The Financial Supervisory Authority authorises Landskil ehf. to acquire a qualifying holding in NBI hf.

27.1.2010

The Financial Supervisory Authority (FME) has authorised Landskil ehf. to acquire a qualifying holding in NBI hf. on behalf of Landsbanki Islands hf. The authorisation is granted on the basis of a 15 December 2009 agreement between Landsbanki Islands hf. and the Icelandic Ministry of Finance stipulating, inter alia, that Landsbanki Íslands hf. could acquire an 18.7% holding in NBI hf., upon meeting specified conditions.

The FME had found that Landsbanki Íslands hf., which is in moratorium and undergoing winding-up proceedings, was not eligible to own a qualifying holding in a financial undertaking. The FME noted, however, that because of the extraordinary circumstances leading up to the agreement, and as the agreement represents a concurrence of opinion between the parties concerning NBI hf. operations, it would be possible to investigate whether the applicant could take adequate measures to limit detrimental effects of the ownership; cf. Article 43 of the Act on Financial Undertakings, no. 161/2002. The FME’s decision was to grant permission conditional upon decisive measures pertaining to the financial strength of the applicant, the ownership of the bank, supervisory interests, and the owners’ objectives.

NBI hf. is currently owned by two entities: Landskil, which is owned by Landsbanki Íslands hf. and wields 18.7% of voting rights; and the Iceland State Banking Agency, which wields 81.3% of voting rights. The objective of Landskil’s ownership is limited to exerting operational restraint on the majority owner, and the shareholders’ agreement between the parties gives minority owners certain rights that accord with that objective. In view of the above, and considering the current circumstances, the FME’s requirements are, in broad terms, the following:

The applicant’s financial strength shall be guaranteed through access to a special contingency fund that may be tapped should NBI hf. be faced with severe operational adversity. The amount of the fund was assessed by NBI hf. at the behest of the FME on the basis of consistent methodology developed within the framework of the FME’s financial and operational survey of the new banks in May 2009.

Ownership of the bank shall be in the hands of a special subsidiary of Landsbanki Íslands hf, i.e. Landskil, which shall undertake no activities other than the administration of that ownership share. The nomination of all members to the board is subject to FME’s approval. Members of the board of directors must meet the FME’s qualifications, including those pertaining to knowledge and experience of financial operations. Landskil shall exercise the voting rights that Landsbanki Íslands hf. acquires in NBI hf. and shall nominate Landsbanki Íslands hf.’s representative on the NBI hf. Board of directors.

The company undertakes to promote sound, reliable operations at NBI hf. in its ownership policy, and the representation agreement between Landsbanki Íslands hf. and Landskil provides for the bank’s support of that policy. The board of directors of Landskil is required to report to the FME on the implementation of this policy on a quarterly basis.

Landskil’s authorisation to own a qualifying holding is also subject to the requirement that the Iceland State Banking Agency continue to exercise more than 2/3 of the voting rights. If the proportional share ownership  changes, the FME’s requirements will be reviewed.

The FME has previously acquainted the three new banks with its supervisiory requirements, which are based on a thorough assesment, conducted in May 2009, of the banks’ operability in terms of asset composition funding and the economic prospects. The requirements entail a minimum capital adequacy ratio of 16% instead of the previous 8%, the ability to pass a new stress test assuming adverse economic developments for a longer period than generally expected, and more stringent liquidity requirements than imposed earlier. In addition, the new banks’ operating licences are conditional upon their implementing a detailed action plan for improved risk management and corporate governance.

Further information can be obtained from Sigurdur G. Valgeirsson, sgv@fme.is, at tel: +354 525-2700, and mobile phone: +354 840-3861.

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