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Bondholders May Take Legal Action Against Iceland Over Failed Banks

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http://www.guardian.co.uk/business/2010/nov/07/iceland-banks-bondholders-legal-action

The Icelandic government has been threatened with legal action by a group of investors in the country's crippled banking system, in a move that could delay efforts to recoup billions of pounds of UK taxpayer funds held on the island.

Bondholders in the three main collapsed banks – Landsbanki, Kaupthing and Glitnir – were relegated behind depositors in the queue of creditors as part of emergency legislation in 2008, which in effect nationalised the Icelandic banking system. The group argue that the government's move was unlawful and any litigation could frustrate the Treasury's efforts to persuade Iceland to reimburse the compensation it paid to British savers after the collapse of Landsbanki's Icesave internet brand. The threat could also hamper efforts by UK local authorities to recoup millions in council tax revenues deposited with Landsbanki and Glitnir.

Tim DeSieno, a partner at Bingham McCutchen, the US law firm representing the bondholders, said: "We may be forced to sue Iceland to reverse 'depositor priority'. The assumptions that inform any Icesave deal then may all go out the window, and any deal to pay the UK would no longer work. We think our cause of action is strong, though it would likely drag through the courts for a lot of years, which itself would be damaging for Iceland."

While DeSieno may be preparing a negotiating position, he represents a group of about 100 heavyweight institutions made up of international investors, pension funds and banks. The 84% taxpayer-owned Royal Bank of Scotland is thought to be among the group.

A spokesman for the Treasury said compensation negotiations continue over Icesave, which collapsed with 230,000 UK savers who had deposited £4.5bn between them. Last week Össur Skarphédinsson, Iceland's foreign minister, predicted that the issue would probably be resolved by the end of the year. "My experience of Icesave is that nothing can be excluded, [but] I honestly don't think it is likely [that it continues into 2011]," he said. "[The talks are] in a very delicate phase, but with the knowledge of the processes that I have, I am not dissatisfied."

Meanwhile, the Local Government Association (GLA), whose members had about £1bn in Icelandic banks, said that Glitnir and Landsbanki have not paid back any local authority as a separate legal case is going through the Icelandic courts to determine where councils rank in the creditor queue.

A spokesman for the LGA said: "We are confident that we will get the lion's share of the money back. The banks cannot pay out any money until the litigation has run its course."

The Icelandic government did not return phone calls but, in August, finance minister Steingrímur Sigfússon said that Landsbanki bondholders were "not likely to get much". He added: "In the other banks [Kaupthing and Glitnir] the situation is better and they will get some return,"

More fun in the Sun.

It would seem either way the people are going to lose out which is what happens business fail.

Anyone know how much UK pension funds had invested in these bonds?

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It would seem either way the people are going to lose out which is what happens business fail.

Anyone know how much UK pension funds had invested in these bonds?

What I still don't get is this: If the icelandic government nationlised them, surely they would become liable for all outstanding debts?

I can see this dragging on and eventually Iceland collapsing completely and the population returning to a more traditional, pre-industrial revolution, way of life.

Ultimately, they will be left with no choice but to simply stop talking with other countries.

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What I still don't get is this: If the icelandic government nationlised them, surely they would become liable for all outstanding debts?

I can see this dragging on and eventually Iceland collapsing completely and the population returning to a more traditional, pre-industrial revolution, way of life.

Ultimately, they will be left with no choice but to simply stop talking with other countries.

I can understand why people get confused over the Icelandic bank collapse since the media constantly refers to the banks being nationalized, which they were not.

What the Icelandic government did was to issue emergency laws that granted the Icelandic FSA the power to seize control of banks that were headed for bankruptcy while they were closed. During the hours the banks were closed and until they opened up the following day, the FSA divided the bankrupt banks into two separate identities, old and new banks.

Glitnir, Kaupþing and Landsbankinn, the "old" bankrupt ones were put into a special bankruptcy process and all assets and foreign debt were left in these identities. Both creditors and depositors must seek their claim here although the emergency legislation made sure that depositors stand first in line.

New Glitnir, New Kaupþing and New Landsbanki were the banks that opened the following day. They were financed by the Icelandic state which also bought all Icelandic debt and deposits from the "old banks". So the banks that currently operate in Iceland are virtually debt free totally "new" banks. Since the collapse two of these three new banks have been handed to back to their "old" former creditors.

What these investors are threatening is nothing new..this has been going on since the banks were allowed to go bankrupt and the emergency legislation passed.

What has however happened in the mean time is that the ESA(EFTA Surveillance Authority) has made it perfectly clear that the move to grant depositors a priority claim is perfectly legal according to EEA laws. So they will loose and hence no biggie..

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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