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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Debated Íslandsbanki Sale into the Wee Hours

Alþingi parliament

Iceland’s Parliament debated the recent sale of a 22.5% stake in Íslandsbanki until 2:30 AM this morning. It was the first time Alþingi had convened since before the Easter break and most of the discussion centred on the controversial sale.

The government has received harsh criticism for the share offering’s lack of transparency, and for the 5% discount buyers received on the shares’ market value, despite high demand for the shares. Many have also criticised the fact that smaller, short-term investments were permitted in the sale, and that staff of the consulting company that managed the sale were among the investors. The sale is being investigated by the Central Bank and reviewed by the National Audit Office.

Minister of Finance presented report

Minister of Finance Bjarni Benediktsson presented an oral report on the sale during yesterday’s session. While maintaining that the sale had in general been successful, he admitted that it had raised questions regarding three aspects in particular: the possible participation of employees of the consulting company involved in the sale, the possible participation of buyers who did not fulfill the stated requirements of being professional investors, and the dissemination of information to the public.

Bjarni stated that the public could have been better informed about the sale. He added that it had taked a long time to access and release information about the sale after the offering and some questions had remained unanswered for too long.

Criticise dismantling of state investment company

Opposition MPs criticised the government’s decision to dismantle Icelandic State Financial Investments (ISFI) in light of how the sale went. They questioned whether that decision had truly been discussed at a cabinet meeting, as as an announcement from the government stated. Chairman of the Centre Party Sigmundur Davíð Gunlaugsson asked whether government ministers had any plan as to what would replace the ISFI.

A controversial sale

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 reduced the government’s stake in the bank from 65% to 42.5%.

Two protests have been held where attendees opposed how the sale was handled, calling for Bjarni Benediktsson’s resignation.

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.”

24,000 Shareholders in Íslandsbanki Following Successful Stock Offering

Íslandsbanki bank’s shareholders now number around 24,000 following a share offering that ended yesterday, more than any other company listed on Nasdaq Iceland. The bank remains 65% in state ownership, with 24% now in the hands of domestic investors and 11% held by foreign investors. Finance Minister Bjarni Benediktsson celebrated the campaign’s success, stating that it reduced state risk and provided funds for upcoming development projects.

“It’s gratifying to see the results of Íslandsbanki’s successful offering,” Bjarni stated. “High demand and participation from the public is particularly gratifying, and Íslandsbanki will have more shareholders than any companies registered on the Icelandic market. This is not least due to the decision to allow subscriptions for as little as ISK 50,000 [$512/€340] and leave individual subscriptions of up to one million krónur [$8,250/€6,800] intact. The sale is profitable for the treasury and will be useful in the development that lies ahead in the coming months. Most importantly, however, we are taking the first step here in reducing the state’s risk in banking and moving closer to a healthier environment as is the case in the Nordic countries and our other neighbouring countries.”

Read More: Sale of State-Owned Banks

One of Iceland’s three largest banks, Íslandsbanki was 100% in state ownership before the share offering. Of the other two, Arion Bank is privately owned and Landsbankinn is 98.2% state-owned. Iceland’s current governing coalition prioritised reducing state ownership of financial institutions in the government agreement made at the beginning of its term.

Up to 35% of State-Owned Íslandsbanki For Sale

Icelandic state-owned bank Íslandsbanki launched its share offering at 9.00am this morning. The bank will sell up to 35% of its share capital in the initiative, which stands until June 15, following which all its shares will be listed on Nasdaq Iceland (the Icelandic stock exchange). Two foreign investment companies and two local pension funds are said to be the cornerstone investors in the initiative. RÚV reported first.

Government Moves to Reduce State Ownership

Of Iceland’s three largest banks, just one (Arion Bank) is privately owned. The other two are in state ownership (Íslandsbanki, currently at 100% and Landsbankinn at 98.2% state ownership). Iceland’s current governing coalition prioritised reducing state ownership of financial institutions in the government agreement made at the beginning of its term. A sale of part of Íslandsbanki was discussed earlier in the term but side-lined during the pandemic as conditions for the sale were not considered favourable. Government officials have argued that the sale could free up funds for investment in essential infrastructure.

Read More: Sale of State-Owned Banks

A notice on Íslandsbanki’s website states that the bank’s estimated market value following the offering is ISK 150 billion ($1.24 billion/€1 billion). The aim is to sell over 636 million shares, the suggested retail price of which is between ISK 71 and 79 per share. The offering will take place both through a public offering of shares to institutional investors and retail investors in Iceland and through a private placement to specific institutional investors in various other jurisdictions.

Four Key Investors

Foreign investment funds have already committed to buying in the bank, according to Íslandsbanki. Funds managed by Capital World Investors have committed to purchasing nearly 77 million shares while RWC Asset Management LLP has committed to purchasing nearly 31 million shares. Icelandic pension funds Gildi-lífeyrissjóður and Lífeyrissjóður verzlunarmanna have also committed to buying more than 46 million shares each. These four parties are said to be the cornerstone investors in the offering.

Aim to Sell 25% of State-Owned Íslandsbanki at First

Bjarni Benediktsson kynning fjármálafrumvarp 2021

The Icelandic government plans to sell 25% of shares in Íslandsbanki bank, which is currently fully state-owned, according to a report published by the Ministry of Finance yesterday. Within a longer timeframe, however, the government aims to sell most or all of its shares in the bank. Reducing state ownership of financial institutions has been an aim of Iceland’s financial policy in recent years and is part of the current coalition’s government agreement.

Iceland Review reported yesterday that Minister of Finance Bjarni Benediktsson had approved a proposal from the state holding company ISFI to sell Íslandsbanki. At the time it was not known what percentage of state’s shares would be put up for sale, but the Ministry’s new report states it will be 25%, to begin with. The shares will be sold in a public offering, after which all shares in the bank will be listed on a regulated securities market in Iceland.

The sale of Íslandsbanki has been in discussion for some time. The sale is intended to reduce government risk as well as help mitigate the treasury deficit expected next year as a result of the pandemic.

Read More: Sale of State-Owned Banks in Iceland

The Icelandic government owns a bigger proportion of its country’s banks than any other government in Europe. Two of the country’s three largest banks are in state ownership: Íslandsbanki (100%) and Landsbankinn (98.2%). There are no plans to sell Landsbankinn at this point.

Iceland’s three largest banks – Íslandsbanki, Landsbankinn, and Arion Bank, were established as state-owned institutions on the ruins of other banks that became insolvent during the 2008 crash. Arion Bank has since passed into private ownership while the other two are state-owned.

The Minister of Finance has stated that Íslandsbanki’s value is between ISK 130-140 billion ($1.0-1.1 billion/€834-898 million). The sale income will be used to pay down treasury debt and increase the state’s scope for social investment, according to the Ministry’s report.

Government to Sell State-Owned Íslandsbanki

Iceland’s government will likely sell one of three state-owned banks this coming spring. The bank in question is Íslandsbanki, though it is not clear what percentage of the bank, now fully state-owned, will be put up for sale. The sale is intended to reduce government risk as well as meet the government deficit expected next year as a result of the pandemic.

According to a government notice, Iceland’s Minister of Finance Bjarni Benediktsson has approved a proposal from the state holding company ISFI to sell Íslandsbanki. The Minister will now prepare a report, to be reviewed by Parliamentary committees and the Central Bank of Iceland. After considering their comments, the Minister will make a final decision on whether to begin the sale process, expected by January 20.

What percentage of the bank is to be sold is not yet known, though earlier this year government ministers discussed a possible sale of 25-50% of its shares. The aim is to sell shares in a public offering and subsequently list all shares in the bank on a regulated securities market in Iceland.

Iceland an Outlier in State Ownership of Banks

The Icelandic government owns a bigger proportion of its country’s banks than any other government in Europe. Two of the country’s three largest banks are in state ownership: Íslandsbanki (100%) and Landsbankinn (98.2%). Reducing state ownership of financial institutions has been an aim of Iceland’s financial policy in recent years and is part of the current coalition’s government agreement. The sale of Íslandsbanki has been in discussion for some time.

Read More: Sale of State-Owned Banks in Iceland

The government notice states that market conditions now appear to be favourable for the sale, in addition to which the bank is in a good financial position. Its sale is intended to reduce government risk in the financial system, promote competition in the banking industry, and increase domestic investment opportunities for individuals and professional investors.

The COVID-19 pandemic and the government’s economic response measures are expected to result in a deficit of around ISK 320 billion ($2.5 billion/€2.1 billion) in 2021. “With the sale, we mitigate the blow of the coronavirus crisis considerably, in addition to which it makes it easier for us to finance continued measures for people and businesses,” stated Finance Minister Bjarni Benediktsson.

In Focus: Sale of State-Owned Banks

sale of state-owned Icelandic banks

For years, Iceland’s government considered selling 25-50% of Íslandsbanki bank, currently fully owned by the State Treasury. Reducing state ownership of financial institutions was a turnaround in Iceland’s financial policy that had been in development for years. With memories of the banking collapse still strong in the minds of the public, many were opposed to […]

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