Today, the Icelandic Supreme Court ruled on a ‘currency basket loan’, literally a type of forex loan. Forex loans (loans tracking foreign currencies) had been deemed illegal by an Icelandic court. But it was still unclear what the interest rates should then be if not the foreign interest rates. The ruling today was that the interest rates that should then apply are, quite logically and as expected by most unbiased people, the lowest interest rates of the Icelandic Central Bank.
There are bound to be many unhappy borrowers now since some lawyers and others campaigning on behalf of heavily indebted people had been claiming that the natural interest rates for these loans should just be the 4-5% interest rates on the loans. That would have given all those who had taken out the forex loans a windfall. Life isn’t quite that great – or unfair: it would have made those who took their loans out as indexed loans the great losers.
Finance minister Steingrimur J Sigfusson said today that the outcome was as he had expected. This might mean an extra hit of ISK43bn for the banks but it’s expected that they can stomach it.
After all, it’s less than Landsbanki lent to an obscure company, Stytta, set up to save Fons, owned by Baugur’s loyal partner Palmi Haraldsson, from a margin call and other evils. In the summer of 2008 Landsbanki lent Stytta ISK50bn – a story I recently unearthed for the Icelandic radio. More on that later but according to Sigfusson the Icelandic financial system is strong enough to stomach the ISK43bn hit.
Following the ruling there will probably be a law passed by Althingi, the Icelandic parliament, to clarify the situtation. Finally some clarity – now Iceland only needs to end the Icesave saga.
Follow me on Twitter for running updates.