The Icelandic government intends to propose paying no interest on its Icesave debt.
According to RUV, the Icelandic government could save around ISK 130 billion if interest on the Icesave debt is removed from the total bill at negotiations with the Dutch and British authorities, which start next week.
Instead of interest payments, the Icelandic government will propose quicker payouts to the Netherlands and the UK from the bankrupt estate of Landsbanki with any excess debt remaining then being insured by sovereign guarantee.
Details on the renegotiations and Iceland’s offer are very vague and Finance Minister Steingrimur J. Sigfusson gave away very little when asked by media – but it has been confirmed that talks on the Icesave issue will take place soon and that the Icelandic delegation will be led by the American lawyer Lee Buchheit.
Sigfusson said he expects talks to take place next week; reiterating that everybody on all sides wants a speedy and fair solution to the impasse.
The Icelandic government intends to propose paying no interest on its Icesave debt.
Yeah, ‘cos that worked out well for them last time (hint, a year ago).
Instead of interest payments, the Icelandic government will propose quicker payouts to the Netherlands and the UK from the bankrupt estate of Landsbanki with any excess debt remaining then being insured by sovereign guarantee.
AKA the Landsbanki bond idea that made Gary Roberts, in one of his less irritated moments, say:
“we have been unable to understand what positive result is thought to be achieved by the issue of the bond”
Really, you couldn’t make this stuff up. Lee Buchheit has his work cut out for him, and that’s just dealing with the side that he’s representing.
More on this over this earlier thread :
http://www.icenews.is/index.php/2010/02/10/icelandic-foreign-minister-in-london-for-talks/
“we have been unable to understand what positive result is thought to be achieved by the issue of the bond”
Bromley, you are knowledeable about subject, so please explain why Mr Gary Roberts is right.
As an initial negotiating position, it’s not too bad. Using the assets to help pay off the “loan” makes sense. The tricky bit is if ( and probably) the assets don’t cover the full amount. A new negotiating team, less emotionally invested, is probably also a good idea. I remain optimistic of a fair solution.
To Andrew:
>>>>The tricky bit is if ( and probably) the assets don’t cover the full amount.
Actually, the recoverable assets are MORE than enough to cover the original Icesave 20K obligation of Iceland. According to the newest report by the Landsbanki winding-up board, the current estimated numbers are as follows:
Total assets of old Landsbanki: 819B ISK (4.5B Euros)
Bond from new Landsbanki (NBI): 345B ISK (1.9B Euros)
Total LBI assets recoverable: 1164B ISK (6.4B Euros)
Total deposits (Icesave): 1319B ISK (7.3B Euros)
Recovery percentage: 1164/1319 = 88%
The total guarantee amount for the first 20K of each depositor comes to approximately 4.0B Euros, which clearly is much less than total LBI assets recoverable 6.4B Euros.
The trouble with the current Icesave agreements is twofold:
1) Only 51% of the recoverable assets goes towards paying the Icesave 20K deposit guarantee obligation, while the other 49% goes towards the UK/NL deposit guarantee payments for accounts with over 20K. This is due to the famous “Ragnar Hall” issue we have discussed here on IceNews repeatedly since last summer.
2) While 88% of the all Icesave deposits are covered by the LBI asssets, it will take up to 10 years to collect and recover those assets. During this period Iceland is, according to the current Icesave agreement, obligated to pay interest of 5.55% of the TOTAL guarantee amount of 4.0B, until the LBI bankruptcy proceedings start making payments to claimants. If there are any lawsuits (near certainty), those payments are likely to be delayed for several years. While the actual Icesave obligation of the Icelandic government is likely to be close to 0.5B Euros (12% of 4.0B), the interest payments on top are now expected to be somewhere between 1.5B to 2.5B Euros over the next 15 years.
In order for the third round of negotiations to be successful, those two issues need to be resolved, so they are acceptable to the Icelandic people.
I too remain optimistic that a fair solution can be reached.
Bromley, you are knowledeable about subject, so please explain why Mr Gary Roberts is right.
Not especially knowledgeable, but his reasons were that it added another layer of complication and uncertainty for no benefit. Also, on the subject of pushing the financing costs onto Landsbanki (and this is important in light of this new development), “for the estate to add to its existing liabilties in this way would be seen as an extraordinary and objectionable act by an insolvent institution”.
Bond idea introduced: http://www.island.is/media/frettir/60.pdf
Response: http://www.island.is/media/frettir/64.pdf
As it tuns out, the Icelandic side wasn’t proposing that any interest be attached to the bond! So their cunning plan was to turn up and say (1) we owe you the money but (2) we don’t want it on our sovereign debt books so (3) please let us shift it onto Landsbanki and then (4) we’ll cover any difference between the bond and what we owe you after Landsbanki is dissolved. BTW, (5) we don’t want to pay any interest!
Bond idea clarified: http://www.island.is/media/frettir/65.pdf
Roberts clarifies the meaning of “no”: http://www.island.is/media/frettir/66.pdf
Anyway, back to the present. The new talks have certain ground rules (principally, getting Iceland to acknowledge that the guarantee is not up for discussion, because otherwise you can just see how it would progresses :) ):
The conditions Iceland has agreed to, according to the newspaper’s sources, are a recognition of Iceland’s obligation to pay the minimum deposit insurance, EUR 20,887 (USD 28,668) for each Icesave deposit, and political unity in Iceland.
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=40764&ew_0_a_id=357700
But try to make that fit with the statement in the article above (sourced from the Progressive Party leader, I believe):
Instead of interest payments, the Icelandic government will propose quicker payouts to the Netherlands and the UK from the bankrupt estate of Landsbanki with any excess debt remaining then being insured by sovereign guarantee.
Items:
1. So, no interest payments? Not a very sensible loan then. Also, Bos has just said that the financing cost must be bourne by Iceland.
2. Quicker payouts. This is where that “extraordinary and objectionable act” quote pops up again. For this to be the case, the estate of Landsbanki will have to suffer. The administrators should be maximising the value of the assets for all creditors, not speeding up the liquidation for the benefit of one creditor (the TIF).
3. Excess debt remaining then being insured. I.e. exactly the same concept as the bond, but without the bond. Only possible if there is no state debt until the liquidation is complete, so requires zero interest.
Crazy. Of course, all this probably stems from a misunderstanding, in that the Progressives seem to delight in making sensational statements that are not actually grounded in fact. Just like the whole “Norway will pay” thing – sure, they might, but it was nowhere near as advanced as the Progressives made out when they announced it.
“Lee Buchheit has his work cut out for him, and that’s just dealing with the side that he’s representing”
LOL
“Instead of interest payments, the Icelandic government will propose quicker payouts to the Netherlands and the UK from the bankrupt estate of Landsbanki …”
Actually there is only enough money to pay the UK and Dutch authorities because those parties have been given priority creditor status due to the emergency laws brought in by the Icelandic Government. Other creditors are likely to get nothing as a result of this unfair and unjust treatment. This is currently the subject of legal action both against the Winding up Board of Landsbanki and should that fail, the Icelandic Government.
@bjarni
I was looking at a statement from Eva Joly that only 30-40% might be recoverable (and I can’t remember where I saw it either). I hope that your more optimistic figures are correct. Your points 1 and 2 are both eminently negotiable – it’s the schedule and interest rates. I agree with you that the current terms are much too onerous. Personally I think something much more reasonable should be agreed as a matter of high priority. That’s why I am encouraged by the involvement of external mediators and the British Foreign Secretary (not the Treasury, who have taken an unreasonably hard line).
To Andrew:
The 30% from Eva Joly probably come from an article she wrote few days ago for Aftenposten.no and Morgunblaðið. Here is the Google Translate:
http://translate.google.com/translate?js=y&prev=_t&hl=en&ie=UTF-8&layout=1&eotf=1&u=http%3A%2F%2Fwww.aftenposten.no%2Fmeninger%2Fdebatt%2Farticle3512046.ece&sl=no&tl=en
In the article she states that “it is very likely that sales will not cover more than approx. 30 percent of the debt (without interest)”.
According the winding-up board of Landsbanki, they estimate that the recovery will be approx. 88% of “priority” claims (1164/1319 ISK). It is possible though, she was referring instead to the “total” recovery rate of the total liabilities of Landsbanki, which is 34% (1164/3247 ISK). This lower percentage does not affect the Icesave agreement, since almost certainly only the priority claimants (TIF/FSCS/DNB) will get paid and the general claimants will get nothing.
To JohnErvinn:
I agree in principle that the other creditors of Landsbanki are not being treated very well (basically they get nothing).
But any lawsuits against the winding-up board or Icelandic government are likely to fail, since this matter has already been deliberated by the EFTA Surveillance Authority (ESA), which has jurisdiction in these matters and issued its preliminary judgment in Iceland’s favor on December 4th, 2009.
http://www.forsaetisraduneyti.is/media/frettir/Bradabirgdanidurstada_ESA.pdf
It is rather unlikely after this outcome, that the courts in Iceland would decide to take up the matter again and reverse it against the ESA judgment.
To Bjarni
Yes, that article was the source of my figures. Do we know who the other creditors are, the ones who will very likely get nothing? Are sone if them the large investors such as British and Dutch local councils who put substantial amounts on deposit (or do they count as priority cases too?).
We might also hope that the EU will clarify the rules on cross border banking and how deposit insurance schemes are supposed to work. The current directives are a mess.
To Andrew:
Actually, the other liabilities are almost ALL located in Iceland, for example bonds held by the pension funds, so they will bear full brunt of the losses. This is the hidden effect of the emergency laws where claims by bond-holders and investors in Iceland were discarded, in order to help the Icelandic government cover the foreign deposits of Icesave.
The assets (mainly loans to customers) on the other hand distributed more evenly between Iceland and Europe.
You can see the estimated distribution of the assets and liabilities of old Landsbanki on page 48 in this presentation:
http://www.lbi.is/Uploads/document/LBI_creditors_meeting_presentation_031209.pdf
Bjarni.
Although it says “Iceland”, are all those creditors Icelandic? I looked for a rough breakdown of that ISK 1.36tn to confirm your point about the pension funds (I assume you mean Icelandic pension funds), but to no avail.
To Bromley86:
Unfortunately, there is no definition what exactly the LBI winding-up board means by liabilities “located” in Iceland. Nor is there further breakdown available, as far I know of who these “Icelandic” claimants are.
The reason I mentioned the Icelandic pension funds, is that they have been complaining loudly since the crash that their rights were mistreated by the emergency laws. It has been reported here that they lost large share of their Icelandic investments, due to the change of priority in the bankruptcy handling of the banks.
Bjarni did say
>But any lawsuits against the winding-up board or Icelandic government are likely to fail, since this matter has already been deliberated by the EFTA Surveillance Authority :
” [ EFTA Surveillance Authority ] ESA invites the complainants to provide their views on the above preliminary findings and any other information they deem relevant to the case by 15 January 2010, before making a final assessment of the complaint. ”
We have not heard much since early December 2009, but the wheels of the impartial procedure is grinding away.. and I think we would hear some thing already if there was any new facts or challenges made in the procedure.