Financial Supervisory Authority authorises ISB Holding ehf. to own qualifying holding in Íslandsbanki

07.01.2010

The Financial Supervisory Authority (FME) has granted ISB Holding ehf. permission to own a qualifying holding in Íslandsbanki on behalf of Glitnir Bank hf. The permission is granted following a September 13, 2009, agreement between Glitnir and the Icelandic Ministry of Finance, authorising Glitnir to acquire a 95% holding in Íslandsbanki upon fulfilment of specified conditions.

The FME had deemed that Glitnir, which is in moratorium and undergoing winding-up proceedings, was not eligible to own a qualifying holding in a financial undertaking. The FME specified, however, that because of the extraordinary circumstances leading to the agreement, and because it represents an agreement between the parties concerning Íslandsbanki operations, it would be possible to investigate whether the applicant could take measures that would suffice to limit the detrimental effect of the ownership; cf. Article 43 of the Act on Financial Undertakings, no. 161/2002. The conclusion was to grant permission conditional upon decisive measures pertaining to the financial strength of the applicant, the ownership of the bank, the interest of supervision, and the owners' aims.

The applicant's financial strength shall be guaranteed through access to a special contingency fund that can be tapped if Íslandsbanki is faced with severe operational adversity. The amount of the fund was assessed by Íslandsbanki at the behest of the FME on the basis of co-ordinated methodology developed within the framework of the FME's appraisal of the new banks in May 2009.

The bank's ownership shall be in the hands of a separate subsidiary of Glitnir (ISB Holding), which is directed by a board with a majority of its members independent of Glitnir, large creditors, and Íslandsbanki itself. The Glitnir resolution committee is offered the option of appointing one representative to sit on the three-member board of ISB Holding, while the other two (including the chairman) must be impartial. The nomination of all members of the ISB Holding board is subject to the approval of the FME. Members must meet the FME's requirements, including those pertaining to knowledge and experience of financial operations.

The board of ISB Holding shall wield Glitnir's voting rights in Íslandsbanki and shall appoint the members of the bank's board. The FME also stipulates that only one of the members of the bank's board may represent the resolution committee, while the others (including the chairman) shall be impartial. This means that board members may not work as representatives of individual owners or creditors, nor may they be bound to them or to the bank itself by any type of special interests. According to a special representation agreement between ISB Holding and Glitnir, Glitnir agrees to respect the independence of the board of the former company and its duty to promote sound, reliable operations at Íslandsbanki without external intervention. The board of ISB Holding is required to report to the FME on the implementation of this policy on a quarterly basis.

In order to facilitate supervision, Glitnir is required to transfer ownership of all subsidiaries with financial and insurance operations to a single parent company. This role is carried out by Glitnir Holding, a wholly owned subsidiary of Glitnir that is therefore the parent company of ISB Holding as well.

The owners' aims are restricted by making specified requirements for transactions with related parties, dividend payments made from Íslandsbanki, and the sale of Íslandsbanki shares for the next three years. In this context, Glitnir is required to notify the FME in advance of proposed changes in ownership of shares in Íslandsbanki or ISB Holding. Upon receipt of such a notification, the FME will carry out a new eligibility assessment of the prospective owners if the change of ownership affects the board of the bank.

The FME has previously acquainted the three new banks with its supervision requirements, which are based on a thorough appraisal, conducted in May 2009, of the banks' operability in terms of asset composition and funding and the probable economic outlook. The requirements entail a minimum capital adequacy ratio of 16% instead of the previous 8%, preparedness to withstand a new stress test assuming adverse economic developments for a longer period than generally expected, and more stringent liquidity requirements than before. In addition, the new banks' operating licences are conditional upon their implementing a detailed plan for improved risk management and governance.

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