Bankrupt Icelandic bank pays Luxembourg debt

The estate of Iceland’s defunct Glitnir Bank has paid back all its debts to the Central Bank of Luxembourg, two years ahead of schedule.

The debts were related to a collection of loans which Glitnir collateralised through the Luxembourg central bank before the 2008 banking crisis swept Reykjavík.

When the Icelandic banking system collapsed, the Central Bank of Luxembourg insisted that Glitnir’s Luxembourg subsidiary had to keep its end of the bargain. To avoid the central bank taking the loans over itself (which were granted by Glitnir Luxembourg to various large Icelandic companies) a contract was made that allowed Glitnir five years to pay its ISK 173 billion debt with the central bank (over one billion euros).

The deal stopped the Central Bank of Luxembourg taking over the loans and selling them on to potentially-aggressive investors. The purchasers of the loans could have made life very difficult for the Icelandic companies in their debt.

“The holders of the loans would likely have called in the loans to Icelandic companies that were in violation of loan agreements after the collapse,” said Kristján Óskarsson, CEO of Glitnir in Iceland. “It is difficult to foresee the consequences if this had happened; but since we got this agreement, we were able to work with these companies and help them through their difficulties in most cases,” Kristján told RÚV.

Now, three years after the agreement was made, all the ISK 173 billion of debt has been paid back in full. As well as this, Glitnir spokesmen say that other creditors will likely see ISK 213 billion in returns while they would not have got a single króna if the Luxembourg central bank deal had not been made.