The Central Bank of Iceland, on behalf of itself and the National Treasury of Iceland, has concluded an agreement with the Banque centrale du Luxembourg (BCL) and the liquidator of Landsbanki Luxembourg S.A., concerning the purchase of 98% of outstanding Avens B.V. bonds.
(Central Bank of Iceland press release)
The bonds were owned by Landsbanki Luxembourg S.A. and pledged to BCL as collateral for a liquidity facility provided in 2008. Landsbanki Luxembourg S.A. is a subsidiary of Landsbanki Íslands hf.
According to the agreement, the Central Bank of Iceland will gain full control over the assets of Avens B.V., which is the largest single owner of króna-denominated assets outside Iceland, with ISK holdings amounting to around 120 b.kr., or one-fourth of all króna-denominated assets owned by non-residents. About one-third of this amount is in bank deposits, while the remaining two-thirds are in bonds issued by the Treasury or with a Treasury guarantee.
The Central Bank of Iceland will remit a large portion of the purchase price with a 15-year Treasury bond in the amount of 402 million euros. The bond in question is an amortisation bond bearing variable interest based on EURIBOR rates plus a premium aligned with the terms offered by the Nordic countries to Iceland.
No decision has been taken on the disposal of Avens B.V.’s assets. The assets will be administered by ESÍ ehf. (the Asset Holding Company of the Central Bank of Iceland), as is the case with other assets and claims that have reverted to the Treasury and the Central Bank in the wake of the banking collapse.
Már Guðmundsson, Governor of the Central Bank of Iceland, and Yves Mersch, Governor of the BCL, signed the agreement in Luxembourg yesterday. On this occasion, Governor Már Guðmundsson said, “This agreement is an important milestone in the settlement following the collapse of the Icelandic banks. It will reduce the Icelandic economy’s external debt by more than 3,5% og GDP and will reduce non-resident ISK holdings by nearly one-fourth, or about 8% of GDP. This agreement is an important premise for capital account liberalisation in Iceland. I would like to thank Governor Yves Mersch and his colleagues, and the liquidator of Landsbanki Luxembourg, Mrs. Yvette Hamilius, for their considerable efforts in leading this issue to a successful conclusion. The friendship and constructive spirit expressed by Governor Mersch throughout this process helps to overcome some of the problems created by the collapse of Icelandic banks during the financial crisis and lays a sound foundation for the continued good co-operation between Banque centrale du Luxembourg and the Central Bank of Iceland.”
[…] Central Bank of Iceland takes control of krona denominated bonds […]
Some background to this can be found in a report by the CB Iceland page 10/11.
http://sedlabanki.is/lisalib/getfile.aspx?itemid=6795
It may be germane to mention that the author, Eiríkur Guðnason (ex-CB Director) is listed as one of the 12 unholy apostles.
There is another bit from July 2009
http://icelandtalks.net/?p=520
“Sigurjón Árnason the ex Landsbanki CEO and the author of this Avens mess, and the infamous Icesave scam is now a lecturer at the Reykjavik University teaching first years BS students all about financial engineering.”
What does BS stand for? :)
Thanks for the invitation Fisy.
I’m not 100% up on this corner of the Icelandic meltdown. But I do recall (dimly I admit) that Landsbanki was using Icelandic government bonds as collateral for Euro discount window loans from ECB via the Luxembourg Central Bank. I can’t swear to it, but I dimly recall the ECB being annoyed about that trick. The discount window facility is strictly for Euro-based banks. Landsbanki was using its offshore subsid to access the window and then route the money out of the Euro area. Naughty! Naughty!
I guess this latest news is the Icelandic state unwinding those positions. They would do this for two reasons. First, it was their bonds used as security. Secondly, it will ease their relationship with the ECB. It might even be that the ECB had hinted that they wouldn’t look favourably on Iceland until and unless those backdoor positions are cleared. So it’s a sort of goodwill move by Iceland to unravel part of the damage done by Landsbanki. Also, from the ECB point of view they want to get hold of as much euros as they can – things are hot in the FX market right now.
That’s my take, but I stress I’m only guessing and I may have got details around my neck.
The Oddsson complaint that the European Authorities were trying to bring down the Icelandic banks is pure rubbish.
I would also highlight that the interest being paid by the Icelandic authorities is the good old EURIBOR plus Nordic add-on. That is exactly the formula offered by the UK and Holland but deemed to be a rip-off by some Icelanders.
All written in haste so apologies for inaccuracies etc.
>I was talking about this before many times but it was pushed under carpet by poster such as Brumely.
Wrong on both counts Fisy, as you can see from the final post in your first link.
And seeing as I’m doing a drive-by posting, I’ll ask you how your response to the Kaupthing legal case news is coming along? Nearly done? :D
This bond paper ( issued by Avens B.V. in Holland started by Landsbanki ) was used for collateral via Banque centrale du Luxembourg ( BCL ) to get loans from the European Central Bank via they discount window in the eurosystem ( in eurospeak it is called Standing Facilities ).
In simple terms Landsbanki was using it to borrow Euros with bonds based on bonds issued by Icelandic government.
As European Central Bank did tighten up collateral in 2008 ( mainly actually due to abuse by Spanish banks ) it did not effect what was being done but then suddenly they did announce these margin calls and then rescind those calls suddenly, causing massive troubles for Landsbanki and Kaupthing because of it.
I was talking about this before many times but it was pushed under carpet by poster such as Brumely.
https://www.icenews.is/index.php/2009/02/13/former-icelandic-pm-haarde-on-hardtalk/#comment-64707
https://www.icenews.is/index.php/2010/04/12/central-banks-wanted-to-bankrupt-icelandic-banks/
[…] Central bank of Iceland buys krona bonds back from Luxembourg – Ice News […]
Easy you are missing point, which is that this does do various positive things.
Main thing is that it does stop those others from dumping the ISK when they can. This way it is controlled exchange.
Mike UK Nordic analyst please feel free to join in.
In other words they just change that debt, from ISK to Euros. “we don’t want these kronas anymore, I give you some years but change it to euros now”
Sounds to me like the krona is gong down the drain(I mean completly), and this was a (forced)deal, before those kronas would loose all of their value. Just a hunch