Capitalisation of the commercial banks and basis of agreement with creditors
Below can be found the following five press releases:
- Ministry of Finance press release
- Ministry of Finance press release on Islandsbanki´s capitalisation
- Ministry of finance press release on New Landsbanki´s capitalisation
- Ministry of Finance press release on New Kaupthing´s capitalisation
- Islandsbanki press release
1. Ministry of finance press release
Key points:
- Re-capitalisation of the banks
- Proposed ownership of Islandsbanki and New Kaupthing by Glitnir and Kaupthing respectively
- Lower than anticipated capital cost to taxpayer
- Important step in re-establishing strong banking system
The Government of Iceland is pleased to announce that it has determined the basis for the capitalisation of the three new banks (Islandsbanki, New Kaupthing and New Landsbanki) created following the collapse of the main Icelandic commercial banks in October 2008. It has also reached heads of agreement with the Resolution Committees of the old banks in relation to how compensation for the transfer of net assets into the new banks will be achieved. In respect of two of the new banks, Islandsbanki and New Kaupthing, this includes a conditional agreement for the old banks to subscribe for majority equity interests in the new banks.
The Ministry of Finance’s negotiating team, led by Thorsteinn Thorsteinsson and its adviser Hawkpoint, have run a process which has involved regular consultation and dialogue with the old banks’ Resolution Committees and their advisers. The Government has also sought to involve creditor representatives in these discussions. The process has involved provision of information and access to the new banks to allow Resolution Committees, their advisers and creditor representatives to conduct due diligence.
Commenting on the agreement reached, Steingrímur J. Sigfússon, the Minister of Finance of Iceland said:
“Our agreements announced today are a major step forward in the re-establishment of a strong banking system. They allow for the recapitalisation of the banks, potentially at a significantly lower cost to the taxpayer than originally envisaged, and we believe will result in a fair and equitable outcome for all stakeholders. Not only do today’s announcements provide a firm basis for further progress, they also benefit customers of the new banks and the Icelandic economy in general. I look forward to the successful conclusion of this process.”
Agreement with the Resolution Committees of the old banks
The heads of agreement cover the basis and terms on which the new banks will be capitalised and the terms on which compensation arrangements will be finalised with the Resolution Committees.
The Government on behalf of each of the new banks and the Resolution Committees have made separate joint announcements.
Islandsbanki and New Kaupthing
The Government has conditionally agreed with the Resolution Committees of Glitnir and Kaupthing that they should have majority ownership of the new banks in order to facilitate their independent development. This would involve them capitalising Islandsbanki and New Kaupthing as part of the compensation agreement. It is envisaged that shares in Islandsbanki and New Kaupthing will be held by Glitnir and Kaupthing. The Government will continue its involvement in Islandsbanki and New Kaupthing through significant capital support and Board representation.
These arrangements remain subject to, inter alia, due diligence, finalisation of documentation, creditor consultation and the approval of the Icelandic Financial Supervisory Authority, the FME. In the event that Glitnir and Kaupthing do not complete the subscription for shares in the new banks, the Government will retain full ownership. However, the Government would provide both Resolution Committees with options to acquire the majority of the Government’s shares after it has earned a reasonable return on its investment.
Landsbanki
The Government and the Resolution Committee of Old Landsbanki have agreed to a further period to allow completion of due diligence by the Resolution Committee, its advisers and creditor representatives and the finalisation of the terms of a bond instrument to be issued by New Landsbanki in connection with compensation. It is envisaged that this bond instrument will be issued by 14 August 2009 in tandem with the capitalisation by the Government referred to below. The parties have also agreed a process to conclude all negotiation of other compensation to be provided to Old Landsbanki.
The ongoing operations of the new banks will be unaffected by today’s announcements, but following capitalisation, it will allow them to operate more normally within the financial markets.
Capitalisation of the new banks
Based on the agreements entered into with the three Resolution Committees, the Government is now in a position to capitalise all three of the new banks. It is expected that this will take place on 14 August 2009 and will be achieved by the issue of new Government bonds to the new banks. Each bank will be prudently capitalised with a core tier 1 ratio of approximately 12 per cent.
The agreements reached with the Resolution Committees mean that with effect from 14 August 2009, the new banks will be in a position to finalise their opening balance sheets as at October 2008 and will be appropriately capitalised to the satisfaction of the FME. They will also be in a position to complete the audits for the year to 31 December 2008.
The Government believes the agreement today is an important step towards meeting its goal of re-establishing a strong banking system for the long-term.
Lower than anticipated capital cost to taxpayer
In aggregate it is expected the total capitalisation will amount to approximately ISK 270 billion. In the event that both Glitnir and Kaupthing complete their subscription agreements as described above, this would be reduced to approximately ISK 200 billion. These levels of capital commitment are significantly lower than the estimated commitment of ISK 385 billion at the time of the original transfer in October 2008, leading to lower fiscal cost and impact on gross state debt than that previously envisaged.
Next steps
The heads of agreement signed with the Resolution Committees also set out agreed timetables for the next stages in the negotiations regarding compensation to creditors. These comprise further due diligence by the Resolution Committees, their advisers and creditor representatives, finalisation of the terms of compensation instruments to be issued to the Resolution Committees, preparation of audited accounts and other materials to be provided to creditors of the old banks for the purpose of any creditor consultation and meetings.
Ministry of Finance´s original press release can also be found here.
2. Ministry of Finance press release on Islandsbanki´s capitalisation
Capitalisation and compensation agreement between the Government of Iceland and the Resolution Comittee of Glitnir
The Government of Iceland and the Resolution Committee of Glitnir are pleased to announce that an agreement has been reached in respect of the initial capitalisation of Islandsbanki and the basis for the compensation payable to the creditors of Glitnir following the creation of Islandsbanki in October 2008. This will put Islandsbanki on a secure financial footing for its future development.
It has been agreed that Glitnir will subscribe for a majority shareholding in Islandsbanki (the “Subscription”). It is envisaged that shares in Islandsbanki will be held by Glitnir under the control of the Resolution Committee on behalf of its creditor base which largely comprises international institutional investors.
The Government will capitalise Islandsbanki on 14 August 2009 with an estimated ISK 60 bn. The Government capitalisation will be made pending the completion of the Subscription and, on completion of the Subscription, will be reduced.
On completion of the Subscription, Glitnir will own 100% of Islandsbanki and the Government will reduce its capital commitment substantially. The Government will continue to support the capital of Islandsbanki with ISK 25 bn in the form of high quality tier 1 and/or tier 2 capital instruments. In addition the Government will have the right to nominate a Board member.
There will be no changes to the status of depositors under Icelandic law as a result of these arrangements. Islandsbanki will, through the capitalisation and further liquidity support as part of the agreement, be in a strong liquidity position.
Hawkpoint is acting as exclusive financial adviser to the Government and UBS Investment Bank is acting as exclusive financial adviser to the Resolution Committee of Glitnir in this transaction. In addition creditor representatives participated in the negotiations.
Commenting on the agreement reached, Steingrímur J. Sigfusson, the Minister of Finance of Iceland said:
“We are pleased to have reached agreement with the Resolution Committee of Glitnir. Islandsbanki will now be properly capitalised and we believe future ownership by Glitnir will allow Islandsbanki to develop with the benefit of the involvement of international shareholders.”
Commenting on the agreement reached, Árni Tómasson, the Chairman of the Resolution Committee of Glitnir said:
“I am very pleased with our progress. I trust that this agreement will serve the needs of Islandsbanki and provide it with a solid starting point. The agreement is intended to provide the creditors of Glitnir with the ability to maximise the value of their claims.”
Commenting on the agreement reached, Birna Einarsdottir, the CEO of Islandsbanki said:
“We welcome the participation of Glitnir’s creditors in Islandsbanki. This is a major step towards rebuilding a new bank. Linking together the interests of foreign creditors and the interests of Islandsbanki will accelerate the reconstruction of the Icelandic financial system and economy. Islandsbanki’s employees have moved mountains in building up our new bank in recent months and this work will continue with renewed effort. The bank’s operations are very cost-efficient and our heritage and expertise in the geothermal energy and fisheries sectors will continue to provide us with an important advantage and international scope.”
Key terms of the agreement
In the event that the Subscription is not completed, the Government capitalisation will remain in place and the Government will continue to own Islandsbanki. In this case, the compensation will take the form of bond instruments to be issued by Islandsbanki and an option over 90% of the Government’s shareholding in Islandsbanki subject to the Government earning a reasonable return on its investment. The option over Government equity will be exercisable between 2011 and 2015.
The agreement remains subject to documentation, due diligence, creditor consultation and the approval of the Icelandic Financial Supervisory Authority, the FME.
It is envisaged that final agreements will be signed prior to 14 August 2009 and that the capitalisation by Government will occur at that date. Thereafter, it is expected that the Resolution Committee will prepare information in conjunction with Islandsbanki as part of a creditor consultation exercise.
3. Ministry of Finance press release on New Landsbanki´s capitalisation
Capitalisation and compensation agreement on process between the Government of Iceland and the Resolution Comittee of Landsbanki
The Government of Iceland and the Resolution Committee of Landsbanki have reached agreement in relation to a process by which compensation payable to the creditors of Landsbanki arising from the creation of New Landsbanki in October 2008 will be agreed.
New Landsbanki will be capitalised by the Government on 14 August 2009. The estimated amount of capital to be provided by the Government, subject to ongoing discussions, is approximately ISK 140 bn.
The Government and the Resolution Committee have agreed to a further period to allow completion of due diligence by the Resolution Committee, its advisers and creditor representatives and the finalisation of the terms of a bond instrument to be issued by New Landsbanki in connection with compensation. These negotiations will be conducted with a view to agreement by 31 July 2009. It is envisaged that this bond instrument will be issued by 14 August 2009 in tandem with the capitalisation by the Government. The parties have also agreed that they will seek to conclude all negotiation of other compensation to be provided to Landsbanki by 14 September 2009.
Hawkpoint is acting as exclusive financial adviser to the Government and Barclays Capital as exclusive financial adviser to the Resolution Committee of Landsbanki in this transaction. In addition creditor representatives participated in the negotiations.
Commenting on the agreement reached, Steingrímur J. Sigfússon, the Minister of Finance of Iceland said:
“We are pleased to have achieved this agreement on process with the Resolution Committee of Landsbanki. In accordance with its strategy for resolving the compensation to the old banks, the Government is committed to allowing the Resolution Committee of Landsbanki and creditors time to complete their due diligence in order that a final settlement can be achieved. The agreement today now allows the Government to complete the capitalisation of New Landsbanki and therefore put the bank on a sound financial footing to allow for its future development.”
Commenting on the agreement reached, Lárentsínus Kristjánsson, as Chairman of the Resolution Committee of Landsbanki said:
“The Resolution Committee of Landsbanki is pleased that through constructive negotiations and related due diligence, we now have an agreement with the Government on a process to complete the capitalisation of New Landsbanki and the structuring of compensation for transferred assets. We look forward to completing our work with New Landsbanki over the coming weeks.”
Commenting on the agreement reached, Ásmundur Steffánson, the CEO of New Landsbanki said:
“I am pleased that following the comprehensive discussions with the creditors of Landsbanki we are now in the final steps of completing the balance sheet of New Landsbanki.”
4. Ministry of Finance press release on New Kaupthing´s capitalisation
The Government of Iceland and the Resolution Committee of Kaupthing are pleased to announce that an agreement has been reached in respect of the initial capitalisation of New Kaupthing and the basis for the compensation payable between the two parties following the creation of New Kaupthing in October 2008. This will put New Kaupthing on a secure financial footing for its future development.
It has been agreed that Kaupthing will subscribe for a majority shareholding in New Kaupthing (the “Subscription”) following an initial capitalisation of New Kaupthing by the Government. New Kaupthing will remain an independent subsidiary of Kaupthing which can be built and developed for the benefit of all its stakeholders.
The Government will capitalise New Kaupthing on 14 August 2009 with an estimated ISK 70 bn. This Government capitalisation will be made pending the completion of the Subscription and, on completion of the Subscription, will be reduced.
On completion of the Subscription, the Resolution Committee has agreed to contribute 65% of the capital required by New Kaupthing (in ordinary equity) and therefore the Government will continue to contribute 35% of the total capital (in the form of ordinary equity and tier 2 capital). Overall this is expected to reduce the Government’s capital contribution materially. As a result, New Kaupthing will be owned 87% by Kaupthing and 13% by the Government. In addition the Government will have the right to nominate a Board member.
There will be no changes to the status of depositors under Icelandic law as a result of these arrangements. New Kaupthing will, through the capitalisation and further liquidity support as part of the agreement, be in a strong liquidity position.
Hawkpoint is acting as exclusive financial adviser to the Government and Morgan Stanley to Kaupthing in this transaction. In addition creditor representatives participated in the negotiations.
Commenting on the agreement reached, Steingrímur J. Sigfusson, the Minister of Finance of Iceland said:
“We are pleased to have reached agreement with the Resolution Committee of Kaupthing. This is an important step in securing the financial strength of New Kaupthing and we believe that the potential ownership by Kaupthing will bring additional benefits through the involvement of international stakeholders.”
Commenting on the agreement reached, Steinar Thor Gudgeirsson, the Chairman of the Resolution Committee of Kaupthing said:
“This agreement with the Government is in line with the Resolution Committee’s actions in Nordic countries, where agreements reached with the relevant authorities on securing the assets for Kaupthing have resulted in higher value for the bank’s assets. The Resolution Committee is of the opinion that creditors’ interests are best served through retaining ownership of New Kaupthing with the aim of building up a valuable and dynamic bank leading the way in corporate and retail banking services in Iceland. This agreement will strengthen New Kaupthing and position it for faster recovery of the Icelandic economy with stronger ties to the outside world.”
Commenting on the agreement reached, Finnur Sveinbjörnsson, the CEO of New Kaupthing said:
“We are pleased that this important step has been taken in the re-organisation of the Icelandic banking sector and that the balance sheet of New Kaupthing has been put on a sound and secure footing. We will continue to focus on new solutions for our customers, both corporate and retail. Our customers will not experience any disruption due to change in ownership but will benefit from the removal of uncertainty concerning our financing which will enable us to move more swiftly and decisively. We welcome international stakeholders to our bank and are determined to rebuild the trust and reputation of the Icelandic banking sector.”
Key terms of the agreement
In the event that the Subscription is not completed, the Government capitalisation will remain in place and the Government will continue to own New Kaupthing. In this case, other arrangements will be put in place between the two parties to settle compensation. It is envisaged that these arrangements will include a lien over certain assets of Kaupthing which will be held in escrow to compensate New Kaupthing in case it is determined at the end of the escrow period that a negative net asset value was transferred at the time New Kaupthing was created in October 2008. In conjunction with this a portfolio of loans within New Kaupthing will be monitored during the escrow period to determine the value of the asset transfer to New Kaupthing. The Resolution Committee of Kaupthing would also be granted an option over 90% of the Government’s shareholding in New Kaupthing subject to the Government earning a reasonable return on its investment. The option over Government equity will be exercisable between 2011 and 2015.
The agreement remains subject to satisfactory binding documentation, due diligence, creditor consultation and the approval of the Icelandic Financial Supervisory Authority, the FME.
It is envisaged that final binding agreements will be signed prior to 14 August 2009 and that the capitalisation by the Government will occur at that date. Thereafter, it is expected that the Resolution Committee will distribute information to creditors in conjunction with New Kaupthing. As part of the creditor consultation, a creditors’ meeting is planned to be convened by Kaupthing in September 2009.
5. Islandsbanki press release
Agreement on the capitalisation of Islandsbanki complete
§ Íslandsbanki will be fully financed and have strong liquidity
§ Emphasis on linking creditors’ interests with those of Íslandsbanki
§ Ensures maximum value to creditors
§ No impact on the bank’s day-to-day activities and services
§ Equity injection by the state lower than originally estimated
§ Reinforces Íslandsbanki and the Icelandic financial system
Reykjavík, 20 July 2009 Agreement has been reached on Íslandsbanki’s capital structure. Under the agreement, Glitnir banki hf. has the right to subscribe for a majority shareholding in Íslandsbanki. This is the outcome of negotiations between the government and representatives of Glitnir’s creditors. This implies that Íslandsbanki might soon be fully owned by foreign parties. According to the agreement the Icelandic government will provide the Bank with new equity to begin with which the creditors will have an option to acquire before 30 September given certain conditions. Government will as well support the capital of Islandsbanki with a subordinated loan to strengthen the bank’s capital ratio and liquidity.
Glitnir’s ownership of Íslandsbanki will link the interests of Glitnir’s foreign creditors to Íslandsbanki’s future profitability. At the same time, it ensures that the bank will have a strong capital base and sound liquidity position.
Participation of foreign creditors
In recent months, Íslandsbanki’s employees and Glitnir’s Resolution Committee have worked extensively in connection with the negotiating process. Foreign ownership will mean Íslandsbanki will be directly connected with international financial systems, as many of the leading financial institutions in the US and Europe are among Glitnir’s creditors. The involvement of foreign creditors will contribute to improving the bank’s access to international financial markets, enabling it to better serve it’s clients in the future. This is also an important factor for the reconstruction of Icelandic business and industry, as well as its financial system, in the years to come.
An efficient bank with a sound capital position
Under the agreement between the state and Glitnir’s Resolution Committee, a strong Íslandsbanki will have a solid balance sheet, a sound capital ratio and good liquidity.
Since the beginning of 2008, the bank and its predecessor have undergone major streamlining, with the number of employees in Iceland reduced from around 1300 to just under 900. While the bank currently has a similar number of employees as it did in 2003, its balance sheet is one-third larger. Íslandsbanki’s branch network is the most cost-efficient in Iceland, reflecting the bank’s ongoing emphasis on efficient operations.
Reconstruction work will continue
Successful efforts on rebuilding and formulating the bank’s strategy since the new bank was established last autumn will continue. Íslandsbanki offers universal corporate and retail banking services in Iceland. Outside of Iceland the bank can primarily take advantage of its expertise within the seafood and geothermal energy. The creditors’ representatives have indicated that they regard the Bank’s unique position within these two sectors provide it with a considerable future potential.
Participation of foreign parties in Íslandsbanki will further strengthen the Banks’ position in these sectors.
Árni Tómasson, chairman of Glitnir’s Resolution Committee:
“We in Glitnir’s Resolution Committee are pleased to have reached an agreement with the state which we feel ensures creditors both maximum rights and options which they can decide on, following due diligence which will be carried out in coming weeks.
The agreement gives Glitnir’s Resolution Committee, on behalf of its creditors, the right to fully acquire Íslandsbanki without a further capital contribution from Glitnir, and the state has pledged to provide the bank with ISK 25 billion liquidity support. In our estimation, this will fully capitalise the bank and ensure its liquidity for the foreseeable future.
If the creditors should conclude, once due diligence is complete, that instead of acquiring Íslandsbanki completely immediately, they consider it more advantageous to acquire debt instruments and a call option for up to 90% of the bank’s share capital over the next five years, then this option is also open. A decision on this will be taken in the best interests of creditors no later than 30 September this year.”
Birna Einarsdóttir, CEO of Íslandsbanki:
,,We welcome the participation of Glitnir’s creditors in Islandsbanki. This is a major step towards rebuilding a new bank. Linking together the interests of foreign creditors and the interests of Islandsbanki will accelerate the reconstruction of the Icelandic financial system and economy. Islandsbanki’s employees have moved mountains in building up our new bank in recent months and this work will continue with renewed effort. The bank’s operations are very cost-efficient and our heritage and expertise in the geothermal energy and fisheries sectors will continue to provide us with an important advantage and international scope.”
Íslandsbanki´s original press release can also be found here.
