State regulators have released a report on the controversial sale of Íslandsbanki shares that took place this March. Among the considerations of the report are details on the dissemination of information of the sale, the determination of its sale price, and the selection process for determining the qualified investors.
After the 2008 banking collapse, the insolvent banks were restructured, leading to the partial socialisation of Iceland’s three major banks, Landsbankinn, Arion, and Íslandsbanki. Landsbankinn continues to be held by the state with a majority share.
However, Íslandsbanki has been gradually privatized since the restructuring, with an initial 35% of Íslandsbanki shares being sold in June 2021. After a sharp rise in share prices after the sale, some claimed that the shares were undervalued.
In March 2022, a second round of sales was slated, with 22.5% of Íslandsbanki shares to be sold off. This second offering, however, was not a public offering like the first, but was limited to a group of “qualified investors.” Among the qualified investors were the usual suspects, including foreign and domestic investors, and pension funds. However, the list also included some notable individuals such as Benedikt Sveinsson, father of Bjarni Benediktsson, Minister of Finance and the individual legally responsible for the sale.
The revelations caused widespread critique of Bjarni, the oversight committee, and the coalition government in power. There were also claims of insider trading, as significant numbers of investors sold off their holdings within days and weeks after a climb in price.
In total, the sale involved 450 million shares in the bank to 207 investors. The selling price was ISK 117 per share and the sale proceeds amounted to ISK 52.7 billion (USD 361,000,000; EUR 351,000,000). The state’s share in Íslandsbanki is now 42.5%.
Now, the Icelandic National Audit Office is trying to determine the nature of the sale, how the investors were selected, and how the Íslandsbanki share were valued. The official report can be seen here.
According to the report, the sale could have been better prepared and executed. Outside the scope of the report are the legitimacy and legality of the sale, which are left to the Financial Supervision Authority of the Central Bank of Iceland. Instead, the report focuses on the technical execution of the sale and its valuation of the shares.
According to the report, “the language used in the documents submitted by the Icelandic State Financial Investments (ISFI) to parliament was not suitable for drawing a clear picture of the arrangement of the sale process. Despite the experience and knowledge of the employees and the board of the Banking Authority in the field of administration and sale of the state’s holdings in financial companies, the institution did not have experience in bidding arrangements in the run-up to the sale […] Adequate conditions were not given to supervisors, sales consultants and dealers, and due to shortcomings in the implementation, demand was underestimated when deciding on the indicative final price. Sufficient consideration was not given to possible reputational risks, nor were the principles of transparency observed. As the bidding system was implemented, it could not guarantee full equality for the investors to whom it was directed.”
The report also identifies an over-reliance on external consultants in the private sector.