More Icelanders Seek Help of Financial Advisers Than Before

Finances in Iceland

More people in Iceland seek the help of financial advisors than before, RÚV reports today. The number of couples experiencing financial difficulties is especially increasing. Ásta Sigrún Helgadóttir from the organisation Debtors’ Ombudsman (Umboðsmaður skuldara) blames high-interest rates and inflation for the current difficult financial situations of many residents. 

Inflation fuels difficult financial situations

The Debtors’ Ombudsman is a governmental institution founded in 2010 in the aftermath of the financial crisis. It operates under the guidance of the Minister of Social Affairs and focuses on improving and protecting the position of individuals in debt.

Currently, the head of the institution, Ásta Sigrún Helgadóttir, is witnessing an increase in applications for financial advice. In the December report of the Central Bank’s Financial Stability Committee, it was stated that arrears (part of a debt that is overdue) have not increased significantly despite increased inflation, higher interest rates and a heavier debt burden. Currently, inflation in Iceland stands at 6.6%, the lowest rate since February 2022.

More relief for debtors coming in April

Ásta emphasises that a lot of additional financial issues can be hidden from those reports, such as overdrafts and consumer loans. According to the institution, the socio-demographic group of the applicants is also changing. Until last year, the majority of applicants seeking help were individuals, while currently, an increased amount of couples also seek financial advise. This year, the majority of applicants are employed and on the rental market, though the amount of homeowners seeking aid also increased over the years. 

Changes in the Payment Adjustment Act will take effect on April 1. These modifications, which have just been approved by the Icelandic Parliament, will make payment relief for debtors clearer and more efficient. 

The changes include that more people will be able to apply for payment relief through the Debtor’s Ombudsman. Additionally, new rules regarding payment deadlines will be installed, and temporarily lower monthly mortgage payments will be made possible. People with student loans who were initially exempt from the Act are now also covered.

In Focus: The Króna and the Euro

icelandic króna isk

The Icelandic króna was introduced as currency when Iceland gained its sovereignty from Denmark in 1918, with the first coins issued in 1922. At the time, one Icelandic króna was equal to one Danish krone. Today, the Icelandic króna has been devalued to such a degree that you’d need 2,000 of the original króna for […]

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New Finance Minister Þórdís Kolbrún Moves Forward with Íslandsbanki Sale

Minister of Tourism, Industry, and Innovation Þórdís Kolbrún Reykfjörð Gylfadóttir

Minister of Finance Þórdís Kolbrún Reykfjörð Gylfadóttir has recently expressed support for the continued sale of state-owned Íslandsbanki shares. RÚV reports.

Formerly Minister of Foreign Affairs, Þórdís recently switched places with Bjarni Benediktsson in the wake of his resignation from office.

Þórdís stated to RÚV that although it would be a good move for the state to divest itself of ownership in Íslandsbanki, it may be necessary to change some regulations and guidelines in light of the recent controversy.

Preparatory work underway

It has now been some nine days since Þórdís assumed her new position as Minister of Finance. She discussed the recent government changes and her priorities in the coming weeks and months on the current events talk show Silfurinn last night.

On Silfurinn, she stated that her ministry is currently working to prepare for finalising the Íslandsbanki sale and that nothing has changed regarding the goal of state divestiture in Íslandsbanki.

Þórdís stated that the state-owned shares in Íslandsbanki account for several billion ISK and that the sale is of great importance to the treasury. While not divulging details, she stated that a good price had been obtained for the sale and that the recent opinion of the Parliamentary Ombudsman would be taken into account.

“I am of the opinion that it is simply right to divest the state of its ownership in Íslandsbanki. I know there are voices out there that are concerned that it is done properly and that all the rules are followed,” she said. “Some rules need to be changed or the methodology of selling needs to change as well. It should be a completely public auction, as broad and general as possible, so the public can easily participate.”

Þórdís further stated that she hopes the work will begin as soon as possible.

 

 

Minister of Finance, Bjarni Benediktsson, Resigns from Office

bjarni benediktsson

Now-former Minister of Finance, Bjarni Benediktsson, has resigned from office following critique of his role in the March 2022 sale of Íslandsbanki shares.

Report on Íslandsbanki Sale Highlights Lack of Transparency

The Ministry of Finance issued a notice this morning of a press briefing at 10:30. Earlier this morning, the opinion of the parliamentary ombudsman had been published on the government website where it is stated that the Minister of Finance’s preparation for the privatization process of Íslandsbanki did not conform to government guidelines.

Following the 2008 banking collapse, several major banks were taken into state ownership, to later be sold off in a privatization process. The sale of shares in Íslandsbanki was criticized for a lack of transparency at the time, with special attention given to Hafsilfur ehf., a company owned by Benedikt Sveinsson, the father of the Minister of Finance. Hafsilfur was among those who purchased shares in Íslandsbanki when a 22.5 per cent stake in the bank was sold in an auction. Bjarni, now-former Minister of Finance, has stated in the past that he first learned about the company’s purchases when the ministry received a list of buyers from the State Financial Supervisory Authority after the auction had concluded.

FME Believes Íslandsbanki Broke the Law During March Sale

Skúli Magnússon, the parliamentary ombudsman has indicated that there was a lack of clarity in the preparatory documents regarding conflicts of interest. In his official opinion, the parliamentary ombudsman concluded that the Minister of Finance was not qualified to approve the sale. According to the ombudsman, it must be assumed that he had “significant and real interests in the sale.” The ombudsman also stressed that nothing has come to light that would cast doubt on the Minister’s claim of ignorance regarding Hafsilfur’s participation in the auction.

In his response to the ombudsman’s findings, Bjarni expressed his disagreement with some of the conclusions but emphasized the importance of respecting the opinion. He mentioned that the next steps would be determined in consultation with fellow Independence Party members.

Bjarni also reiterated that he had not been aware of his father’s involvement in the auction and defended his actions throughout the auction process. The sale of Íslandsbanki’s stake has had several important consequences, including one of the largest-ever fines levied on an Icelandic financial institution,  and the resignation of Íslandsbanki CEO, Birna Einarsdóttir.

Agreement Reached Between Central Bank and Íslandsbanki

During his press briefing, Bjarni stated that, given the recent opinion given by the ombudsman, he found it impossible to continue working in the Ministry of Finance. He stated that he wanted to bring peace to the ministry and that he would step down as the Minister of Finance and Economic Affairs. Bjarni stated further that he wanted to demonstrate that “responsibility came with positions of power.”

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Agreement Reached Between Central Bank and Íslandsbanki

íslandsbanki

In a statement published this morning by the Central Bank of Iceland, an agreement has been reached to conclude the matter of Íslandsbanki’s controversial March 2022 sale of shares.

The statement can be read here, in Icelandic.

The Financial Supervisory Authority of the Central Bank of Iceland has been examining the alleged violations by Íslandsbanki of security trading regulations since last year. The examination by the Financial Supervisory Authority focused on the conduct of Íslandsbanki in the offering of the state’s 22.5% ownership stake in Íslandsbanki in March of last year.

The report states that “the management and CEO of Íslandsbanki have not implemented satisfactory governance practices and internal monitoring, which ensure effective and prudent management, including the failure to ensure that the bank complies with legal requirements regarding the provision of investment services and adherence to its own internal regulations.”

Íslandsbanki to Pay ISK 1.2 Billion in Fines

Preliminary findings of the Financial Supervisory Authority were sent to Íslandsbanki on December 30, 2022. In a letter dated January 6, 2023, Íslandsbanki expressed its intention to resolve the matter through a settlement with the Financial Supervisory Authority of the Central Bank.

By signing the agreement, Íslandsbanki admits to having violated specific provisions of the Act on Securities Transactions, in addition to committing to take remedial measures. Íslandsbanki is required to pay the fine to the treasury by November 1, 2023.

Among the violations described in the report are Íslandsbanki’s failure to record phone calls, providing customers with inaccurate information about the terms of the offering, and incorrectly assessing customers’ applications to be classified as professional investors. The March 2022 offering was nominally only open to professional and institutional investors. However, Íslandsbanki classified eight clients, who were retail investors, as professional investors without meeting the legal criteria.

Additionally, the bank did not take sufficient measures to prevent conflicts of interest, such as the involvement of directors and employees of the bank in the offering and adequate separation of duties, and the bank did not conduct a proper risk assessment in relation to its participation in the sales process.

Finally, Íslandsbanki was found to have failed to fully meet its obligations to operate in a fair, honest, and professional manner, in accordance with “normal and sound business practices.”

In Focus: Íslandsbanki Private Stock Offering

Íslandsbanki headquarters in Reykjavík

The Icelandic government’s sale of 22.5% of Íslandsbanki bank in a private stock offering last March has resulted in allegations of corruption, investigations by two state institutions, weekly public protests, and calls for Finance Minister Bjarni Benediktsson to resign. What went wrong?BackgroundAfter the 2008 banking collapse, a restructuring of Iceland’s financial system took place. From […]

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Many Íslandsbanki Buyers Have Already Sold for Profit

Minister of Finance Bjarni Benediktsson

Of the 207 investors who purchased shares in Íslandsbanki bank in a private share offering last month, 132 have already sold some or all of their stake in the formerly state-owned bank, Kjarninn reports. The sellers have made a cumulative profit of ISK 1.6-2.1 billion [$12.3-16.2 million; €11.4-15 million]. Finance Minister Bjarni Benediktsson had previously stated that the aim of the share offering was to acquire long-term investors in the bank.

Íslandsbanki was fully owned by the government until last year, when it sold a 35% stake in the bank, something that had been on the government agenda for years. While that first offering was open to the public, last month’s offering was solely open to professional investors. The second sale was successful, reducing the government’s stake in the bank from 65% to 42.5%. The government has been criticised for the latter share offering’s lack of transparency, and for the 5% discount buyers received on the shares’ market value.

Foreign purchasers sold within days

Notably, six foreign investment funds that were invited to take part in the offering sold all of their purchased shares in the bank within three days of listing, at a significant profit. These funds also participated in last year’s public share offering, meaning they have turned quick profits on the sale of the bank’s shares for a second time. Those funds include Silver Point Capital, Fiera Capital, Lansdowne Partners, and Key Square Partners.

According to the shareholder lists Kjarninn has in its possession, most of the “smaller” investors that took part in last month’s share offering have already sold their shares in the Íslandsbanki. In total, 59 investors were permitted to buy shares for under ISK 30 million and another 79 for under ISK 50 million. Among the purchasers who are no longer listed as shareholders of Íslandsbanki are employees and owners of the consulting company that was hired to manage the stock offering.

Some larger investors who took part in the offering, who bought shares worth several hundred million ISK, have also sold their stake in the bank. This includes Steinn Holding Company, owned by Samherji seafood company CEO Þorsteinn Már Baldvinsson and his ex-wife.

Finance Minister’s father still a shareholder

One particularly controversial buyer in the offering was the company Hafsilfur, owned by Benedikt Sveinsson, the father of Finance Minister Bjarni Benediktsson. The Finance Minister is responsible for the sale of Íslandsbanki, according to law. Hafsilfur is still listed as a shareholder in Íslandsbanki, and its shares have increased in value by around ISK 5 million since the share offering.

Pension funds and other institutional investors have bought up a large part of the shares that smaller investors have sold at profit since the share offering. It was previously reported that pension funds requested to were allotted fewer shares in the offering than they had requested.

The Central Bank of Iceland has stated it is investigating the sale.

Legal Obstacles to Revealing Íslandsbanki Buyers

Icelandic State Financial Investments (ISFI) has stated it is not able to publish the data on who purchased shares in Íslandsbanki during last month’s stock offering. The government has been criticised for the share offering’s lack of transparency, and for the 5% discount buyers received on the shares’ market value. Prime Minister Katrín Jakobsdóttir has previously stated that if the ISFI is not able to publish information then the Icelandic Parliament should amend legislation to make it possible.

Íslandsbanki was fully owned by the government until last year, when it sold a 35% stake in the bank, something that had been on the government agenda for years. While that first offering was open to the public, last month’s offering was solely open to professional investors. The second sale was successful, reducing the government’s stake in the bank from 65% to 42.5%.

Buyers’ identity likely falls under bank secrecy

Minister of Finance Bjarni Benediktsson stated yesterday that the information on who the buyers were would be published, if permitted by law. In an interview this morning, Chairman of ISFI’s board Lárus Blöndal stated that ISFI does not consider itself able to publish the data, as it is likely the buyers’ identity falls under bank secrecy regulations. He added that it is virtually unheard of for buyers to be publicly identified when such offerings are conducted abroad.

A total of 209 parties bought shares in the March offering. The Finance Minister has previously stated that Icelandic pension funds were the main purchasers. Lárus stated that all of the buyers could be legally classified as professional investors.

Prime Minister suggests legal amendments

Prime Minister Katrín Jakobsdóttir has argued that when state property is sold, the Icelandic public is entitled to know who the buyers are. During Alþingi’s question period on Monday, she stated that “If any technical factors cause ISFI to consider ifself unable to publish that information, I believe it is right for Alþingi to make appropriate changes to the legal framework so that it can be published, anything else is unacceptable.”

Read more about the sale of state-owned banks in Iceland.

State Sells 22.5% Stake in Íslandsbanki

Prime Minister Bjarni Benediktsson

The Icelandic government sold a 22.5% stake in Íslandsbanki bank last Tuesday in an offering for professional investors. Opposition MPs have criticised the shares’ low price and the sale’s lack of transparency. Finance Minister Bjarni Benediktsson says the aim was to acquire long-term investors and that Icelandic pension funds were the main purchasers.

Íslandsbanki was fully owned by the Icelandic state until last year, when it sold a 35% stake in the bank, something that had been on the government agenda for years. While last year’s sale was a public offering, this week’s was only open to professional investors, who received an invitation to buy shares, which were then sold at a 5% discount from their market value. The sale was successful, reducing the government’s stake in the bank from 65% to 42.5%.

Investors received insider information

According to information from Icelandic State Financial Investments (ISFI), demand for the shares was high. Both Icelandic and foreign investors showed interest in the sale, though the identity of the investors has not been made public. Investors were required to sign a confidentiality agreement, meaning they were temporarily granted access to inside information. Investors had already made a profit yesterday, when shares in the bank rose by ISK 4-5 billion [$31.1-38.9 million; €28.3-35.4 million] following the sale.

MPs criticised the sale’s lack of transparency in Parliament yesterday, as well as the discount given to investors. Financial expert Ásgeir Brynjar Torfason told RÚV it is unclear how the investors were selected, and that is a question that ISFI and the Ministry of Finance need to answer. He also called on authorities to answer why such a large discount was given, despite high demand for the shares.

Finance Minister responds to criticism

In an interview with RÚV, Minister of Finance Bjarni Benediktsson called the discount on the shares a small one, saying that Icelandic pension funds were the main purchasers in the offering. “We did not go the route of looking for the pension fund or the investor who wanted to offer the highest price and let them have as much as they wanted. We took another route. We wanted to go toward more decentralised ownership and we wanted to consider what the market conditions would be like when the offering ended. That there would be a [financially] healthy group behind the bank.”

Central Bank Continues Raising Interest Rates

Central Bank Ásgeir Jónsson seðlabankastjóri

A 0.25% to the Central Bank’s key interest rate has now brought it up to 1.5%. The bank’s Monetary Policy Committee (MPC) announced the decision to raise the rate in a press release today. The MPC consistently lowered interest rates throughout last year in response to the pandemic recession but now says it expects the domestic economic recovery to continue.

The Central Bank’s key interest rate reached a historic low of 0.75% in November last year. In comparison, rates in January 2020 stood at 3% and in January 2019 at 4.5%. This is the Bank’s third interest rate hike since May, indicating a change in direction as the economic forecast has improved.

The Central Bank also tightened mortgage regulations at the end of last month, stating that rising real estate prices had “gone hand-in-hand with increased household debt.” The move, which entails instituting a maximum debt-to-service ratio of 35% for borrowers (40% for first-time buyers) is intended to support stability on the housing market.

Today’s press release says, however, that housing accounted for “a large share of headline inflation in September.” Although underlying inflation is declining, the bank states “there is cause for concern in that inflation expectations appear to have begun rising again.” The bank states it will apply tools to ensure that inflation eases back to target.