EESTI UHISPANK            

ANNOUNCEMENT       

10.11.1998

 

COMMENTARY TO THE CONTRACTS WITH HÜVITUSFOND

 

Deriving from the articles published  in the press lately, we  find it

necessary to present a statement on the above-mentioned contracts.

 

The  Union  Bank  has  so  far  refrained from essential commentaries,

because  the  bank  has  found  it  unethical to explain the contracts

between the bank and the client in  the media. We are forced to do  it

because of the  elevated interest of  the publicity and  the press and

to avoid the possible misinterpretations.

 

On  November  3,  1997,  Margus  Kangro,  the  manager  of the capital

markets of the Estonian Union Bank and Andres Männart, the manager  of

the  financial  division  of  the  Hüvitusfond  concluded  a   forward

transaction, as a result to  which the Union Bank would  have acquired

143,7 million kroons worth of different kinds of securities traded  on

the Tallinn Stock Exchange possessed by the Hüvitusfond on May 5th  of

the current year.

 

At the  same time,  the Union  Bank and  the Hüvitusfond had concluded

another forward transaction, according to which the Hüvitusfond  would

have acquired different  securities traded on  the Russia's and  other

foreign  stock  markets  for  181  million  kroons.  It was a business

transaction based on the  exchange of positions between  two financial

institutions, from which both parties hoped to gain profit.

 

The ground for  concluding both of  the forward transactions  were the

opinions of  Andres Männart  and Margus  Kangro that  in the half-year

perspective  the  markets  would  rise,  but  the parties assessed the

buoyancy potential of the different shares differently.

 

After getting the information  about the conclusion of  the contracts,

the management  of the  Union Bank  found that  the risk deriving from

the transactions  is bigger  than the  potential profit  for the bank.

Also,  the  management  of  the  bank  decided  to  decrease the stock

positions  of  the  bank  and  made  a  proposal to the Hüvitusfond to

abrogate the  contracts. The  Hüvitusfond agreed  to the  simultaneous

abrogation of both  contracts.  By  the agreement of  the parties both

contracts were abrogated on the same day, on November 3,1997.

 

Cross-rights  and  liabilities  ended  with the abrogation agreements.

The  abrogation  of  the  agreements  enabled  both  parties to freely

liquidate their  stock positions,  if needed,  which was  also used by

the Union Bank.

 

During  the  period  after  the  conclusion  and the abrogation of the

contracts the parties have acted   according to the invalidity of  the

contracts. If  the contracts  would have  been valid,  the Hüvitusfond

must have transferred the amount of shares stipulated in the  contract

to the  Union Bank  on May  5, 1998,  and the  Union Bank  should have

transferred the  amount of  money determined  in the  contract to  the

Hüvitusfond,  and  vice  versa.  These  entries  were  never done. The

Hüvitusfond did not transfer the shares to the Union Bank on the  date

mentioned  nor  later,  and  neither  did  the Union Bank transfer the

money to the Hüvitusfond, and vice versa.

 

Both, the  Hüvitusfond and  Arle Mölder,  the former  chairman of  the

Hüvitusfond, who for  more than a  half a year  has not turned  to the

bank with the  application that the  bank would fulfill  the allegedly

not fulfilled  obligations to  the fund,  have acted  According to the

annulment of the contract.

 

The shortage of the sum, which makes up almost a tenth of the  balance

capacity of the  fund (143,7 million  kroons), from the  assets during

half a year, could  not have remained unnoticed  by the board and  the

chairman  of  the  fund.  Also  the  given  transactions have not been

reflected in the  balance confirmation as  of the end  of 1997 or  the

first half-year of 1998 sent to the Union Bank by the Hüvitusfond.

 

The statement of  the former leaders  of the Hüvitusfond  given to the

directory  board  of  the  fund  and  the auditors and revealed by the

media that the  contract has not  been abrogated on  November 3, 1997,

is an unsound lie. The Union Bank has not caused any financial  damage

to the Hüvitusfond.

 

The Union Bank confirms to  the clients, shareholders of the  bank and

the publicity that  the Union Bank  has proceeded from  the protection

of  the  interests  of  the  bank  and  good  banking  manners  in its

activity.  On   the  assumption   of  the   law  and   the   described

transactions, the Union Bank has no obligations to the Hüvitusfond.

 

Janek Mäggi

Vice President

Phone +3726104240