Icelandic banks seek help from Financial Services Authority amid 'special circumstances' in markets

By Caroline Salls

Pittsburgh, Oct. 9 - Glitmir Bank, Kaupthing Bank and Landsbanki are receiving help from the Icelandic Financial Services Authority in light of special circumstances in the financial markets, according to a series of news releases.

According to the Glitmir Bank release, a receivership committee will overtake all powers of the bank's board of directors.

Glitmir said general banking activities in Iceland will remain unchanged and all branches will remain open.

The bank said appointment of a receivership committee will not create a default under any loan documents.

In addition, Lárus Welding will continue in his role of chief executive officer of the bank.

Glitmir Bank said it has not been put into liquidation, but is in receivership, which gives it a temporary protection from payment of debts and obligations as they fall due.

The bank said work has already begun on the restructuring of its operations.

Kaupthing Bank seeks help

Kaupthing Bank has asked the Icelandic Financial Services Authority to assume the power of Kaupthing Bank's shareholders' meeting, and the bank's entire board of directors has resigned, according to a Kaupthing news release.

Kaupthing said the Icelandic FSA has appointed a winding-up committee, which now wields all the authority of the board of directors, to ensure adequate activities of the bank in Iceland and the stability of the Icelandic financial system.

The bank's branches in Iceland will be open as usual.

"When the board of directors reviewed the position of the bank at a meeting on 25 and 26 September, the bank was performing well and it appeared that the third-quarter results would be good," Kaupthing Bank executive chairman Sigurdur Einarsson said in the release.

"The bank's liquidity position was therefore strong and there were plans to start buying back bonds issued by the bank. The liquidity position of Kaupthing Singer & Friedlander, the bank's U.K. subsidiary, was also good - probably the best of any bank in the United Kingdom."

However, Einarsson said Kaupthing was prepared for a downturn in the markets, especially in Iceland "since it had been clear for several years that the Icelandic krona was too strong."

"In order to counteract this possible downturn, Kaupthing had hedged its equity by transferring it into foreign currencies, decelerated the growth of corporate loans in Iceland and cut back its market share in that area," Einarsson said in the release.

"Furthermore, it had increased the inflation indexed assets in its portfolio in Iceland and massively raised the proportion of deposits in its funding.

"At the same time, dark clouds began to form in the international financial markets and trust between financial institutions quickly decreased.

"On the morning of 29 September news emerged of the difficulties at Glitnir Bank and the authorities announced their plans to acquire a 75% stake in the bank. This triggered a series of events which nobody predicted or was able to control.

"This had an effect on the Icelandic economy and the krona went into freefall."

The members of Kaupthing Bank's receivership committee are Finnur Sveinbjörnsson, Knútur Thorhallsson, Bjarki H. Diego, Gudny Arna Sveinsdóttir and Steinar Thor Gudgeirsson, according to the release.

The receivership committee has asked Hreidar Már Sigurdsson to remain continue to serve as the bank's CEO.

Government takes control of Landsbanki

Landsbanki Islands said the Icelandic Financial Services Authority has decided to take over the powers invested in Landsbanki's shareholders meeting and Landsbanki's board of directors.

According to a Landsbanki release, the authority has appointed a receivership committee, which will assume the role of the board of directors immediately.

Members of the receivership committee are Arsćll Hafsteinsson, Einar Jónsson, Lárentsínus Kristjánsson, Lárus Finnbogason and Sigurjón Geirsson.

Landsbanki said the objective of the committee is to ensure the continued operations of the commercial banking operations of Landsbanki Íslands hf. in Iceland.

CEOs Halldór J. Kristjánsson and Sigurjón Ţ. Árnason have been asked to continue their work for the bank and be responsible for daily operations.

Meanwhile, New Landsbanki has taken over Landsbanki´s domestic assets to ensure provision of normal banking services and the safety of deposits in Iceland

New bank formed

According to a separate Landsbanki release, the authority has now decided to transfer a part of Landsbanki´s operations to a new bank that has been formed and is fully owned by the Icelandic government.

The new bank will take over all the bank's deposits in Iceland and also the bulk of the bank´s assets that relate to its Icelandic operations.

An independent evaluation of the value of assets and debt, together with a final settlement, will be made within the next 30 days, the release said.

The new bank's equity will be ISK 200 billion, and the size of the balance sheet will be around ISK 2.3 billion.

Sigríour Elín Sigfúsdóttir has been appointed as chief executive of the new bank. The new bank's formal name will be New Landsbanki Íslands hf.

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