Refinancing of Iceland’s Landsbanki Completed Skip to content

Refinancing of Iceland’s Landsbanki Completed

An agreement was reached on the settlement of Landsbanki’s assets and debts last night. Minister of Finance Steingrímur J. Sigfússon is content and commented that the restoration of the banking system had not cost nearly as much as originally feared.

The headquarters of Landsbanki in Reykjavík. Photo by Páll Stefánsson.

“It is positive and softens the landing,” Sigfússon said of the agreement between the Icelandic state and the resolution committee of the old Landsbanki, and with claimants on the settlement of the assets and debts of the new bank, NBI, visir.is reports.

The state will contribute ISK 122 billion (USD 960 million, EUR 660 million) in equity in exchange for a share of 81 percent in the bank. This is ISK 78 billion (USD 620 million, EUR 420 million) less than originally expected.

The state’s total contribution to the restoration of the three failed banks is ISK 137 billion (USD 1.1 billion, EUR 740 million), in addition to ISK 50 billion (USD 390 million, EUR 270 million) in subordinated loans.

It had been assumed that the banks’ restoration would cost the state treasury ISK 385 billion (USD 3 billion, EUR 2.1 billion).

Priority claimants, the British and Dutch states, hold a 19 percent share in NBI against the Icelandic state.

Once an agreement has been reached on Landsbanki’s Icesave deposits, the Icelandic Depositors’ and Investor’s Guarantee Fund will acquire almost 60 percent of claims in the estate of the old bank.

Additionally, NBI will issue commercial papers in the old bank for ten years worth ISK 247 billion (USD 2.2 billion, EUR 1.5 billion).

The interest premium is 1.75 percent above Libor interest. Interest is only paid for the first five years but installments will be added to the papers after that time.

Director of NBI Ásmundur Stefánsson said the conclusion is very pleasing because the commercial papers, which are in GBP, USD and EUR, secure the refinancing of NBI and Icelandic companies in need of foreign loan capital for a few years, until foreign credit markets open their doors to the bank again.

The total assets of NBI, which will have more extensive operations than the other Icelandic banks, are worth ISK 944 billion (USD 7.5 billion, EUR 5.1 billion). Loans to customers amount to ISK 608 billion (USD 4.8 billion, EUR 3.3 billion) of that amount.

Stefánsson said the worth of NBI’s assets reflects the evaluation of the assets that were transferred from the old bank. He couldn’t provide information on the extent of reduction of assets but pointed out that if the economy is restored it could result in increased value of assets, even by hundreds of billions of ISK. “It is not just a plan, but our hope.”

Stefánsson explained the reputation of Landsbanki had suffered significantly following the financial collapse. “The bank is not solid in the meaning that it has regained trust from the [financial] environment. Far from it. But the financial basis is what we can build on today. We must work towards that.”

Click here to read more about the other Icelandic banks.

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