Joint press release by Iceland’s Ministry of Finance and the Resolution Committee of Landsbanki Íslands hf:
Key points:
* The Icelandic state acquires 81% of the share capital in Landsbankinn (NBI hf).
* Equity contribution by the state will be ISK 122 billion, 5 billion lower than previously estimated.
* Landsbanki’s Resolution Committee, on behalf of creditors, will control 19% of NBI .
The Icelandic government, the Resolution Committee of Landsbanki Íslands (“the old bank”) and new Landsbankinn (NBI) have signed a final agreement on the settlement of assets and liabilities following the division of Landsbanki Íslands into old and new banks, following its collapse int October 2009. Representatives of leading creditors have participated in the negotiations.
Under the terms of the settlement, NBI will issue a debt instrument with a 10Y term to the old bank in the amount of ISK 260 billion. The instrument is foreign currency denominated, thereby ensuring NBI foreign currency funding, and is interest-only for the first five years. The old bank will additionally receive shares in the new bank amounting to ISK 28 billion, or the equivalent of 19% of the total share capital of the new bank..
Together the debt instrument and the share capital compensation are equivalent to the assessment by the new bank of the assets taken over net of liabilities, while in the estimation of the Resolution Committee and its advisors this represents a minimum value for these assets. Should the value of the assets transferred prove to be more than this assessment assumes, the new bank will issue an additional debt instrument to the old bank, which could amount to ISK 92 billion, and instead the compensation shares would go back to the government and an employee fund to be established. . Final assessment of the assets will be made at year-end 2012.
Following the agreement, the state’s holding in NBI hf. is 81%, but could become higher if economic developments to the end of 2012 prove favourable, with the result that the new bank issues an additional debt instrument. In concluding the settlement, the Icelandic government has been advised by the UK-based financial consultants Hawkpoint while Landsbanki’s Resolution Committee was assisted by Barclays Capital.
The total share capital of NBI will be ISK 150 billion, ISK 122 of which will be contributed by the state in the form of government bonds. The government capital injection is ISK 5 billion less than anticipated in the Head of Terms announced in October.
Minister of Finance, Steingrímur J. Sigfússon:
“The agreement which has now been concluded with Landsbanki’s Resolution Committee is the final step by the government in recapitalizing the three new banks. This agreement fulfils the government’s objectives in all principal respects, securing a stable banking system, following a fair settlement with creditors, and the outlook is for an acceptable return on the state’s equity contribution.”
Resolution Committee Chairman Lárentsínus Kristjánsson:
“From the Resolution Committee’s perspective this is a very acceptable outcome, and we are pleased that a conclusion has been reached. The negotiation process has been a very significant task and much work has gone into resolving it. Concluding this agreement marks a certain turning point and enables us to devote more energy to other issues of major importance.”
Minstry of Finance, December 16 2009
Vilhjalm Antonsen said:
>What’s going on? It looks like Iceland has already decided to reject the Icesave agreement.
I was wondering what was happening with IceSave. It has been quiet for such a long period – I thought perhaps the M.P’s had absconded to leave Governmental decisions in the hands of commercial referenda.
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16539&ew_0_a_id=355365
But, not yet it would seem. Advice has been received from a UK law firm on aspects of the agreement.
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16539&ew_0_a_id=355490
As an aside – UK Local Authority reps are in Iceland today arguing their case.
http://news.bbc.co.uk/1/hi/business/8417643.stm
Here’s what the IMF says:
“The recapitalization of the banking system should soon be complete. Care must be taken, as it comes to a conclusion, to avoid absorbing private sector losses, and to treat creditors fairly, in line with applicable law. Further operational restructuring and implementation of the voluntary framework for private sector debt restructuring lie ahead. These actions will ultimately allow for a revival of credit, which will support Iceland’s recovery.”
In other words, no write-offs of business or homeowner debt, and foreign creditors must get paid, if you want any IMF money
The Icelandic government is breaking both of these “promises”. Icelandic businesses already have, or will get big write-offs, and foreign creditors are going to get practically nothing.
So there will be no more IMF loans.
This arrangement doesn’t make much sense.
Old Landsbanki creditors are owed a very large amount of money, probably at least 1500 billion ISk and maybe up to 2500-4000 billion ISK.
Yet all the creditors get is the small amount of 260 billion ISK – almost nothing.
The Icelandic government, using the Emergency Law, has picked out the assets from the dead carcass of Old Landsbanki and left nothing behind except debts.
The creditors will be very angry and will sue in the EU courts and with the help of Britain kick Iceland out of EFTA. In addition, this lack of accepted international treatment of creditors violates one of the clauses in the Icesave agreement.
What’s going on? It looks like Iceland has already decided to reject the Icesave agreement and forget applying for EU membership and will go it alone as a Cuba of the North Atlantic. Probably without any more IMF loans too.
I understand why Iceland would take such an action, since there is no way to pay off the creditors for 1500-3000 billion ISK in debts. But the logical step would be simply to put Old Landsbanki into formal bankruptcy. This would preserve Iceland’s chances of entering the EU and getting the Euro and collecting IMF loans. Iceland has no future without a real currency and no relations with Europe or foreign banks.
Interestingly, the first news article about the “New Landsbanki” mentioned that the government would give a bond to Old Landsbanki – ie the foreign creditors – in the amount of 2470 billion ISK:
http://eyjan.is/blog/2009/12/16/asmundur-stefansson-landsbankinn-i-lykilhlutverki-vid-endurreisn-islands/
“þar kom fram að erlend fjármögnun sé nú tryggð eftir að hinn nýi banki gaf út skuldabréf til tíu ára upp á 2470 milljarða króna til Landsbanka Íslands hf.”