potential for private ownership of iceland banks

Posted 27/03/2009 - 07:04 by hkbased

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2009-03-27 (All day)

By Tasneem Brogger
March 27 (Bloomberg) -- Iceland wants to encourage foreign ownership of its banks and may enable creditors of the failed lenders to become shareholders as a means of achieving a stable financial system, Finance Minister Steingrimur Sigfusson said.
“One of the ideas behind having the creditors as owners is that through that we would secure good connections with the foreign banking world,” Sigfusson said in a telephone interview out of Reykjavik yesterday. “We are determined to have the reorganization of the new landscape of the whole banking sector, the whole situation, under control in the next few weeks.”
Foreign creditors of Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf have waited since October to find out how they can recoup as much as 10.5 trillion kronur ($89 billion) in debt. The state took control of the banks almost six months ago, without making itself liable for their foreign obligations.
Iceland is relying on a $5.1 billion International Monetary Fund-led loan to rebuild its economy after the banking collapse brought down the krona.
Kaupthing “is the one where interest seems to be the most and probably where it would be the easiest to negotiate”
creditors taking equity stakes, “so definitely that’s an open possibility,” Sigfusson said, adding that a final decision had yet to be made.
The government is waiting for Deloitte & Touche to provide an audit of the failed banks’ balance sheets, enabling an assessment of the extent to which the lenders’ assets can cover the outstanding debt.

                        New Model

 Deloitte will submit the audit in “just one or two weeks,” Sigfusson said. “At that time or in the weeks that follow, we should be able to” provide a model on how creditors’

claims will be handled.
Sigfusson’s Left Green Party, the junior member of the interim coalition led by the Social Democrats, wants the state to retain a stake in the new banks and says maintaining a state holding is key to ensuring stability. Opinion polls show the coalition will win an April 25 election.
“I think it would be very unlikely that we would agree to a total privatization of the whole banking system again,” he said. “So probably some mixed approach could be the outcome in carefully evaluated steps.”
The island’s financial system should never be allowed to grow to the dimensions it had before the crisis, he said, when the three biggest banks ballooned to 10 times the size of the economy and accounted for about 90 percent of gross external debt.
“We have to be realistic as to the overall size of our financial sector in comparison to the economy of Iceland,”
Sigfusson said. “It was always a ridiculous idea that the tiny economy of Iceland could stand behind such a massive banking system.”
Iceland’s banking system in the future will be characterized by “big foreign currency reserves compared to a relatively small banking system,” he said.