Iceland to Begin Depositor Repayment

First installment approximately $3.3 billion

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Iceland is preparing to make its first repayment on depositor losses that amounted to around $11 billion, in the first step to resolve a three-year dispute with the Netherlands and the U.K. That first chunk of around $3.3 billion will be repaid “as soon as possible,” according to Kristinn Bjarnason, a spokesman for the Landsbanki Islands hf winding-up committee.

U.K. and Netherlands depositors sank a total of about $11 billion into accounts at Landsbanki Islands, which sold the Icesave Internet accounts outside Iceland and subsequently failed. The U.K. and Netherlands stepped in to reimburse depositors for some of their losses, and the resulting dispute over payment dragged on for some time.

Bloomberg reported that Iceland had vowed in September to repay all foreign depositor funds, which is about double what is required by guarantees in place. In October Iceland’s Supreme Court upheld an emergency bill giving depositors priority status over bondholders. That laid the groundwork for Icesave repayments to begin and for efforts to mend the breach in relations with the U.K. and the Netherlands.

In Reykjavik on Thursday, Bjarnason was quoted saying, “We believe that the value of the first interim payment could be 432 billion kronur ($3.3 billion), using the exchange rate from April 22, 2009. The goal of the winding-up process is to get something into the hands of the creditors as soon as possible.”

Icelandic banks had defaulted on about $85 billion at the end of 2008, and three banks including Landsbanki were taken over by the government. A diplomatic debacle with the Netherlands and the U.K. ensued over the deposits of residents of those countries who held accounts at Landsbanki. Iceland has recovered better than many euro area countries from its financial woes, outperforming and completing its 33-month International Monetary Fund program in August.

While it may be problematic determining the value of assets in the repayment plan because of market volatility, Iceland hopes to complete its work as soon as possible. Larentsinus Kristjansson, the chairman of Landsbanki’s resolution committee, was quoted saying, “We have to take into the calculations that the European economic situation isn’t at its best. As of now, that doesn’t impact our loan portfolio.”

To read more about Iceland and its repayment, go to AdvisorOne.com.

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