NewsofIceland 27 Mar 13: Pension funds in Iceland want to buy the banks ...

...  - Many want nationalization instead

The Icelandic pension funds are likely buyers of the banks in Iceland that are mostly owned by foreigners. When the Icelandic banking system fell, new banks were founded on the ruins of the old ones. Foreign creditors and hedge funds are now the largest owners of two of these banks. The government owns the third one.

The three largest banks in Iceland defaulted in 2008. Resolution committees are handling their affairs. Foreign investors and hedge funds own large claims on the defaulted banks, but among the assets of the defaulted banks are the new banks, Arion Bank and Islandsbanki bank. Icelandic pension funds are likely to begin formal discussions regarding the purchase of these banks. The pension funds would pay with foreign currency and enable the claim holders to get their money out of the Icelandic economy. This would help with lifting the capital controls.

The claim holders share in the Icelandic banks is estimated to be worth 220 billion ISK (1.39 billion EUR), but the governor of the central bank has said that they must offer a huge discount on that number, and instead they will be paid with foreign currency.

The largest step to free the assets of the claim holders of Glitnir and Kaupthing [the defaulted banks], is to sell Islandsbanki and Arion Bank [the new banks]. Foreign claim holders own a 95% share in Islandsbanki and 87% share in Arion Bank. These assets are estimated to be worth 220 billion ISK. Informal discussions have begun, and the Enterprise Invesetment Fund leads these discussions. That investment fund is owned by many large pension funds in Iceland, along with Landsbankinn, a publicly owned bank. If formal discussions begin, it is likely that the pension funds will be more involved in the negotiations. The pension funds might get a 30 - 50% discount on the price of 220 billion ISK.

MP's and many others want nationalization instead

According to recent polls the Progressive Party is the biggest party in Iceland, in terms of support. The chairman of that party, Sigmundur David, wants to reach an agreement with the claim holders to give up a large part of these claims, or to nationalize these claims on the banks, partly or fully, using taxes.  He then wants to use the money to write down household mortgages. Another MP, Lilja Mosesdottir, has mentioned that she want to nationalize all these claims. Many Icelanders agree with these ideas.

Many people want to stop the negotiations between the pension funds and the resolution committees and the claim holders, because if the pension funds buy the banks it is unlikely that mortgages will be written down. Many also don't want their pension funds to engage in risky investments using valuable foreign currency.

Elections will be held on April 27th, and it is likely that Sigmundur David will become the next prime minister. It will be interesting to see what happens during the coming weeks and months.

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