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94/09

19 October 2009

UK welcomes Iceland loan agreement

Economic Secretary to the Treasury, Ian Pearson MP, welcomed an agreement today on repayment to the UK and Netherlands of payments made following the collapse of Landsbanki.

The agreement, signed by the Governments of the UK, the Netherlands and Iceland, includes a sovereign guarantee by Iceland and will pass into law following the passage of a Bill introduced today into the Icelandic Parliament, the Althingi.

Ian Pearson MP said:

“This is an important agreement for all three countries.  It is good news for UK and Dutch taxpayers as it paves the way for the full repayment of funds lent to Iceland to meet its obligations Icesave depositors. For Iceland, the resolution of the Icesave issue is an important step to help restore its standing in international capital markets.”

Notes for Editors

1. The UK Government reached agreement on 5 June 2009 with the Icelandic authorities on a process to ensure UK taxpayers are refunded for the compensation the UK Government paid out via the Financial Services Compensation Scheme (FSCS) on behalf of the Icelandic Depositors’ and Investors’ Guarantee Fund (Tryggingarsjóður Innstæðueigenda og Fjárfesta) (DIGF) to Icesave retail depositors with the UK branch of Landsbanki, following the collapse of Landsbanki in October 2008.

2. This will be achieved by recognising the assistance provided by the UK Government as a £2.3 billion HM Treasury loan to theDIGF, which will be guaranteed by the Icelandic Government.

3. Under Icelandic law, Althingi is required to authorise the guarantee. A Bill was passed in August to this effect but with a number of conditions introduced by the Icelandic Parliament.

4. The loan agreement has now been amended to take account of these conditions and also to confirm that the guarantee will continue until the loan has been repaid in full.

5. Detail of the agreement:

6. The UK Government has signed an agreement with the DIGF which makes provision for a loan facility to the Fund to a maximum amount of £2.35 billion. The repayment mechanism specified in the agreement sets out the terms on which the DIGF will repay the FSCS for compensation the UK Government paid out to eligible depositors.

7. The terms include an initial 7-year grace period during which interest will be capitalised and the DIGF will have no principal repayment obligations other than to pass on to the FSCS all recoveries made by the DIGF in the winding up of Landsbanki. Interest and principal amounts will be payable quarterly thereafter during a period of eight years. During this period the loan will be guaranteed by Iceland.

8. Joint statement between the UK, Netherlands and Iceland, released on Monday:
Joint Statement upon introduction of a Bill on Icesave to the Icelandic parliament Althingi

9. Following the signing of an acceptance and amendment agreement between Iceland and each of the UK and the Netherlands a bill was introduced to the Icelandic parliament today. Those amendment agreements and the Bill mark the final steps in implementing the Icesave loan arrangements between Iceland and the UK and the Netherlands.

10. In the loan agreements, as amended, the UK and the Netherlands have accepted i.a. the economic conditions set out in Iceland’s Act No. 96/2009 adopted by Parliament on 28 August 2009. In the new Bill Iceland reaffirms its  binding guarantee of the obligations of the Icelandic Deposit Guarantee Fund to compensate UK and Dutch depositors with Icesave without admitting any pre-existing legal obligation to provide that support. The Bill also mandates Iceland's Minister of Finance to monitor Iceland's economic position and the mechanics of the Icesave loan agreements with a view to ensuring their smooth implementation and taking steps towards further discussions as needed. 

11. All parties share a willingness to work together in the coming months and years, including at the request of any of the parties to discuss and possibly react to  issues that may arise. The parties will co-operate in providing assistance for the recovery of the relevant Landsbanki assets.

12. The finance ministers of Iceland, the United Kingdom and the Netherlands acknowledge that the budget discipline inherent in Iceland agreeing the Icesave loan arrangements will not be easy for the people of Iceland. They expressed support for a successful IMF review consistent with decisions taken in November last year on the basis of Iceland's letter of intent. They consider the resolution of the Icesave issue coupled with the financial support provided by other European countries and the IMF to be an important step that will greatly enhance Iceland's standing in and access to the international financial markets.

 

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