Landsbanki
Landsbanki, also commonly known as Landsbankinn was one of the largest Icelandic commercial banks; it failed as part of the 2008–2011 Icelandic financial crisis when its subsidiary sparked the Icesave dispute. On October 7, 2008, the Icelandic Financial Supervisory Authority took control of Landsbanki and created a new bank for all the domestic operations called Nýi Landsbanki and the bank continued to operate under the same name.
Prior to its failure, the bank was one of the largest Icelandic banks with assets of ISK 3,058 billion in December 2007 and a market capitalization of ISK 383 billion. It began operation in 1885 and was instrumental in the economic development of business and industry in Iceland. From 1927 to 1961, the bank acted as the central bank until it was replaced by the Central Bank of Iceland, although this interest was primarily directed towards note issuance rather than monetary policy. The bank had been state-owned and was privatized in stages between 1998 and 2003.
Landsbanki had positioned itself as Iceland's primary provider of general and specialized financial services to individuals, corporate entities, and institutions. The bank had the country's most extensive branch network with 40 branches and sub-branches. At the end of 2006, Landsbanki provided close to 40% of corporate lending in Iceland, and for around 60% of companies listed on the OMX Iceland Stock Exchange, Landsbanki was their principal bank or one of two banks with whom they did business. The leading provider of M&A, derivatives, equity and fixed income services.
It started to expand overseas in 2000 through a number of acquisitions and organic growth, the expansion would lead to the creation of its Icesave subsidiary in 2006 which would ultimately seal its fate.
History
In establishing Landsbanki, the Icelandic parliament hoped to boost monetary transactions and encourage the country's nascent industries. Following its opening on 1 July 1886, the bank's first decades of operation were restricted by its limited financial capacity; it was little more than a savings and loan society. Following the turn of the 20th century, however, Icelandic society progressed and prospered as industrialization finally made inroads, and the bank grew and developed in parallel to the nation. In the 1920s, Landsbanki became Iceland's largest bank and was made responsible for issuing its banknotes. After the issuing of banknotes was transferred to the newly established Central Bank of Iceland in 1961, Landsbanki continued to develop as a commercial bank, expanding its branch network in the ensuing decades.While still publicly owned it went through a state-directed merger with Samvinnubanki.
Liberalisation of financial services, beginning in 1986, opened up new opportunities, which the bank managed to take advantage of despite some economic adversity. In 1997, Landsbanki was incorporated as a limited-liability company, and the ensuing privatization finally concluded in 2003. Landsbanki then operated as a privately owned bank, competing in a free market, with substantial international activities added to its traditional Icelandic operations.
International expansion
The relatively limited size of the Icelandic market prompted Landsbanki, the first among Icelandic commercial banks, to expand and diversify outside of Iceland when it acquired the London-based Heritable Bank in 2000. In 2005, Landsbanki acquired three Europe securities houses: Teather & Greenwood, located in London and Edinburgh; Kepler Capital Markets, headquartered in Paris; and Merrion Capital Group in Dublin. These subsidiaries dealt in securities and prepared equity research in London, Paris, Frankfurt, Zürich, Nyon, Milan, Madrid and Amsterdam. Landsbanki's own branches in London and Amsterdam specialized in structured finance and commercial finance, while Landsbanki Luxembourg handled private banking and wealth management, as well as corporate services.On 9 August 2007 Landsbanki completed its acquisition of UK investment bank Bridgwell plc. The operations of Teather & Greenwood were combined with those of Bridgewell under the brand name Landsbanki Securities. The acquisition of Bridgewell made Landsbanki the second largest broker to listed companies on the London Stock Exchange measured by the number of clients.
In December 2008 Kepler Capital Markets is sold to management and staff through a management-led buy-out.
Icesave
An online savings account program for the UK market, Icesave, was launched in October 2006. Icesave grew rapidly, and on 31 March 2007, its deposits totaled £2.8 bn with over 80,000 accounts opened.A key factor in Icesave's appeal to savers was its interest rate guarantee: The gross Annual Equivalent Rate of Interest paid on balances over £250 was guaranteed to exceed the Bank of England Base Rate by at least 0.25% until 1 October 2009 and thereafter not to be lower than the Bank of England Base Rate until 1 October 2011. As a result, Icesave quickly became the market leader in Internet deposit savings accounts in the UK in terms of interest rates.
Icesave operated in the Netherlands from May 2008 until October 2008.
On 7 October 2008 the Icesave UK website announced: "We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologize for any inconvenience this may cause our customers. We hope to provide you with more information shortly." and Icesave was declared in default on 8 October 2008, taking Landsbanki with it in its fall.
2008 financial crisis
On October 7, 2008, the Icelandic Financial Supervisory Authority took control of Landsbanki. A press release by the IFSA states that all of Landsbanki's domestic branches, call centers, ATMs, and internet operations will be open for business as usual and that all domestic deposits are fully guaranteed. The Guardian reported that the Government had moved quickly to use the sweeping powers granted by the Reykjavik parliament, the night before. The country's financial regulator said on Tuesday that Landsbanki's branches would open as usual and that all “domestic deposits” were fully guaranteed. The next day the United Kingdom Chancellor of the Exchequer Alistair Darling announced that his government would foot the entire bill for British Icesave savers, estimated at £4 billion, and that he was taking steps to freeze the assets of Landsbanki using the financial freezing-orders provisions of the Anti-terrorism, Crime and Security Act 2001.Under the Landsbanki Freezing Order 2008, passed on 8 October 2008, Her Majesty's Treasury froze the assets of Landsbanki in the UK, and assets belonging to the Central Bank of Iceland, and the Government of Iceland relating to Landsbanki.
On 9 October 2008 the domestic, Icelandic branch was split off into the NBI, Nýi Landsbanki and on 27 October 2008 the inability to render payment of deposits was declared for the remaining parts of Landsbanki.
Sponsorship of sports: Landsbankadeildin
Landsbanki's sponsorship of football was an important aspect of the Bank's marketing and image policy. In September 2005, an agreement was concluded with the Football Association of Iceland, under which the Icelandic premier league for both men and women will be called the Landsbanki Premier League for the next four seasons. The financial backing for football was, however, primarily directed towards supporting sports for children and youth divisions.Landsbanki liquidation and repayment of claims
On 28 January 2013, the EFTA Court cleared Iceland of all charges, meaning that no loan agreement will be settled between the Icelandic state and the UK and the Netherlands, to guarantee their claim for repayment of Icelandic minimum deposit guarantees worth €4.0bn plus accrued interests. This claim will however still exist towards the Landsbanki receivership as a so-called "First priority claim", and will be met in full if the receivership succeeds to liquidate assets with a value equal to or in excess of this first priority liability.The combined deposit repayment claims from retail Icesave customers in the Netherlands and Great Britain, were at first hand covered respectively by the UK Financial Services Compensation Scheme and by De Nederlandsche Bank, due to the inability/unwillingness for other Icelandic stakeholders to step in and ensure/guarantee immediate coverage for these claims. On 28 October 2011, the Supreme Court of Iceland ruled, that the UK FSCS and the Dutch DNB combined deposit repayments of respectively ISK 852.1bn and ISK 282.3bn should be repaid by the Landsbanki receivership as "priority claims" pursuant to Article 112 of "Act No.21/1991 on Bankruptcy", and noted these mentioned figures included contractual interest rates for the UK part and some extra penalty interest rates for the Dutch part for the period from 8 October 2008 until 22 April 2009. Together these two claims amounts to ISK 1134.4bn, which is equal to 86% of all "priority claims" towards the Landsbanki receivership. Among the other priority claims are also ISK 145.4bn deposit repayment claims, submitted directly by more than 200 wholesale Icesave customers in the Netherlands and Great Britain, who initially received no repayment from their national authorities, but will now get repayment on equal terms - with equal priority status - from the Landsbanki receivership.
As of 30 June 2013, the total value of the assets in the Landsbanki receivership covered ISK 1531bn, which was above the total amount of the priority claims at ISK 1325bn. The final overall value for the assets is however still subject to change, as the receivership for various reasons has been granted extra time to liquidate all remaining assets until 2018, at a pace equal to approximately ISK 100bn per year. Repayment to the creditors happens step by step at the same pace as the liquidation of assets happens. The repayments so far happened through four tranches in 2011–2013, which already included a full repayment of all minimum deposit guarantees, due to their first priority status within the "priority claims". As of 12 September 2013, the Landsbanki receivership had through liquidation of the first half of its assets, managed to repay the first 53.9% of all the priority claims.
According to the latest evaluation of the planned recovery of asset values, it is expected all "Priority claims" will have been fully repaid by the end of 2017. Any additional claims for accrued interests after 22 April 2009 due to the delayed repayment of priority claims, will only be treated as secondary "General claims", and thus only be repaid once all of the "Priority claims" have been repaid in full, and then only to the extent it is possible on an equal footing together with all the other remaining ISK 1677bn of "General claims" towards the Landsbanki receivership.
Note: 1 Liability was not repaid by cash from liquidated assets, but got settled by other means.''
According to the Landsbanki Receivership's initial interpretation of the Icelandic law, the creditor claims in foreign currency towards a liquidated Icelandic financial company in receivership should only be repaid by an ISK-equivalent amount as per the currency exchange rate registered on the date when winding-up proceedings were initiated; which was as per 22 April 2009 for the Landsbanki receivership. Moreover, it was believed the creditors had no legal right to claim compensation towards the Landsbanki receivership for any potential losses they may suffer, because of exchange rate fluctuations after 22 April 2009. On 26 September 2013, the Icelandic Supreme Court however ruled against this initial law interpretation of the Landsbanki Receivership, concluding all creditors should be fully repaid with currency amounts equal to the denoted local currency of their claim; meaning that when repaid with other currencies, then valuation of this amount should be calculated by converting it to the claim's denoted currency, according to the foreign currency exchange rates registered by the Icelandic Central Bank on the repayment date. Thus ensuring that all creditors bare no currency exchange risks, with these risks -and potential financial burdens- instead to be upheld solely by the receivership.
As the Receivership mainly holds bank assets valuated in foreign currencies, the repayment of claims is likewise expected to be conducted through partial repayments mainly in foreign currencies, equal to the available cash currency basket stemming from liquidated assets on the payment day. Because of the currency mix being more or less equal when comparing the Claims with the held Assets, the risk for currency exchange losses is expected to be relatively low for the receivership. The table below provides an overview of the currency composition of the first 3 partial repayments and how currency exchange rates were at the time compared to 22 April 2009.
Note:
aCalculated as ISK-equivalent repayment value for the receivership by the entity of the FX 22 April 2009 valued claims, while adjusting for currency exchange rate fluctuations happening on each payment date. For the example for the second repayment tranch, all creditors with claims in pounds received 1:1 repayment with cash in pounds; meaning that the repayment to these creditors had an ISK-equivalent account value then being 1:1 proportional with the ISK/Pound-rate on 22 April 2009. Contrary to this, the creditors with claims in euros/US dollars also received cash in pounds - but now at a time when these currencies had lost value against pounds - and thus the ISK-equivalent account value then was stronger with the same percentage compared to what the currencies had weakened against the pound; meaning that the repayment to these creditors had an ISK-equivalent account-value then with a relatively higher value for the receivership than 1:1, because of repaying US dollar and euro claims with a relatively stronger Pound currency compared to the 22 April 2009 registered exchange rates. Or to put in different words, the receivership by conducting the second repayment three years later than 22 April 2009 actually gained some extra positive income through exchange rate improvements for the specific cash currency involved in this repayment tranch. The applied method to calculate ISK-equivalent account values for the repayments, is in full compliance with the supreme court ruling, saying that all creditors shall be repaid by cash amounts equal to their claim as per its denoted currency, so when repaid with other currencies, then the value of this shall be booked according to the currency exchange rate registered at the repayment date.
b ISK 14bn was returned in 2012 to the receivership from ESCROW accounts, as some of the remaining disputed claims got settled by the court in its favor. Thus the net total got reduced from ISK 662bn to 648bn.''