Iceland is losing patience with creditors in its failed banks as the government considers forcing through bankruptcy proceedings to help it exit capital control in place since 2008.
“The Bankruptcy Act doesn’t anticipate that attempts to seek composition last forever,” Finance Minister Bjarni Benediktsson said in a Jan. 10 interview in Reykjavik. “It’s to the benefit and in the interest of everyone to complete these matters as soon as possible.”
The banks that collapsed in 2008, Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf, have been run by winding up committees representing their creditors, many of whom are hedge funds. So far, the two sides have failed to reach an agreement as Iceland fights to ensure any deal doesn’t trigger a flight of capital out of the country that would derail its financial markets.
The combined kronur-denominated assets of the creditors are equivalent to about 461 billion kronur ($3.9 billion), or 28 percent of the nation’s gross domestic product. The leaders of all of Iceland’s political parties have said these assets will need to be written down before a settlement can be reached.
Setting a deadline and forcing bankrupt entities to convert their foreign holdings into kronur “is one of the things that we’re looking into,” Benediktsson said. “I don’t want to make any statements” on whether this will happen later this year “although I don’t exclude it.”
The krona strengthened 0.2 percent against the euro to 159.09, its first gain in six days.
Benediktsson’s comments add to pressure on hedge funds and other creditors after similar remarks in November from Prime Minister Sigmundur David Gunnlaugsson.
Winding up proceedings have “never been considered a permanent business model,” Gunnlaugsson said in a Nov. 30 interview, in which he criticized the time the lenders have spent on completing settlements.
When Iceland’s banks collapsed, the government ring-fenced their domestic assets and transferred them into new state-created entities. Those units were later handed over to the creditors of the failed banks as compensation. Today, Kaupthing owns an 87 percent stake in Arion banki hf and Glitnir owns 95 percent of the shares in Islandsbanki hf.
Since 2009 “the failed lenders have had qualified holdings in banks that are operating in the country, according to a special permission,” said Benediktsson. “This is very unfortunate.”