Iceland Bank Collapse Nears End as Creditors Reach Last Accord

A seven-year standoff between Iceland and the international creditors of its failed banks is nearing an end after a court approved the last remaining settlement.

The agreement signed by the caretakers of LBI hf paves the way for creditor payments from the bank’s 455.6 billion kronur ($3.5 billion) estate. It follows similar deals involving Glitnir Bank hf and Kaupthing Bank hf. The three banks hold combined assets of $17.6 billion, according to their latest financial statements.

The banks failed within weeks of each other in 2008 under the weight of $85 billion in debt. Iceland then resorted to capital controls to prevent a total collapse of its $15 billion economy. International creditors, among them the Davidson Kempner Capital Management, Quantum Partners and Taconic Capital Advisors hedge funds, have been unable to access the lenders’ assets.

Glitnir’s administrators said they planned to make the first payments to creditors on Friday. Theodor S. Sigurbergsson, a member of Kaupthing’s winding up committee, said in an interview this week that he expects "to start payments to creditors early next year."

In June, the government offered creditors in Glitnir, Kaupthing and LBI the option of either paying a 39 percent exit tax on all their assets or making what it calls a stability contribution of as much as 500 billion kronur by the end of the year. To be eligible for the offer, creditors needed to complete settlements by Dec. 31. Parliament later extended that deadline to March 15.

The island’s handling of the financial crisis has won praise from Nobel laureates and the International Monetary Fund. The krona has strengthened about 8 percent this year and Iceland’s economy is now growing at a faster pace than the euro-zone average.

With Glitnir having been granted an exemption from capital controls on Thursday, Iceland is expected to make a full return to the international financial community during the course of 2016.

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