refco, which specialises in futures, derivatives and currency trading, ran into trouble on October 10th when it emerged that it owed an undeclared $430 million debt to a company controlled by its chairman and chief executive, Phillip R Bennett, who has since been suspended.

The company has petitioned for Chapter 11 bankruptcy, which is roughly equivalent to examinership proceedings in the Republic. Not all of the business is affected. Two of its regulated broking firms are trading as normal.

The company has negotiated a sale of the business to US investment firm JC Flowers, but it has since attracted the interest of a number of other suitors.