Announcement from Glitnir’s Resolution Committee, the Ministry of Finance and Íslandsbank:
Creditors Acquire 95% of Share Capital in Íslandsbanki
- Glitnir, on behalf of creditors, acquires 95% of Íslandsbanki’s share capital
- Glitnir will appoint 4 directors of 5 on the bank’s Board of Directors, the fifth will be appointed by the Icelandic government
- This conclusion will strengthen Íslandsbanki and reinforce its co-operation with foreign financial institutions
- As the government´s ’s contribution will be much lower than originally estimated, this will reduce Treasury debt
Glitnir’s Resolution Committee has, on behalf of its creditors, decided to exercise the option provided for in its agreement with the Icelandic state and take over 95% of share capital in Íslandsbanki. The outcome is based on thorough due diligence carried out by Glitnir’s advisors on Íslandsbanki’s operations.
This concludes the settlement concerning those assets transferred from Glitnir to Íslandsbanki upon the collapse of the commercial banks last October. According to the agreement on settlement between Glitnir’s Resolution Committee and the Icelandic government, signed on 13 September this year, the government will, furthermore, provide the bank with an ISK 25 billion subordinated loan to strengthen its equity and liquidity position.
The agreement represents a very significant step forward in the future reconstruction of the Icelandic financial system. The participation of creditors will facilitate the bank’s co-operation with foreign financial institutions. This outcome will also mean that the cost to the Government of refinancing the bank will be ISK 37 billion lower.
The Resolution Committee’s decision is subject to the approval of the Icelandic Financial Supervisory Authority (FME) and the Icelandic Competition Authority. Glitnir’s Resolution Committee will control the bank’s holding on behalf of its creditors through a special holding company. Glitnir will appoint 4 directors of 5 on the bank’s Board of Directors, with the fifth appointed by the Icelandic government.
According to the agreement between Glitnir’s Resolution Committee and the government of 13 September this year, Glitnir’s creditors were offered two options. One option was to acquire a 95% holding in Íslandsbanki, while the other was to accept payment in the form of debt instruments issued by Íslandsbanki, plus call options on as much as 90% of the bank’s shares over the next five years.
Following detailed examination it is the assessment of Glitnir’s Resolution Committee that accepting a 95% holding in Íslandsbanki will return maximum value to creditors. This assessment is based, on the one hand, on the opinion of the advisors who have assisted Glitnir, which include experts from UBS investment bank and the law firm Morrison & Foerster.
Árni Tómasson, chairman of Glitnir’s Resolution Committee:
“The Resolution Committee has made an extensive assessment of the two options available to creditors. It is the unanimous opinion of the Committee and its advisors that acquiring a 95% holding in Íslandsbanki is the better option, as there is a good probability that this route can return greater value to creditors,” says Árni Tómasson
Minister of Finance, Steingrímur J. Sigfússon:
“This decision by Glitnir, in consultation with creditors, to acquire an Icelandic bank is definitely gratifying. It is a clear sign that in the assessment of foreign investors an end is in sight to the international financial recession we have been struggling with in recent years. The final steps are now being taken in the reconstruction of the Icelandic banking system which will be fully prepared to service individuals and households, while promoting the recovery of business and industry.
It is important that the cost to the Treasury will be substantially lower than would otherwise have been the case, although in my estimation state ownership of Íslandsbanki would also have been a satisfactory option for the Treasury and the general public. The Treasury will provide the bank with equity and, in addition, with liquidity support if required. This therefore places the bank in an extremely solid financial position and its customers can entrust Íslandsbanki with their assets with full confidence.”
Birna Einarsdóttir, CEO of Íslandsbanki:
“We welcome this outcome, which I consider to be a declaration of confidence in Íslandsbanki, since creditors’ advisors have carried out very thorough due diligence on the bank’s operations. This will have a positive impact on our activities and is an important milestone in building a new bank. “I would like to point out that it will not affect Íslandsbanki’s everyday activities. We will continue our efforts to lead the way in providing solutions for our customers. For Íslandsbanki, and all of our employees who have made an untiring contribution to this effort, this is a day to be remembered.”
For further information, contact:
Árni Tómasson, chairman of Glitnir’s Resolution Committee, tel. +354 898 2994
Birna Einarsdóttir, CEO of Íslandsbanki, tel. +354 440 4005
Þorsteinn Þorsteinsson, Ministry of Finance, tel. +354 891 8913
(Press release)
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So, has Iceland subsequently banned some of its citizens’ assets (such as fishing rights) from ever being used as collateral again in future? (because Icelandic law prevents foreigners ever owning such assets)
Thank you for the correction…
I look forward to see how this Japaneese/German/British bank will be run
we would have to to the end of the earth to find someone worse to run the banks than the Icelanders who ran them before the state took them over,
the banks have been infested by people like jon Asgeir and Bjorgolfs, any change will be a improvement.
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Aggi said:
“as there is a good probability that this route can return greater value to creditors”
Indeed only greater value to creditors, no one else.
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Quelle surprise for the loan holders who found their loan have doubled in value in this crisis as well as being index linked to inflation.
The financial loss to the creditors pales into comparison with the loss to, for example, over leveraged house mortgage holders.
Creditors willingly pumped in an excessive foreign currency money supply into a fragile economy, smashing the limits of prudence and reason to go diving into the realms of investment insanity.
As with the effects on such over burnt economies, the main pain is carried by the ordinary citizen with mortgages and the business who are still left will struggle with the impossible for some time.
The citizens bear the brunt of a depressed economy, reduced public services, bear the brunt of the cost of a economic ruin and still have to pay off the losses of speculators who gambled on borrowed money.
It is an illusion that the State is actually the guardian of the citizens.
State money has been used to purchase housing assets from financial institutions at full inflated market price, to bring them into the ownership of the Housing Finance Authority.
State money has also been given to other financial institutions and we watch as they use that money to buy up housing assets at bottom forced auction price.
Aggi –
You don’t understand that the creditors are losing a great deal of money through this settlement. The correct wording to this item should be that the creditors will suffer less loss, rather than return greater value.
The bank’s creditors all along have insited that the Icelandic assets pledged as collateral to their loans must be yielded up. This is what normally happens in any winding up situation. But rather than break-up the bank the deal is to keep it intact as a going concern. It is this that gives the probability of suffering less loss.
The alternative would be for Glitnir to disappear as an institution – with loss of jobs in Iceland – and also widespread direct foreign ownership of Icelandic assets (houses, businesses, and various exploitation rights). In that case payments from mortgages would go straight out of the country, creating greater loss within Iceland and a deeper and longer lasting recession. Foreigners would then accumulate ISK and use it to buy more Icelandic assets. So again, Utlendingar, this is not just about the creditors – there are other stakeholders involved and they are gaining from this. (The only group definitely losing out are the old shareholders – but they knew that was the case last October.)
And Utlendingar you are NOT picking up anybody else’s bills – this is a purely commercial affair between the failed bank and its creditors. The role of the government in this is merely to supply a subordinated loan (a small one in the great scheme of Icelandic debt) which will be repaid by the bank. Why is the loan subordinated? Because the new owners don’t trust this, or future, Icelandic governments. If the government tries to grab back any Icelandic assets it will suffer loss.
In fact the subordinated bond isn’t money lost to anyone as such – it is merely an addition to the national debt. You can argue that this reduces the available national debt for other purposes but I would venture to say an investment in a foreign-owned Glitnir is more useful than some of the other uses the Icelandic government can think of!
I do wish people would look at what is happening in these deals rather than making incorrect points.
(In case I haven’t said this before – this deal, like many others, represents a “workaround” to avoid Icelandic legislation that runs counter to normal international practice. For example, many Icelandic owners of fishing rights used those rights as collateral to take loans. Now the loans are unpaid those rights revert to the creditors. Since most of those creditors are foreigners this would have meant that foreigners would become direct owners of Icelandic fishing rights. So there you have a contradiction between two Icelandic laws. By maintaining Glitnir as an Icelandic legal entity that clash doesn’t occur. Equally, the Emergency law of last year set up a series of artificial barriers that would stop normal winding-up proceedings. That law is essentially trashed in this case.)
I think you guys misunderstand. If Iceland hadn’t changed the rules to prioritise depositors and nationalised the banks, the banks would have been wound up and the creditors (including Icelandic depositors) paid back a percentage of what they were owed.
That didn’t happen. All of the Icelandic deposit monies have been protected, but that isn’t going to happen for free.
Aggi, I guess this is what it’s all about… the creditors. We are here only to pick up everybody’s bills.
“the government will, furthermore, provide the bank with an ISK 25 billion subordinated loan to strengthen its equity and liquidity position”
Where is this money going to be squeeze from? or better, from whom? at what interest rate?
“as there is a good probability that this route can return greater value to creditors”
Indeed only greater value to creditors, no one else.