Landsbanki Bond Holders `Not Likely to Get Much', Iceland's Sigfusson Says
Iceland Finance Minister Steingrimur Sigfusson
Arnaldur Halldorsson/Bloomberg
Iceland Finance Minister Steingrimur Sigfusson said, “The general claimants in Landsbanki are not likely to get much, if anything.”
Iceland Finance Minister Steingrimur Sigfusson said, “The general claimants in Landsbanki are not likely to get much, if anything.” Photographer: Arnaldur Halldorsson/Bloomberg
Creditors of failed Icelandic lender Landsbanki Islands hf will get next to nothing back from their investments after assets are sold to cover the bank’s priority claims, Finance Minister Steingrimur Sigfusson said.
The comments end hopes creditors, including BNP Paribas SA and Nordea Bank AB, may have had of recouping their share of $27.4 billion in debt owed them since Landsbanki’s collapse in October 2008.
“The general claimants in Landsbanki are not likely to get much, if anything,” Sigfusson said in an interview in Reykjavik yesterday. “In the other banks, the situation is better and they will get some return,” he said, referring to bond holders in Kaupthing Bank hf and Glitnir Bank hf.
The government is struggling to resurrect relations with international investors after the failure of the island’s three biggest banks almost two years ago left an $86 billion debt mountain, according to figures provided by the lenders’ resolution committees. The island’s gross domestic product last year was $12 billion, by comparison. The central bank estimates Iceland will need capital controls for at least another year to protect the krona.
“We have a joint interest,” Sigfusson said. “Let’s not forget that the Icelandic state is also a big creditor in some of these institutions. We’re doing our very best and no one is pleased when they’re losing money.”
Emergency Bill
Iceland imposed emergency legislation on Oct. 6, 2008, allowing the state to take control of the three biggest banks after they were unable to secure enough short-term funds to run their operations. The bill allowed the Financial Supervisory Authority to merge financial institutions and take over shareholder powers at meetings. The legislation also gave deposits priority in the claims procedure.
“Some of the bond holders are still hoping that the emergency legislation will be reversed, which would make the value of the bonds greater and deposits would be pushed behind them,” said Hedinn Thordarson, a trader at Reykjavik-based brokerage H.F. Verdbref, in a phone interview.
Parliament has yet to decide on when the emergency bill will be reversed. Landsbanki bonds were trading at 9.50 cents on the euro, according to data available on the website of H.F. Verdbref today. That compares with 28 cents for Glitnir bonds and 25 cents for Kaupthing bonds.
Debt Insurance
The island is due to get its third review next month from the International Monetary Fund, which is leading a $4.6 billion loan. Iceland may take a first step toward easing some of its capital restrictions after that review, Sigfusson said.
Credit default swaps on Icelandic debt jumped 6.5 basis points to 321.5 today, according to CMA data. The rise in the cost of insuring the island’s debt indicates a perceived deterioration in its credit quality.
The state-created successors to Iceland’s failed banks may be facing a second round of failures after the Supreme Court on June 16 banned the indexation of loans in kronur to foreign exchange rates, leaving the banks liable for as much as $4.3 billion in currency losses, Sigfusson said on July 7.
Creditors, who the failed banks’ resolution committees say were made shareholders in the new banks, may take legal action against the state should the June ruling lead to losses that dilute their stakes, Arni Tomasson, the head of Glitnir Bank hf’s resolution committee, said in a July interview.
According to Frankfurt-based DekaBank Deutsche Girozentrale, Glitnir’s third-biggest debt holder, creditors never agreed to become shareholders, it said in an Aug. 3 letter.
‘Face That’
“These were business transactions between private companies and they have to face that,” Sigfusson said.
The government is ready to inject funds into the lenders should the June ruling lead to losses and push capital adequacy ratios below regulatory requirements, Sigfusson said yesterday. Economy Minister Gylfi Magnusson said last month bailing out the banks a second time in as many years would be a “severe blow” to government finances.
The foreign-loan ruling prompted Moody’s Investors Service on July 29 to warn it may lower Iceland’s credit grade to junk, should the foreign loan ban delay a recovery or force the government to increase its debt burden by funding a second bank rescue in two years. Moody’s and Standard & Poor’s give the island’s debt the lowest investment grade. Iceland is already graded junk by Fitch Ratings.
The government is considering guaranteeing the portion of $5.2 billion in Landsbanki’s depositor claims that won’t be covered by asset liquidations, estimated at about 10 percent, Sigfusson said. That includes Icesave deposits and other claims against collateral.
To contact the reporter on this story: Omar Valdimarsson in London at valdimarsson@bloomberg.net
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