Bloomberg News

Landsbanki Islands Makes $3.6 Billion Payment on Icesave Claims

December 07, 2011

Dec. 7 (Bloomberg) -- Iceland has made the first payment to cover about $11 billion in depositor losses stemming from the U.K. and Netherlands, moving the island closer to ending a three-year dispute with the two countries.

Failed lender Landsbanki Islands hf, which sold the Icesave Internet accounts outside Iceland, today disbursed 432 billion kronur ($3.6 billion) to creditors with priority claims, including U.K. and Dutch authorities, which have already compensated depositors who risked losing their savings when the bank tumbled three years ago.

Today’s payment “is close to one-third of the recognized priority claims,” the winding-up board of Landsbanki said in a statement on its website. “In tandem with making the payments, the winding-up board deposited in special escrow accounts an equivalent percentage of all equally ranked claims which are still disputed or where resolution of disputes is not yet concluded.”

Iceland in September said it will reimburse Landsbanki’s foreign depositors for all losses, more than double the amount covered by guarantees. The island’s Supreme Court a month later upheld an emergency bill that gave depositors priority status over bondholders, paving the way for Icesave repayments to start and healing relations with the U.K and the Netherlands.

Still, valuing the assets held in Landsbanki may become more difficult as Europe’s debt crisis roils markets.

Loan Portfolio

“We have to take into the calculations that the European economic situation isn’t at its best,” Larentsinus Kristjansson, the chairman of Landsbanki’s resolution committee, said in an Nov. 18 interview. “As of now, that doesn’t impact our loan portfolio.”

The bank’s committees may delay the sale of Iceland Foods, of which Landsbanki holds 67 percent, initially due to be completed this year, to the beginning of 2012, Kristjansson said. Dow Jones reported on Dec. 5 that TPG Inc. had dropped out of the bank’s bid for Landsbanki’s stake in the retailer. Iceland Foods is Landsbanki’s biggest asset.

“We hope that we can complete the sale early next year, obviously under the condition that the price is right,” he said. “If we’re not satisfied with the offers we get for our shares, we might well postpone the sale and wait until the economic climate is more favorable.”

Book Value

Landsbanki’s committees said last month the bank had recoveries estimated at 1.35 trillion kronur as of Sept. 30, exceeding the total 1.32 trillion kronur book value of priority claims, calculated at exchange rates as of April 22, 2009. The bank had the equivalent of 510 billion kronur in cash at the end of last quarter, or about 37 percent of priority claims.

Funds remaining for general claimants such as bondholders will be between 20 billion kronur and 30 billion kronur, Kristinn Bjarnason, an attorney and a member of the winding-up committee, said in an interview last month. Landsbanki bondholders stand to get about 5 cents on the euro, according to the latest prices available on the website of HF Verdbref.

Iceland’s banks defaulted on $85 billion at the end of 2008, as the government seized domestic operations in an effort to protect the $12 billion economy from collapse. The local assets of Landsbanki, Kaupthing Bank hf and Glitnir Bank hf, were taken over by the state, which created new banks.

Landsbanki’s failure triggered a diplomatic dispute with the Netherlands and the U.K., which both had to cover depositors in the lender’s Internet accounts. The dispute left about 350,000 foreign depositors in the lurch.

Iceland, which completed a 33-month International Monetary Fund program in August, has since outperformed a number of euro area nations in recovering from the crisis. It will see its economy grow at more than double the pace of the euro-area average next year, the IMF said in September.

--Editors: Kevin Costelloe, Christopher Wellisz

To contact the reporter on this story: Omar Valdimarsson in London at valdimarsson@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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