After Goldman Purchase, Iceland Eyes More Foreign Cash for Banks

(Bloomberg) -- After attracting investors like Goldman Sachs and Och-Ziff to one of its biggest banks, Iceland is now preparing to sell stakes worth more than $2 billion in the island’s other main lenders.

For a long time after the financial crisis of 2008, there was little international investment in Iceland. But “that changed this year, when Arion was listed,” Finance Minister Bjarni Benediktsson said in an interview in Reykjavik. He says that’s “an indication that there could be interest from abroad” for the next round of asset sales.

After Goldman Purchase, Iceland Eyes More Foreign Cash for Banks

Iceland’s government has just published a report that tries to map out the future of the island’s financial industry. The banks being sold are the post-crisis reincarnations of lenders that collapsed a decade ago under a mountain of debt they were unable to repay.

Iceland is now keen to show the world that it’s mended its ways. The emphasis is on strict “robust supervision” and “solid ownership,” according to a white paper published this week.

Arion was created from the remains of Kaupthing Bank, which was once Iceland’s largest lender. It was the third major financial firm to fall in the 2008 crisis, with the collapse of Iceland’s banking industry quickly bringing down the whole economy. Iceland ultimately turned to the International Monetary Fund for help, and resorted to currency controls to stop hemorrhaging capital.

When Arion became the first Icelandic bank to return to the stock exchange after the crisis, it attracted a lot of big-name investors. Och-Ziff, Goldman Sachs and Eaton Vance currently own 6.58 percent, 3.47 percent and 3.38 percent, respectively, in the bank.

The white paper, which will now be discussed in parliament, calls for the partial or complete sale of Islandsbanki (Glitnir before the crisis) to an unspecified “foreign bank.” It also recommends “the listing and sale of a part of the state’s share in Landsbankinn.”

The state currently owns all of Islandsbanki and 98.2 percent of Landsbankinn and the stakes are valued at around 300 billion kronur ($2.4 billion), equivalent to 16.6 percent of the country’s gross domestic product.

Suitable Buyers:

The white paper says, “Sound ownership is an important prerequisite for the banking system to remain stable in the long term. This implies that bank owners must be trustworthy, have extensive experience and knowledge of banking activities and the financial strength to provide support for the bank in times of adversity. It is important for owners to be guided by long-term perspectives." 

The authors of the white paper also urged Iceland’s government to speed up plans to reduce a special tax on the banking sector, from the current level of 0.376 percent to 0.145 percent.

Benediktsson said he intends to stick with the 2020 deadline. But he also says the banks could be sold in the coming year, given that “the tax environment will have been set into law” by then.

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