Report on Íslandsbanki Sale Highlights Lack of Transparency, Reliance on Outside Consultants

íslandsbanki sale iceland reykjavík

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.

In Focus: Íslandsbanki Private Stock Offering

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.




Opposition Abstains from Voting on “Míla Bill”

Iceland's Althing

Iceland’s Parliament passed the so-called “Mila bill” today with 33 votes in favour, RÚV reports. Fifteen MPs abstained from voting, all members of the opposition. The bill is intended to ensure national security in light of the sale of Iceland’s telecommunications company Míla to French fund management company Ardian.

Míla, which owns and operates nationwide telecommunications systems, was sold to Ardian last year. All of Iceland’s homes, businesses, and institutions are serviced by Míla’s systems, and many expressed concern that such important infrastructure was being sold to a foreign company. Prime Minister Katrín Jakobsdóttir has called telecommunications infrastructure “a key issue for public security in every society.”

Read More: Parliament Rushing to Ensure National Security

Ardian’s purchase of Míla was discussed in the National Security Council and new legislation was drafted, with the stated goal of strengthening and securing the legal basis for electronic communication with regard to national security. Helga Vala Helgadóttir, MP for the Social-Democratic Alliance, has argued that there were many red flags in the government’s handling of the case and that the legislation did not ensure consumer security.

The newly-passed bill, introduced last term by then-Minister of Justice Áslaug Arna Sigurbjörnsdóttir, amends the Electronic Communications Act, legislation governing the Electronic Communications Office of Iceland (ECOI), and legislation on foreign investment in business operations.

Telecommunications Security Must be Ensured Despite Foreign Ownership, Says Prime Minister

Prime Minister of Iceland Katrín Jakobsdóttir

Iceland’s government is working to ensure that the sale of telecommunications company Míla will not pose a threat to national security, reports. Míla is a subsidiary of Síminn hf., which announced yesterday that it has signed an agreement with a French fund management company regarding Míla’s possible acquisition. Prime Minister Katrín Jakobsdóttir is preparing a bill to ensure telecommunications security, and therefore national security in Iceland, regardless of the ownership of important infrastructure.

All of Iceland’s homes, businesses, and institutions are serviced by Míla’s nationwide telecommunications infrastructure, which includes copper wire, fibreoptic, and microwave systems. The company is therefore the basis of all telecommunications and electronic communications systems throughout the country. The notice on Míla’s sale states that negotiations are well underway and the potential purchase is fully financed. If acquisition is successful, a large part of Iceland’s telecommunications infrastructure will be in the hands of foreign investors.

Transport Minister Sigurður Ingi Jóhannsson is in discussions with Síminn to ensure that Iceland’s communications security, and national security, are protected regardless of Míla’s ownership. The Prime Minister stated that the company had done well to keep the National Security Council informed on the sale’s progress.

Discussing telecommunications infrastructure, Katrín stated “it was perhaps not entirely foreseen how important such infrastructure would be, but now with technological developments and other things, it has become a key issue for public security in every society.” Katrín says she is preparing legislation that ensures foreign investments in important infrastructure would be carefully reviewed and plans to introduce a bill on the matter in Parliament this winter. The bill is based on existing legislation in Denmark and Norway.

This is not the first time Iceland’s institutions discuss foreign, private ownership of local infrastructure. The National Security Council has discussed foreign ownership of card payment companies and the Central Bank of Iceland is currently developing a domestic payment system that could be used as a backup if needed.

Króna Strengthens as Corona Wanes

Why is Iceland so expensive?

The Icelandic króna has risen in value against the Euro this summer and in fact has been strengthening against the Euro since the beginning of this year, RÚV reports. At the start of 2021, one euro cost ISK 157, while now it costs ISK 147.

According to Daníel Svavarsson, director of Landsbanki’s Economics Department, the foreign exchange market is extremely driven by expectations and the boom at the beginning of the year was largely based on what could be called vaccination optimism. In recent weeks, investments related to the large share offerings of Íslandsbanki and the airline PLAY have also made an impact.

“The biggest reason is the success of vaccinations and the fact that the pandemic has been steadily declining, which has increased optimism in the tourism industry,” says Daníel. “In recent weeks, the main forces have been linked to the flow of foreign investors into the stock market.”

Asked whether he expects the Central Bank to respond to the increased appreciation of the króna, Daníel says he does not foresee that the bank will fix the exchange rate to a certain value. “On the other hand, the Central Bank has been very active in the market in coming in and evening out fluctuations, whether strengthening or weakening.”

Daníel expects the króna to continue appreciating in the near future, though he warns it can always fluctuate in both directions in the short term. “Looking ahead to the next six months, I now rather expect it to be on the strengthening side. Given the current situation and the good performance of the tourism industry, where the resurrection has been faster than people dared to hope, I now rather expect it to continue to be relatively strong.”

Government Reconsiders Land Ownership Laws

Nearly one third of all land in Iceland is owned by businesses, not individuals, RÚV reports. Land purchase laws have become a subject of public debate recently, particularly with respect to non-residents buying land in the country.

A government task force is in the process of re-examining Iceland’s land purchase laws. Minister of Transport and Local Government Sigurður Ingi Jóhannson says the group hopes to introduce new legislation on the matter early this autumn. He believes tighter regulations on land ownership could apply to both Icelanders and foreign nationals.

“Many of us are of the opinion that areas outside urban areas, land and larger territories, should be in the ownership of Icelanders or those who live on the land here in the country and work on it,” Sigurður Ingi stated. “So the people there live in the community, create jobs and are not hoarding land which could later lead to there being deserted land or even deserted valleys.”

According to law, residents outside the European Economic Area (EEA) cannot purchase land in Iceland without a legal exemption granted by the Minister of Justice. However, if the land is purchased by businesses, it can be near impossible to determine who the true owners are.

Sigurður Ingi says it is difficult to prevent businesses from buying land in Iceland by way of other businesses. “Therefore I think that requirements for usage rights, exploitation rights, and requirements for some kind of usage of the land are better suited to deal with this factor than legislation alone. We’ve simply seen it, it’s difficult to have oversight in this.”

In 2013, parliament passed legislation barring foreign nationals from owning property in Iceland without a legal domicile or business operations in the country. The legislation was later rescinded, as it was believed to be a violation of EEA regulations. Minister of Justice Sigríður Andersen says the ministry is working to determine which conditions should apply to foreigners who wish to purchase land in Iceland. Sigríður has expressed her belief it would not be right to ban foreign nationals from purchasing land altogether.