Sigrún Davíðsdóttir's Icelog

The day of decision… or maybe not…

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The day of decision regarding the Landsbanki bonds agreement isn’t over – still too early to tell how it ends. Allegedly, Bjarni Benediktsson minister of finance and leader of the Independence party had planned to answer LBI, with some changes to previous agreement. His attempt was, again allegedly, stopped last night by prime minister Sigmundur Davíð Gunnlaugsson.

The LBI postponed its creditor meeting yesterday until today. It is now due to start at 4pm. However, it is still unclear if there will be an answer from Icelandic authorities regarding the agreement. Or not. The minister of finance has to inform the Alþingi economy and business committee of the agreement and so far, no meeting has been called in the committee.

No doubt, there are hectic meetings ongoing. Considering the fact that the agreement was made on May 8 this year the government has had ample time to analyse the matter. However, this government has so far normally decided things the very last moment (the “correction” of loans and handling of the appointment of the governor of the CBI spring to mind).

The agreement was meant to be a first step towards lifting the capital controls. If Benediktsson, who has the formal responsibility for finding a solution, is being stopped in his track now the question is if he is in command and if he stands any chance at all to progress as he wants to. As I have often pointed out earlier the solution regarding the capital controls and the three estates – Landsbanki, Glitnir and Kaupthing – is a political one. It is now an even bigger question than earlier if the two party leaders in government will at all come to necessary conclusions on key issues. Or if things will just drag on as hitherto, with state-owned Landsbankinn limping towards default next year, certainly not the sellable asset of which the government had planned to sell 15% next year and again 15% the following year.

Even more intriguing that this alleged wrestle between the two party leaders is happening on a day when the daily Fréttablaðið publishes a poll showing that Gunnlaugsson’s party, the Progressive party, now only has 8.7% of votes, compared to 24.4% in the elections in spring last year. With this result the party would lose 13 MPs. Benediktsson’s party, the Independence party, has jumped up from 26.7% to 30%. The social democrats have 23.1% according to the poll, got 12.8% of votes in the election.

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Late afternoon addition:

It now seems clear that no answer on the Landsbanki bonds agreement is forthcoming from the government today – but is apparently to be expected on Monday.

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Monday Oct. 27:

Nothing more has been heard of the Landsbanki bonds agreement today and it has, as far as I’m aware, not been dealt with today. Prime minister Gunnlaugsson is abroad and nothing seems to be moving. Last Friday, the day the earlier deadline expired, LBI extended the deadline by another week. Not all creditors were content with this leniency. However, it remains to be seen if this extension will produce the awaited answer.

If Benediktsson really planned to answer favourably his plan has so far been thwarted.

In addition: on Oct. 14 S&P’s published a new rating for the three banks with the general conclusion as follows:

  • We have revised our economic risk trend for Iceland to positive from stable, and expect a continued improvement in the banking system’s asset quality.
  • We have therefore revised the outlooks for Arion Bank, Islandsbanki, and Landsbankinn to positive from stable, and affirmed the ‘BB+/B’ long- and short-term ratings.

On Landsbankinn it says i.a.:  “We also anticipate that the preliminary agreement will extend the repayment profile of legacy bonds of the defunct Landsbanki Islands hf.”

Here is a thought: when the minister of finance announced this summer that the Ministry had hired foreign advisers this was mentioned:  “the investment bank JP Morgan will assist the government in connection with Iceland’s sovereign credit rating.” It does not seem too far fetched to imagine that S&P had been given to understand that the bonds agreement would be accepted. If the bonds agreement will collapse (which we should see latest on Friday) I wonder what those who possibly carried the message, if that was indeed the case, that the agreement would come into being and the S&P will feel about this whole saga.

Still too early to spell out the consequences of failure – read all about the financial and economics consequences in the latest CBI Financial Stability report and my earlier logs, see the link below*. Without being overly dramatic the political consequences will open up a whole new chapter in the life of this government and indicate what is to come regarding the perspectives in lifting the capital controls. More on that later when the final answer on the bonds agreement is clear.

*More on the Landsbanki bonds agreement here.


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Written by Sigrún Davídsdóttir

October 24th, 2014 at 12:06 pm

Posted in Iceland

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  1. […] deadlines shows a government not quite knowing what to do or prepared for action as pointed out earlier. As one observer said: “There was an invitation to a theatre performance but when the […]

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