Moratorium

The principal focus  of this creditors’ meeting of Landsbanki Íslands hf. is the proposed extension of the bank’s moratorium.  The Reykjavík District Court originally approved the bank’s request for a moratorium on 5 December 2008.  Since that time it has been extended twice, and the current moratorium period expires on 26 August.   The creditors’ Appointee in moratorium, the Winding-up Board, and the Resolution Committee have agreed to request an extension of the moratorium as allowed by currently applicable legislation.  As the moratorium can last for a maximum of 24 months, the request will be for an extension which can last until 5 December this year.  After that time, the bank’s general winding-up proceedings will continue.

LBI’s moratorium is of a special nature, based on the provisions of Act No. 161/2002, on Financial Undertakings, as subsequently amended, in particular those amendments made by Act No. 44/2009, which entered into force on 22 April 2009.  The moratorium is a winding-up procedure and the same rules will continue to apply to the bank’s affairs and legal status after the moratorium period concludes and the general winding-up proceedings continue. 

Financials

Considerable success has been achieved in increasing recovery of the bank’s assets in the second quarter. The increase amounts to the equivalent of ISK 64 billion in foreign currency, or around 6%. It should be noted that, since by far the largest portion of the asset portfolio is abroad, amounts in ISK do not give a realistic picture of its increased value.  Due to the strengthening of the ISK in recent months, the amount of recoveries reported in this currency is estimated at a similar figure as in Q1, or around 89% of Depoits to customers, while if currency movements are disregarded, the recovery rate is 93%.

The main reason for the higher recoveries are agreements concluded during the period. Most significant among them is an agreement on assets in the bank’s subsidiary in Luxembourg, agreements with Björgólfur Thor Björgólfsson and related companies, as well as other agreements. These agreements have boosted the bank’s asset portfolio and reinforced its basis. The improved position reduces uncertainty, creates more stability and increases possibilities for better recovery in the future.

The substantial increase in cash flow to the bank during the period is a positive development. Cash has been received more rapidly than previously estimated, with the increase during this past period around 24%, or equivalent to some ISK 54 billion. A stronger cash inflow strengthens the bank and will enable it to make distributions to creditors more rapidly when that point in the procedure is reached.

Other items of note concerning LBI’s activities

The special investigation by a forensic team from Deloitte into LBI’s operations prior to its collapse is in its final stages.  The aim is to be able to present the highlights at the creditors’ meeting to be held in December this year.  The investigation has already been considerably successful in its objective of leading to higher asset recovery by the bank.  Many suggestions for possible voiding measures and claims have arisen from the investigation.

Certain voiding actions have already concluded with settlements with the parties concerned and the recovery of over ISK 1.5 billion.  The Winding-up Board has, furthermore, voided actions involving various other parties for a total amount of some ISK 20-30 billion. Certain cases in this group are expected to be dealt with by Icelandic courts fairly soon.  Final preparations are underway in certain claims for damages, where the bank’s loss is estimated to amount to tens of billions of ISK.  These cases are expected to be filed with the Icelandic courts this autumn or early this winter.   It should be pointed out that the final amounts recovered as a result of the above-mentioned cases are completely uncertain at this moment.

An agreement has been signed, jointly with other creditors in Iceland and abroad, with Björgólfur Thor Björgólfsson and related parties on settlement of debts.   In tandem with this LBI also participated in the financial restructuring of the generic pharmaceutical company Actavis.

Agreements were signed with administrators and other large creditors on an overall resolution of the disposition of assets of LBI’s former subsidiary Landsbanki Luxembourg.  These agreements are very important for LBI and will boost the bank’s estimated asset recovery.

A special rulings committee of the Financial Services Authority (FSA) in the UK recently ruled in LBI’s favour concerning restrictions on handling of funds and assets belonging to the bank’s London branch.  These restrictions have been cancelled and LBI now has unrestricted control of its funds.  The bank’s treasury specialists have already placed most of the funds with solid banks in various countries where they will earn an acceptable return.   As previously stated, however, the main emphasis is on security, i.e. on ensuring that the bank’s monetary assets are not eroded.

Cases being heard by the Reykjavík District Court on the priority of deposit holders are now in progress.  These involve a number of cases where all the principal points of contention in connection with this priority will be tested. Their resolution will have an obvious effect on the position of many creditors of Landsbanki Íslands hf.  It is not clear when the conclusions of the court will be available, but the Winding-up Board expects the situation to become clearer in this respect within coming weeks.

For more information, contact Páll Benediktsson at Landsbanki Íslands hf.,  pallb@lbi.is