From Iceland — Old Landsbankinn Authorized To Pay € 2.6 Billion To Priority Creditors

Old Landsbankinn Authorized To Pay € 2.6 Billion To Priority Creditors

Published December 5, 2014

The Central Bank has authorized the former Landsbankinn’s bankruptcy estate to pay what amounts to 400 billion ISK in foreign currency (ca. € 2.6 billion), to priority creditors. The Central Bank and Finance Ministry announced this on Thursday. The priority creditors seem to be mainly those who have taken over claims for compensation of the infamous IceSave accounts, opened in the UK, Germany and the Netherlands in the last years before the 2008 bank crash.

The country’s three major banks became insolvent in October 2008. They were subsequently nationalized and split in two companies each: in each case one of the two, here LBI hf, was left with most of the bank’s major foreign obligations and run into bankruptcy, while the other, new company, in this case Landsbankinn hf, kept most local obligations and assets, daily bank services and went through restructuring. Currency restrictions were then imposed by law, meaning that the Central Bank’s authorization is needed to buy foreign currency, and to transfer any significant amount abroad. It is the bankruptcy estate LBI hf, which now received such an authorization.

The so-called IceSave debts became highly disputed during the first three or for years after the crash. IceSave was Landsbankinn’s brand for high-interest private savings accounts, which the bank opened in Europe, when other, more the bank’s access to more traditional refinancing options had become tight. When the bank collapsed, the other countries’ governments compensated their citizens but demanded that Iceland’s State Treasury would be held responsible and reimburse the amounts involved. In 2013, the EFTA court cleared Iceland of that obligation. Landsbankinn’s bankruptcy estate, LBI hf, owned by the State, nonetheless remains accountable towards its creditors.

In its statement on Thursday, the Central Bank says that according to its estimates, the amount authorized to be paid to priority creditors, which constitutes around five percent of LBI’s total obligations, should increase the country’s financial stability. The bank emphasizes that most requests for such authorization are declined. The Finance Ministry also issued a statement about the authorization, noting that LBI’s priority creditors have thereby received 85% of their claims’ principal amounts, and that the other two failed banks’ priority creditors have already been fully compensated.

In its statement, the Finance Ministry also addressed the prevailing currency restrictions, saying that a comprehensive policy towards lifting those has been proposed, and that any exemptions will be granted to general claimants only in accordance with that policy.

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