* Govt sees total capitalisation of 270 bln ISK ($2.1 bln)
* Says amount may be reduced to 200 bln ISK
* Old banks to take stakes in Islandsbanki, New Kaupthing
(Adds Glitnir committee chairman in para 14)
By Niklas Pollard
STOCKHOLM, July 20 Iceland took a step on Monday
towards clearing the debris from its financial meltdown,
unveiling a deal with creditors of its failed banks and plans to
capitalise the new ones.
The government said it expected the capitalisation to total
about 270 billion Icelandic crowns ($2.1 billion) but this would
be cut to about 200 billion if the old banks took up stakes in
two new banks -- Islandsbanki and New Kaupthing -- as planned.
The volcanic island nation with a population of just 320,000
stunned the world after its main commercial banks -- Glitnir
[GLBNK.UL], Landsbanki and Kaupthing -- collapsed within a week
last October, owing more than $60 billion to foreign lenders.
Iceland's new centre-left government, which took over after
its predecessor fell amid protests over its failure to avert the
crisis, has begun the task of cleaning up the mess left by the
meltdown while applying for an EU membership it hopes will
provide economic stability. [ID:nLH335632]
Restructuring the banking sector and repaying creditors are
seen as key to reviving an economy in the clutches of a deep
recession and placating the International Monetary Fund and
others that have pledged $10 billion toward Iceland's recovery.
"Our agreements announced today are a major step forward in
the re-establishment of a strong banking system," Icelandic
Finance Minister Steingrimur Sigfusson said in a statement.
"They allow for the recapitalisation of the banks,
potentially at a significantly lower cost to the taxpayer than
originally envisaged, and we believe will result in a fair and
equitable outcome for all stakeholders."
The banks would be capitalised through the issue of new
government bonds to the banks, the finance ministry said.
"This is the first step and we'll have to see if the capital
will be sufficient," SEB analyst Robert Bergqvist said. "That is
really hard to gauge today, but now they've shown that they are
prepared to take these measures and that in itself I think will
have a stabilising effect."
Under the plans, Glitnir would assume all of Islandsbanki
while Kaupthing would own 87 percent in New Kaupthing, leaving
the government with the remaining 13 percent stake.
The government said it would retain ownership of Landsbanki,
providing an estimated 140 billion crowns of capital. A bond
would be issued next month to go toward compensating creditors,
the finance ministry said. [ID:nLK396417]
Islandsbanki would receive an estimated 60 billion crowns of
fresh capital from the government while New Kaupthing's share
would be 70 billion, the Ministry of Finance said.
Arni Tomasson, chairman of a committee representing Glitnir
creditors, said the body would review whether to subscribe to
the equity in Islandsbanki in the coming weeks and would decide
by the end of September. The agreement on offer suggests
creditors should get "everything that there is to get", he said.
Icelandic Business Affairs Minister Gylfi Magnusson told a
news conference the government would put safeguards in place to
prevent the new banks from acting as the old ones had done.
"Of course they may grow in the future. There are no strict
limits on that. But obviously we will make sure that then they
will have to follow a more risk-averse path than their
predecessors," he said.
The banking deal is one of several key issues the government
is addressing. Only last week Iceland applied for membership in
the European Union after a close vote in parliament.
In the coming days, parliament is also due to vote on
whether to approve a fiercely debated deal to reimburse Britain
and the Netherlands for billions of pounds and euros owed to
savers with Icelandic accounts. [ID:nL6500817]
(Additional reporting by Love Liman, Anna Ringstrom and
Veronica Ek; Editing by Jon Loades-Carter and Rupert Winchester)