Finance Minister Pushes Creditors

Finance Minister Bjarni Benediktsson has warned that defunct banks Kaupthing, Glitnir and Landsbanki could go bankrupt unless creditors agree to a “haircut on debts”, reportsReuters.

In the aftermath of the 2008 crash Iceland installed capital controls, limiting much needed investment, but these cannot be removed until a deal to wind up the left-overs of the old banks – around 2,500 billion ISK ($22 billion) in cash, shares and bonds – is reached with creditors.

The Finance Minister told Reuters that up until now plans put forward the old banks for paying creditors did not go far enough to reduce the risk of destabilising the economy and the ISK.

“It should be obvious to everyone that winding up procedures can’t take forever,” Bjarni said. “If they are unsuccessful, then we have to take it to the next step. That [bankruptcy] may well happen. One should not exclude that possibility if the winding up procedures that started in 2009 don’t show any success.”

If the defunct banks are declared bankrupt it would mean a fire-sale of assets and probably much lower recoveries for creditors, who have claims against the old banks totalling 7,530 billion ISK ($66 billion), dwarfing Iceland’s 2013 GDP of 1,786 billion ISK.

The Finance Minister however, remains vague about how much of a “haircut”, creditors – such as Bayerische Landesbank and Deutsche Bank Trust Company Americas – would need to take.

Further Reading

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