December 5, 2011

In Sign of Recovery, Icelandic Bank to Sell Bonds in International Markets

Arion Bank will reenter international debt markets for first time since default

Iceland’s Arion Bank, the successor bank to Kaupthing Bank, which failed in 2008, plans to re-enter the international debt markets by selling bonds within the next year, according to its CEO.

Bloomberg reported that Kaupthing was the biggest bank in Iceland before its failure in October of 2008. Reykjavik-based Arion was created by the state as a successor to Kaupthing, which is still working to repay creditor claims of approximately $25 billion. Iceland’s entire economy in 2008 was only $12 billion, and the government’s decision to take over the country’s banks and default on international creditors saved it from overwhelming debts.

Iceland is now far healthier than it was, with the cost to insure it against another default lower than in the eurozone. That has encouraged the country to look beyond its borders for funding. Hoskuldur Olafsson, Arion’s CEO, was quoted as saying, “The outlook for tapping into the international debt markets is positive. We’ve focused on maintaining the relationship we have with investors and on organizing the bank as a credible institution. We’ve made good progress and we believe that we might take steps in that direction sooner rather than later.”

While Kaupthing still struggles with debt that far outpaces its assets, Arion is doing far better, holding a capital adequacy ratio of 21.4%; that is considerably better than the required 16% target rate set by the Financial Supervisory Authority and the legal requirement of 8%. Arion is partially owned by the state (13%) and mostly by Kaupthing’s creditors (87%), and according to Olafsson, is in discussions with credit ratings agencies to be granted a rating “in the near future.”

To read more about Iceland, go to AdvisorOne.com.

 

 

 

 

 

 

 

 

 

Reprints Discuss this story
This is where the comments go.