Agreement between the Icelandic government and Landsbanki's Resolution Committee on settlement

Press release No. 80/2009

Key points:

• The Icelandic government acquires 81% of the share capital in Landsbankinn (NBI hf).
• Equity contribution by the state will be ISK 122 billion, 5 billion lower than previously estimated.
• Landsbanki’s Resolution Committee, on behalf of creditors, will control 19% of NBI .

The Icelandic government, the Resolution Committee of Landsbanki Íslands (“the old bank”) and new Landsbankinn (NBI) have signed a final agreement on the settlement of assets and liabilities following the division of Landsbanki Íslands into old and new banks, following its collapse int October 2009. Representatives of leading creditors have participated in the negotiations.

Under the terms of the settlement, NBI will issue a debt instrument with a 10Y term to the old bank in the amount of ISK 260 billion. The instrument is foreign currency denominated, thereby ensuring NBI foreign currency funding, and is interest-only for the first five years. The old bank will additionally receive shares in the new bank amounting to ISK 28 billion, or the equivalent of 19% of the total share capital of the new bank..

Together the debt instrument and the share capital compensation are equivalent to the assessment by the new bank of the assets taken over net of liabilities, while in the estimation of the Resolution Committee and its advisors this represents a minimum value for these assets. Should the value of the assets transferred prove to be more than this assessment assumes, the new bank will issue an additional debt instrument to the old bank, which could amount to ISK 92 billion, and instead the compensation shares would go back to the government and an employee fund to be established. . Final assessment of the assets will be made at year-end 2012.
Following the agreement, the state’s holding in NBI hf. is 81%, but could become higher if economic developments to the end of 2012 prove favourable, with the result that the new bank issues an additional debt instrument. In concluding the settlement, the Icelandic government has been advised by the UK-based financial consultants Hawkpoint while Landsbanki’s Resolution Committee was assisted by Barclays Capital.

The total share capital of NBI will be ISK 150 billion, ISK 122 of which will be contributed by the state in the form of government bonds. The government capital injection is ISK 5 billion less than anticipated in the Head of Terms announced in October.

Minister of Finance, Steingrímur J. Sigfússon:
“The agreement which has now been concluded with Landsbanki’s Resolution Committee is the final step by the government in recapitalizing the three new banks. This agreement fulfils the government’s objectives in all principal respects, securing a stable banking system, following a fair settlement with creditors, and the outlook is for an acceptable return on the state’s equity contribution.”

Resolution Committee Chairman Lárentsínus Kristjánsson:
“From the Resolution Committee’s perspective this is a very acceptable outcome, and we are pleased that a conclusion has been reached. The negotiation process has been a very significant task and much work has gone into resolving it. Concluding this agreement marks a certain turning point and enables us to devote more energy to other issues of major importance.”

Minstry of Finance, December 16 2009