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Iceland Banks May Be Asked to Forgive $2 Billion After Protests
By Omar R. Valdimarsson - Oct 8, 2010
More than 5,000 people protested outside the Reykjavik-based Althingi last night
Iceland’s banks may come under pressure to forgive about $2 billion in mortgage debt after protests this week prompted the government to consider proposals from the island’s homeowner protection group.
“The debt the banks have to write off could very well be very challenging for them,” said Economy Minister Arni Pall Arnason, in an interview in Reykjavik. “So be it. The banks have to acknowledge quickly that current debt levels are unrealistic and that timely write-offs are necessary. Full stop.”
The government is eager to show voters it is committed to reducing families’ debt burdens after the Oct. 4 unrest. The protests drew bigger crowds than in the weeks before former Prime Minister Geir H. Haarde’s administration was ousted in January 2009. The Interest Group of the Homes, which represents households demanding debt relief, says banks should write off about 200 billion kronur ($1.8 billion) in mortgage loans to help the 39 percent of homeowners who are technically insolvent.
Prime Minister Johanna Sigurdardottir held emergency talks after the protests, in which about 8,000 demonstrators gathered to express their anger over rising homeowner insolvencies. Sigurdardottir said her government isn’t ruling anything out.
“It’s clear we’ll have to negotiate with the banks and pension funds if anything of this sort is to be carried out,” she told reporters on Oct. 5. “We now need a meeting with the banks and pension funds.”
Government Action
Sigurdardottir told lawmakers yesterday that no families should lose their homes because of unserviceable debt, adding that her government will contact about 200 households at risk of foreclosure this month to try to prevent their homes being auctioned off.
To help families, the government will extend by five months a moratorium on foreclosures that had been due to expire this month, Sigurdardottir said today. Iceland in August told the International Monetary Fund, which is leading a $4.6 billion loan to the island, it would “remove temporary post-crisis measures -- like the moratorium on home foreclosures -- the continuance of which represent a barrier to debtor participation,” according to the loan agreement.
The IMF won’t be “allowed” to hinder the government in its efforts to reduce household debt burdens, Sigurdardottir said at a press conference today.
Kaupthing, Glitnir
The country’s banks are state-controlled successors to the failed lenders that brought down the economy two years ago. The resolution committees of Kaupthing Bank hf and Glitnir Bank hf agreed on behalf of creditors to take stakes in the new lenders, Arion hf and Islandsbanki hf, to cover part of their claims. Creditors of Kaupthing, Glitnir and Landsbanki Islands hf are owed as much as $86 billion in total.
A write down of about $2 billion is equivalent to some 8 percent of total assets at Iceland’s three biggest banks, their 2009 balance sheets show.
Banks should allow homeowners to revert to pre-crisis debt burdens, according to Fridrik O. Fridriksson, chairman of the Interest Group of the Homes, in an interview. That would remove the impact of consumer price gains, which has swelled the inflation-linked debt that the island’s mortgages are based on.
The consumer price index soared 41 percent from January 2007 through September this year, according to Statistics Iceland. Real wages fell 10.1 percent from the beginning of 2007 through August this year, the last period for which data are available, according to the office. Real disposable incomes slumped 20.3 percent last year, the central bank estimates.
‘Full Priority’
After the Oct. 4 protests, Arion, formerly Kaupthing, published a statement to say “considerable progress has been reached within the bank in sorting out matters for individuals and companies. Certainly it would be better if the results were even greater, but the matters in question are complex and time consuming, which calls for careful consideration.”
Finance Minister Steingrimur J. Sigfusson told reporters on Oct. 5 the banks had been too slow in helping households restructure debt, adding debt reduction needs to become a “full priority” for the banks.
“The primary focus of the economic policy in the coming months will be to ensure swift progress in debt restructuring; we will work with the banks to speed up the process,” Arnason said. “I expect an agreement with the banks on practical parameters in the coming weeks and that we can see tangible results within a few months.”
The write-offs are unlikely to leave the banks insolvent, according to the Financial Supervisory Authority. The regulator says it may lower capital adequacy requirements after assessing the individual lenders’ asset quality.
“Whether or not the capital adequacy ratios are altered is a decision to be taken by the FSA,” its Director Gunnar Andersen said in an interview. “We know exactly what kind of room the banks have to maneuver and they can’t wipe assets of their balance sheets if it takes them below the 16 percent capital adequacy threshold.”
To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net
http://www.bloomberg.com/news/2010-1...-protests.html
By Omar R. Valdimarsson - Oct 8, 2010
More than 5,000 people protested outside the Reykjavik-based Althingi last night
Iceland’s banks may come under pressure to forgive about $2 billion in mortgage debt after protests this week prompted the government to consider proposals from the island’s homeowner protection group.
“The debt the banks have to write off could very well be very challenging for them,” said Economy Minister Arni Pall Arnason, in an interview in Reykjavik. “So be it. The banks have to acknowledge quickly that current debt levels are unrealistic and that timely write-offs are necessary. Full stop.”
The government is eager to show voters it is committed to reducing families’ debt burdens after the Oct. 4 unrest. The protests drew bigger crowds than in the weeks before former Prime Minister Geir H. Haarde’s administration was ousted in January 2009. The Interest Group of the Homes, which represents households demanding debt relief, says banks should write off about 200 billion kronur ($1.8 billion) in mortgage loans to help the 39 percent of homeowners who are technically insolvent.
Prime Minister Johanna Sigurdardottir held emergency talks after the protests, in which about 8,000 demonstrators gathered to express their anger over rising homeowner insolvencies. Sigurdardottir said her government isn’t ruling anything out.
“It’s clear we’ll have to negotiate with the banks and pension funds if anything of this sort is to be carried out,” she told reporters on Oct. 5. “We now need a meeting with the banks and pension funds.”
Government Action
Sigurdardottir told lawmakers yesterday that no families should lose their homes because of unserviceable debt, adding that her government will contact about 200 households at risk of foreclosure this month to try to prevent their homes being auctioned off.
To help families, the government will extend by five months a moratorium on foreclosures that had been due to expire this month, Sigurdardottir said today. Iceland in August told the International Monetary Fund, which is leading a $4.6 billion loan to the island, it would “remove temporary post-crisis measures -- like the moratorium on home foreclosures -- the continuance of which represent a barrier to debtor participation,” according to the loan agreement.
The IMF won’t be “allowed” to hinder the government in its efforts to reduce household debt burdens, Sigurdardottir said at a press conference today.
Kaupthing, Glitnir
The country’s banks are state-controlled successors to the failed lenders that brought down the economy two years ago. The resolution committees of Kaupthing Bank hf and Glitnir Bank hf agreed on behalf of creditors to take stakes in the new lenders, Arion hf and Islandsbanki hf, to cover part of their claims. Creditors of Kaupthing, Glitnir and Landsbanki Islands hf are owed as much as $86 billion in total.
A write down of about $2 billion is equivalent to some 8 percent of total assets at Iceland’s three biggest banks, their 2009 balance sheets show.
Banks should allow homeowners to revert to pre-crisis debt burdens, according to Fridrik O. Fridriksson, chairman of the Interest Group of the Homes, in an interview. That would remove the impact of consumer price gains, which has swelled the inflation-linked debt that the island’s mortgages are based on.
The consumer price index soared 41 percent from January 2007 through September this year, according to Statistics Iceland. Real wages fell 10.1 percent from the beginning of 2007 through August this year, the last period for which data are available, according to the office. Real disposable incomes slumped 20.3 percent last year, the central bank estimates.
‘Full Priority’
After the Oct. 4 protests, Arion, formerly Kaupthing, published a statement to say “considerable progress has been reached within the bank in sorting out matters for individuals and companies. Certainly it would be better if the results were even greater, but the matters in question are complex and time consuming, which calls for careful consideration.”
Finance Minister Steingrimur J. Sigfusson told reporters on Oct. 5 the banks had been too slow in helping households restructure debt, adding debt reduction needs to become a “full priority” for the banks.
“The primary focus of the economic policy in the coming months will be to ensure swift progress in debt restructuring; we will work with the banks to speed up the process,” Arnason said. “I expect an agreement with the banks on practical parameters in the coming weeks and that we can see tangible results within a few months.”
The write-offs are unlikely to leave the banks insolvent, according to the Financial Supervisory Authority. The regulator says it may lower capital adequacy requirements after assessing the individual lenders’ asset quality.
“Whether or not the capital adequacy ratios are altered is a decision to be taken by the FSA,” its Director Gunnar Andersen said in an interview. “We know exactly what kind of room the banks have to maneuver and they can’t wipe assets of their balance sheets if it takes them below the 16 percent capital adequacy threshold.”
To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net
http://www.bloomberg.com/news/2010-1...-protests.html
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