Iceland Said Unlikely to Accept $2.7 Billion Creditor Dealby
Not much time left for creditors to complete deals, PM says
Some creditors making better progress than others, PM says
Iceland is unlikely to accept the latest offer from bank creditor groups trying to withdraw their claims from the island without incurring an exit tax.
That’s according to two officials close to the matter, who asked not to be identified by name because the talks are private. The 334 billion kronur ($2.7 billion) put forward by committees representing creditors in Kaupthing, Glitnir and LBI is still too far off the combined $3.8 billion the government is using in its calculations, the people said. Policy makers may be willing to accept a smaller amount if other terms are agreed on, they said, without elaborating.
Prime Minister Sigmundur D. Gunnlaugsson says time is now running out for bank creditors -- many of them hedge funds based in the U.K. and the U.S. -- to strike a deal that will let them sidestep a 39 percent exit tax. That levy would cost creditors in the three failed banks a combined $5.1 billion, the government has estimated.
"There’s not much time for the estates to complete the proceedings," Gunnlaugsson said in an Oct. 16 interview in Reykjavik.
Iceland needs to reach an agreement with creditors in its three failed banks in order to move ahead with plans to remove capital controls that have been protecting its financial markets since the end of 2008. The government offered bank creditors the option of making a so-called stability contribution to avoid the exit tax. To be eligible, creditors need to come up with a proposal that policy makers agree to before the end of the year.
"It’s clear what the stability conditions are,” Gunnlaugsson said. He said some creditor groups were making better progress than others, but declined to elaborate.
Gunnlaugsson has come under pressure from lobby groups in Iceland urging him to reject creditor efforts to avoid the exit tax. InDefence, of which Gunnlaugsson himself was once a member, says agreeing to an alternative model would cause a “massive balance of payments problem in the future.” The same group in 2010 successfully ran a campaign petitioning Iceland President Olafur R. Grimsson to use his veto right and reject a government deal with the U.K. and the Netherlands over depositor guarantees in LBI.
Gunnlaugsson is already signaling that bank creditors may still face several hurdles before any agreement can be struck in the current talks. Though the finance ministry has previously said a year-end accord on a stability contribution was its preferred model over an exit tax, the prime minister now says it’s unclear which of the two options is best.
“Each way has pros and cons,” he said. “The stability contribution adjusts to the scope of the problem, while the other one is fixed.”
One of the committees representing bank creditors said their latest proposal represented a fair and reasonable contribution.
“We believe our proposals on the stability contribution fulfill the criteria proposed by the government," Pall Benediktsson, a spokesman for LBI, said by phone. "If the government plans to change the conditions of the stability contribution, we’d have to revisit our calculations. For that, we’d require more time."
Theodor S. Sigurbergsson, who sits on Kaupthing’s winding up committee, and Steinunn Gudbjartsdottir, a member of Glitnir’s, both declined to comment Monday when reached by telephone.