Iceland Struggles to Find Buyers for Resuscitated Banks

(Bloomberg) -- A decade after rescuing and taking over its banking sector, Iceland is looking to unload a large chunk.

But local investors aren’t so sure that buyers will be beating down its door. “European banks haven’t exactly been standing in line to buy Icelandic banks and I don‘t see that changing in the near future,” said Haukur Hafsteinsson, managing director of the Pension Fund for State Employees, the largest Icelandic pension fund.

Iceland could sell all of Islandsbanki hf to a foreign investor as well as part of Landsbankinn hf, as was recommended by a recent white paper. That could go a way to solving what the paper calls the “Iceland Premium,” or that local banks have borrowing margins that are about three times higher than their Nordic counterparts.

The stakes that Iceland owns are valued at about 300 billion kronur ($2.4 billion), equivalent to 16.6 percent of the country’s gross domestic product.

Haftsteinsson, who oversees 900 billion kronur, said his fund and his peers in the pension industry will likely be a buyer in the banks should they come to market, but isn’t looking at taking on stakes above 5 percent given the risks involved.

“It wouldn’t be good for a pension fund to have too big a share in a bank,” he said. “We must also take into account that we compete with the banks and are big clients as well as major owners in many companies that also are customers of the banks.”

One bank has already returned to the market. Arion banki hf was listed earlier this year and has big owners such as Goldman Sachs Group Inc. and Och-Ziff Capital Management Group. The bank’s shares have been on a wild ride since the June IPO and are now little changed from the listing price after plunging in October following a profit warning.

Iceland Struggles to Find Buyers for Resuscitated Banks

Read more: Arion issues profit warning

The sale of Arion did show that there could be some interested investors out there, Haftsteinsson said.

That’s also a point made by Finance Minister Bjarni Benediktsson, who said in a recent interview that there’s a indication of interest.

Islandsbanki is taking no chances and is working on making itself an attractive takeover target.

Birna Einarsdottir, the bank’s chief executive officer, said she’s optimistic that the bank is a “good investment opportunity.”

“We’re ready when the owner has decided when and how the bank will be sold,” she said. “Until then we’re just working on improving it further.”

A foreign acquisition would also likely “considerably decrease funding costs,” she said.

The authorities are also looking to the public to take part in the re-privatization.

“The financial institutions present an opportunity for the government to activate the public to take part in the stock market," Benediktsson said in an interview following the white paper’s publication. The paper discussed the idea that the public will be given a 5 percent share in the banks, an idea the finance minister himself campaigned for in last year’s election.

©2018 Bloomberg L.P.