The Icelandic government and the Glitnir Bank resolution committee have come up with two options for the future of the company and its eventual re-privatisation. Creditors are being asked to vote for their preferred option before the end of the month.
The government’s favourite option is to turn over 95 percent of the bank to its creditors and retain a five percent stake. This way the government would not need to inject further funds itself, BBC News reports.
The alternative is for the government to keep the bank and repay investors with bonds which would leave them in charge of 90 percent of the bank by 2015. The bonds would be sold at a price allowing the government a return on its investment, the Ministry of Finance said.
The OECD recently described Iceland’s state ownership of its banks as an effective temporary solution; but warned that the banks should be re-privatised as soon as practically possible.
Anything but repaying investors with bonds.
When there is a debt induced crisis, a government has to break its promises made in boom time. The interests of people supercede the interests of investors.
Investment is a calculated risk. If some investor is not aware of the element of risk, they are living in lala land. Iceland does not have the money to protect investors.
Banks go bust. Let them go. Set up a new bank with the deposits and start again.
>Banks go bust. Let them go. Set up a new bank with the deposits and start again.
That’s been the core of the problem – those deposits are not Iceland’s, they are the banks’. Until the last-minute change to priority, all creditors would have been broadly treated the same.
Haven’t the deposits already been moved to new bank last year?
And the State has already borrowed Eur2,3 bn. ready to pump into the banking system.
In Glitnirs case I have no idea of their accounts, they are accessible on their website. Would it be fair to generalise that they have been stupid and greedy? Would it be fair to say that the State is offering as one of the choices, to pump in money that they don’t have, to protect the interests of investors and in the meantime savage the nation with spending cuts, possibly also sell of any remaining national assets.
Already we have seen examples of the State borrowing money, pumping it into a Bank, Spron in return for assets at top overpriced value. Not only that, but putting the resources of the state behind throwing citizens out of their home.
>Haven’t the deposits already been moved to new bank last year?
That’s kinda the point ;) .
Look, it all boils down to responsibility. If the UK goes to the IMF, will I be responsible? No, but at the same time yes.
Likewise here. Is the average innocent Icelander responsible? No, but yes. No one has gone over the figures here, but I would be amazed if the bondholders come out of this whole thing better off than if they’d got their “fair” share of the old banks assets. So they are being punished for their greed and stupidity and more so than usual.
To Bromley86:
>>>>Look, it all boils down to responsibility. If the UK goes to the IMF, will I be responsible? No, but at the same time yes.
>>>>Likewise here. Is the average innocent Icelander responsible? No, but yes.
The trouble that the innocent Icelanders are having with all this, is that this “responsibility” is kind of being forced on them after the fact. When you sign a loan agreement (with IMF or anyone else) it normally states in very plain language that you are fully responsible for paying it back.
Most issues regarding the bankruptcies of the Icelandic bank, are being resolved without too much hassle. Its mainly in the case of IceSave debacle where no one has been able to show the Icelandic people black on white that they definitely should be responsible. And, since no one is willing to have the dispute resolved through international courts, they finally put their foot down last summer.
BTW, the news just came out this afternoon that the British and the Dutch have responded with some “ideas” how the amendments could be handled. This is still all very hush-hush, but these ideas will be probably been either published (or leaked) very soon. So the wait will soon be over… :-)
The “ideas” have not been published yet, but according to the news tonight, it looks like most of the amendments are agreeable to the British and Dutch negotiators. The main sticking point left for them seems to be the cutoff date at 2024.
Makes sense Bjarni. It’s one thing to limit the payout to what is affordable in any one year, but something else to write chunks off.
My response to Knowless was purely concerning whether bondholders should get X, Y, Z. Icesave is a very different matter.
Looks like you’re right Bjarni, according to “a member of Iceland’s budgetarty committee, who declined to be named”:
http://www.reuters.com/article/bankruptcyNews/idUSLH68127020090917
“The main sticking point left for them seems to be the cutoff date at 2024″
Now there’s a surprise…
To Bromley86:
>>>>Makes sense Bjarni. It’s one thing to limit the payout to what is affordable in any one year, but something else to write chunks off.
Some people here are already nicknaming this, “the amendments to the amendments”. :-)
But jokes aside, now the question becomes how the followup will be handled. It is pretty clear already that here in Iceland these “proposals” will have to go back to Althingi, and any changes to the amendments will have to be passed as new laws.
As with the original IceSave agreement, the government officials are positive and think this should be accepted, but the opposition party members are either dead-set against it or want to take more time to go over it. So, based on the opinions of the original four “rebels” in the Left-Green party, this may have to go a whole round again.
There is also a strong will here among the people, that the whole IceSave loan agreement be tossed as it is currently written. Then it would negotiated again properly, so there would be no need for further amendments.
But in any case, it looks like the “cooler heads” are prevailing after all, which is good.
Bjarni said:
“The trouble that the innocent Icelanders are having with all this, is that this “responsibility” is kind of being forced on them after the fact. When you sign a loan agreement (with IMF or anyone else) it normally states in very plain language that you are fully responsible for paying it back.”
The point is your government entered into the agreement without explaining it beforehand. Governments (such as the UK) are very keen to get the profits from banks but don’t let the general public know the real dangers. Good economy=keep the same politicians in power.
To Peter – London:
>>>>The point is your government entered into the agreement without explaining it beforehand. Governments (such as the UK) are very keen to get the profits from banks but don’t let the general public know the real dangers. Good economy=keep the same politicians in power.
Well, we threw out the old government and are now doing our best to keep the current one on a tight leash. Everyone now knows that nothing will be agreed to unless the Althingi passes it, and behind them are thousands of bloggers keeping a very close eye on everything. :-)
“nothing will be agreed to unless the Althingi passes it”
Assuming the same process as last time, the three governments will agree new terms and conditions and also sign new agreements long before Althingi has an opportunity to vote on particular points. Why would it be different this time?
To Jim:
>>>>Assuming the same process as last time, the three governments will agree new terms and conditions and also sign new agreements long before Althingi has an opportunity to vote on particular points. Why would it be different this time?
As been mentioned before in previous threads here, the Icelandic government does not, according the constitution, have the legal authority to accept to any loan guarantees without it being explicitly authorized by law passed by Althingi.
This was the reason the earlier IceSave agreement had to have the clause stating that the guarantee would not come into effect unless Althingi agreed to it first.
There is a big political debate raging now in Iceland, whether these new “proposals” or “ideas” by the British and the Dutch governments, about extending the guarantee period, should be considered big enough change, so Althingi will now be forced to take up the matter again, or if these are still just informal discussions at this point.
The Icelandic government wants to work this out quietly behind the scenes, preferrably without making any changes to the previously passed laws, while the opposition parties mostly want to toss out the original agreement and start the whole process over.
Bjarni – Yes, I understand all those points. I just highlighted that, last time, all 3 sides first signed agreements and then Althingi debated and voted on those already-signed agreements. I wondered whether that same process would be followed again as it seems very inefficient. However, from subsequent news, it looks like the members of Althingi will perform their debating before the agreements are signed, so the subsequent vote is more likely to be just parliamentary rubber-stamping.
“the opposition parties mostly want to toss out the original agreement and start the whole process over”
And what do the Icelandic people want? Is extending the cut-off date from 2024 to 2040 that unacceptable…
To Jim:
>>>>Bjarni – Yes, I understand all those points. I just highlighted that, last time, all 3 sides first signed agreements and then Althingi debated and voted on those already-signed agreements. I wondered whether that same process would be followed again as it seems very inefficient.
Correct, it would probably have been more efficient to involve Althingi earlier in the process first time around. The government simply didn’t realize that this agreement is too big and too important for it to be done in secret.
>>>>However, from subsequent news, it looks like the members of Althingi will perform their debating before the agreements are signed, so the subsequent vote is more likely to be just parliamentary rubber-stamping.
Well, based on their behavior for the last 48 hours, I wouldn’t hold too much hope yet. They have been spending most of their energy shooting at each other, on the pointless debate whether the British/Dutch canceled the agreement (they did not), or whether they more or less accepted the amendments (they did not), and which party was responsible for leaking the “ideas”. At least the British and the Dutch negotiators know when to stay quiet.
To Jim:
>>>>And what do the Icelandic people want? Is extending the cut-off date from 2024 to 2040 that unacceptable…
Yes, with the current interest rate of 5.55% Iceland would have to pay around 1B Euros in interest charges during those 8 payment years, plus another 1B Euros in guarantee payments, assuming that the Landsbanki bankruptcy proceedings recover around 75% for priority claims (that is the current estimate, no one really knows yet what the recovery rate will be).
The purpose of the amendments where to protect Iceland from probable sovereign default, in case the economy does not recover quickly enough. If this happens and the loans are then automatically extended until 2040 on full 5.55% interest, Iceland would probably never be able to catch up.
“the opposition parties mostly want to toss out the original agreement and start the whole process over”
If the amendments are not accepted the state guarantee will be invalid, it is based on the amnedments, so the deal will go back to parliament,
im not so sure it will be passed trough again,
the opposition will use this opportunity to atack the gov and try somehow to force new elections,
if that happens the winner will be the Progressive party and they will choose to work with the Independence party,
the riots last winter were fueled with anger,
if the Elite gets back to power the they will have to deal with the same thing only this time anger has been replaced with hate,
if the icesave deal has to go back to parliament its impossible to know what happens.
So, has Iceland proposed lowering the interest rate to something manageable (from 5.55% to say 2%) after 2024? Or is Iceland fixed on the loan being written-off in 2024?
They are fix on doing everything without anybody knowing.
To Jim:
>>>>So, has Iceland proposed lowering the interest rate to something manageable (from 5.55% to say 2%) after 2024? Or is Iceland fixed on the loan being written-off in 2024?
The government that is currently in power (Social Democrats & Left Greens), did not want to consider any changes to the loan agreement or its terms. So the parliament was left with the only option to put limits on just the guarantee itself through the amendments. Maybe for that reason, there has been very little political discussion here yet on trying to lower the interest rate to a more manageable level.
It is important to remember, that even though Iceland has a small population, it does not have a common view or strategy on how to deal with this situation. Some people want to settle IceSave as soon as possible, almost at any cost (e.g. Social Democrats), while many others do not think the Icelandic government should pay anything.
Then there are is a lot of people in the middle, that want to settle the matter with UK/Netherlands in some reasonable way, so long as the responsibility is somehow shared in a fair way. Also very important to many people here, is making sure the payments do not lead to possible sovereign default.
All this makes it very difficult to negotiate with Iceland at the moment, since it does not speak with one voice. I am sure the British and the Dutch seasoned negotiators are now rather frustrated with the situation (probably asking the same question you asked earlier: “What do the Icelandic people want?”).
In my view, it would be very clever to do a simple horse-trade, a longer term on the loan with guarantee that the full loan amount will eventually be paid by Iceland, in turn for a lower interest rate. For example, the loan could be setup in similar way to the UK loan payments to USA for the WWII costs, which was payable for over 50 years, with the ability for UK to defer payments when needed.
Bjarni – Interesting. It looks like everything on the Icelandic side is still totally unpredictable…