Iceland revives broken banking system

ICELAND is to rebuild its ravaged banking system with a 270bn krona (&pound;1.29bn) capital injection into three new lenders created out of the ashes of the island nation&rsquo;s former largest lenders.<br /><br />The three new banks, Islandsbanki, New Kaupthing and New Landsbanki, replace Glitnir, Landsbanki and Kaupthing, all of which collapsed last year as the banking crisis reached its heights.<br /><br />The Icelandic authorities will issue 270bn krona worth of bonds next month to the trio of new entities, while creditors of the collapsed banks will be offered equity stakes in two of the new lenders by way of compensation for assets lost when the firms went under.<br /><br />Iceland&rsquo;s finance minister Steingrimur Sigfusson said the plan would &ldquo;allow for the recapitalisation of the banks, potentially at a significantly lower cost to the taxpayer than originally envisaged&rdquo;.<br /><br />&ldquo;Our agreements announced today are a major step forward in the re-establishment of a strong banking system,&rdquo; he added.<br /><br />The recapitalisation will be achieved by issuing government bonds to the banks, the finance ministry said.<br /><br />Iceland was told to restructure banks, stabilise its currency and pay back creditors to failed banks as part of a $10bn (&pound;6bn) bailout provided by the International Monetary Fund and European nations last year.<br /><br /><strong>ANDREW SPEIRS HAWKPOINT</strong><br /><br /> <strong>ADVISER TO THE ICELANDIC GOVERNMENT</strong><br /> Financial advisory firm Hawkpoint worked with the Icelandic government on the country&rsquo;s efforts to rebuild its broken banking sector after it imploded last year.<br /><br />A team of eight specialists were called in to advise, spearheaded by Hawkpoint&rsquo;s managing director in restructuring Andrew Speirs and his counterpart in the financial institutions group, Charles Williams.<br /><br />The taskforce has been working with the Icelandic authorities since March this year, a company spokesman said yesterday, after beating three rivals to win the contract.<br /><br />Speirs said: &ldquo;We wanted to help the Icelandic government get a healthy banking system in place, have a fair and transparent process for awarding compensation for the asset transfers, and make sure that compensation was fair to Iceland's taxpayers. We&rsquo;ve been pretty successful in striking an appropriate balance between those objectives.&rdquo;<br /><br />The Icelandic authorities chose Hawkpoint because of the firm&rsquo;s experience in procedures and possible solutions with regard to final settlements.