Iceland nationalises two small banks

kronur1The Icelandic state has taken over the Keflavik and Byr savings banks after their contract talks with foreign creditors broke down.

Start-up investors will loose all their money and the departing chair of the Byr board says foreign financial companies have just had enough of Icelanders, according to RUV.

The two savings banks have been negotiating financial reorganisations with creditors in order to ensure their survival and the Icelandic government had promised to invest in the banks if creditor agreements could be made. The negotiations ended, however, after several creditors rejected the banks’ offer. As a result, the two banks’ boards requested that the financial regulators in Reykjavik take them over. According to RUV sources, some of the principle obstacles were big German banks, who were also among the savings banks’ biggest investors.

Former Byr chairman Gudmundur Geir Gunnarsson said that the company had gone into the negotiations with a positive attitude, but said it quickly became clear his German counterparts did not care about the Icelandic bank, despite the potential for multi-billion krona losses.

Iceland’s FME financial regulator has created a new state-run company and transferred all customer deposits over to it. Customers’ money is therefore safe and branches of Keflavik Savings Bank and Byr Savings Bank will stay open as normal.

Minister of Finance Steingrimur J. Sigfusson told RUV he is not surprised by the development and said that public exposure to the two banks would be limited to just EUR 5 million to each bank.

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