Icesave Negotiations Concluded - Outcome Presented

• Principal conditions set by the Icelandic Althingi incorporated in supplementary agreements
• Acceptance and Amendment Agreements concluded subject to approval by Althingi of amendments to legislation
• Trilateral statement by Ministers of Finance on progress of Iceland’s Economic Recovery Programme in co-operation with the IMF

Following the entry into force of Act No. 96/2009 on 2 September this year, providing a state guarantee for the Icesave Loan Agreements, discussions have been held between the Icelandic government and the Depositors’ and Investors’ Guarantee Fund (the Guarantee Fund) and representatives of the governments of the UK and the Netherlands. These discussions have now concluded and the outcome has today been presented to the government, the parliamentary Budget Committee, the coalition party caucuses and the leaders of the opposition parties.

An understanding has been reached with the UK and the Netherlands. They accept the principal points of the conditions set by Althingi for a state guarantee with some deviations, however. The agreement provides for:

• special supplementary agreements (Acceptance and Amendment Agreements) to be added to the Loan Agreements of 5 June 2009, dealing with the references and conditions arising from Act No. 96/2009;
• a bill of legislation to be submitted to Althingi amending Act No. 96/2009, to harmonise the contents of the supplementary agreements with current legislation authorising the Minister to grant a state guarantee for the Icesave agreements. The supplementary agreements are to take effect only after Althingi has adopted the relevant amendments to Act No. 96/2009; and
• the Ministers of Finance of the three countries, upon the introduction of the bill and the signing of the agreements, to issue a trilateral statement on issues related to the substance of the agreements, including the progress of Iceland’s co-operation with the IMF and in support of the review of this co-operation.

The cabinet and coalition party caucuses have approved the resolution of this matter as described above and signing of these supplementary agreements and the submission of a bill to the Althingi is to take place on Monday, 19 October. The agreements, trilateral statement and bill of legislation will be published at that time or as soon as they have been finalised.

In drafting the agreement, the government has been assisted by Nigel Ward of the law firm Ashurst, while the bill of legislation has been prepared by District Court Judge Benedikt Bogason, Björg Thorarensen, Dean of the Faculty of Law of the University of Iceland (UI), Eiríkur Tómasson, Professor of Law at UI and Helgi Áss Grétarsson, legal expert of the UI Institute of Law, who have also provided the government with general advice.

Further details of the Acceptance and Amendment Agreements

The principal points of the supplementary agreements are as follows:

• The most important conditions stipulated by Althingi are incorporated into the Loan Agreement or stated in the bill of legislation.
• As of 2016, a ceiling will be placed on annual repayments based on references similar to those laid out in Article 3 of Act No. 96/2009, i.e. to the effect that in 2017-23 total repayments will not exceed 6% of the increase in GDP from 2008. Provisions are also added to the agreements aimed at facilitating their implementation with regard to determining GDP and the impact of exchange rate movements.
• Annual interest will always be paid and any instalments not paid in full due to the repayment ceilings will be added to the principal.
• In order to reduce the likelihood of testing the repayment ceiling, the UK and the Netherlands agree that Iceland may, at any time, unilaterally decide to increase the number of dates for payment of instalments from 32 during an eight-year period to 56 during a 14-year period. Should the lengthening of the repayment period, together with the ceiling set on annual payments, result in the outstanding principal not being repaid within the term of the agreements, the repayment period shall be further extended by a five-year period at a time.
• Iceland shall as before have the option of voluntary prepayment in excess of the mandatory amount.
• It is accepted that the Guarantee Fund may seek a ruling from competent authorities as to whether the Fund’s claims have priority on disbursements from the estate of Landsbanki Íslands hf. over other portions of claims for the same deposits. Should an Icelandic court reach this conclusion, after receiving an advisory opinion from the EFTA Court which is not out of line with the Icelandic conclusion, the provisions of the Loan Agreements stating that amounts recovered from the insolvent estate shall be divided between the Guarantee Funds pro rata to their claims shall be automatically null and void. The division shall then be in accordance with the courts’ verdict.
• It is affirmed that provisions of the Loan Agreements of 5 June this year, on limits to sovereign privileges and immunities, do not cover assets entitled to immunity under the Vienna Convention on Diplomatic Relations, the assets of the Central Bank of Iceland and assets in Iceland which are necessary for the country’s normal functioning as a sovereign state.
• It is affirmed that the Loan Agreements do not affect the state’s control of the country’s natural resources, their exploitation and the arrangements for their ownership.
• It is affirmed that the Loan Agreements have been concluded based on the so-called Brussels references.

Amendments to legislation required

The supplementary agreements have been concluded subject to the approval of Althingi and require amendments to Act No. 96/2009. The amendments proposed by the bill of legislation concern three principal points:

Firstly, the amendments include provisions on an unlimited state guarantee for the Loan Agreements with the Guarantee Fund, as they now stand following the incorporation of the conditions and references of the previous Act in the agreements, cf. the above.

Secondly, the bill includes a clear statement that nothing in the Acts, including the guarantee, implies recognition of any legal obligation on the part of Iceland for minimum guarantees on deposits in branches of Landsbanki Íslands hf. in the UK and the Netherlands. Should a competent authority reach the conclusion, in accordance with European law, that such obligation did not exist, the Icelandic government shall initiate discussions with the parties to the Loan Agreements and, as the case may be, the EU and EEA parties, on the impact of this conclusion.

Thirdly, other provisions of the previous Act are repealed which have become superfluous after their substance has been incorporated into the loan agreements. Those which do not directly impact the loan agreements remain unaltered.

Trilateral statement by the Ministers of Finance

As part of today’s agreement on the above resolution of this matter, the Ministers of Finance of Iceland, the UK and Holland will publish a joint statement once the Acceptance and Amendment Agreements have been signed, subject to approval by Althingi, and the amending draft legislation on state guarantee has been submitted. It will state that the UK and the Netherlands have, for instance, accepted the economic conditions stipulated in Act No. 96/2009 and that Iceland has reiterated its commitment to guarantee the obligations of the Guarantee Fund without this implying any recognition that a legal obligation to do so existed. Iceland’s Minister of Finance will, as provided for in the Act, monitor subsequent events and initiate discussions as necessary. Furthermore, the parties reaffirm their willingness to co-operate, for instance, through further discussions at the request of any contracting party concerning any situation which may arise and the appropriate response to such.

The statement will also reaffirm the importance of finalising the review of the Economic Recovery Programme agreed between Iceland and IMF and the parties’ support for this review.

Reykjavík, 18 October 2009