Prime Minister Geir H. Haarde revealed at a press conference yesterday after the state’s acquisition of a 75 percent stake in Glitnir Bank, that the bank’s leaders had originally requested a EUR 600 million (USD 866) loan from the Central Bank.
According to Haarde, the leaders of Glitnir had wanted to submit insurances although they realized that the Central Bank had to be “flexible” in order to accept them. The government deemed the insurances too weak for loan granting and rejected Glitnir’s request, Morgunbladid reports.
The government also thought granting an “emergency loan” would not give a credible message to the market, which would have extended a period of uncertainty since it would not ensure that the same situation would not emerge at the next settlement day.
“It would have been irresponsible of authorities to treat the funds of the public in such a way,” Haarde said.
The bankruptcy of Lehman Brothers on September 15 is believed to have been a major factor in Glitnir’s credit crunch. Following the event, faith dwindled on the financial market and the bank’s loan channels closed one after the other.
According to Morgunbladid, many of Glitnir’s shareholders are dissatisfied with the nationalization of the bank, pondering whether the bank’s leaders had been too quick in accepting the process after their request for a loan was rejected.
Chairman of the Central Bank board of directors Davíd Oddsson said at a press conference yesterday that no other bank had sought assistance from the Central Bank.
Oddsson said the financial situation of Glitnir Bank had changed suddenly and “if we had not taken these actions the worth of shares in the bank would have been zero. If the bank is not helped during difficult times it does not survive.”
CEO of Glitnir Bank Lárus Welding said at the same press conference that the intervention of the state strengthened the equity position of Glitnir considerably, left no doubt on the financial situation of the bank and was consistent with actions taken in Iceland’s neighboring countries, but “it has unfortunately had a negative impact on current shareholders.”
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