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State Aid

State Aid: Aid to eight investment funds in Iceland compatible with EEA rules



Today, the EFTA Surveillance Authority has concluded that state aid was involved when the three new, state owned Icelandic banks, in October 2008, acquired assets held by eight investment funds for a total of ISK 82.2 billion[1]. With reference to the serious disturbance in the Icelandic economy at the time the Authority finds this state aid compatible with the EEA Agreement.

The case was based on a complaint submitted by several competitors of the three banks and their subsidiaries. The Authority opened a formal investigation in September 2010.

Due to heavy losses and a run on the funds by the investors, the Icelandic Supervisory Authority (FME) issued, on 17 October 2008, a recommendation to the management companies to wind up all so called non-UCITS funds.

  • New Glitnir acquired debt securities held by the investment fund Sjóður 9 managed by the banks' subsidiary Glitnir sjóðir.
  • New Landsbankinn acquired assets held by five investment funds managed by the bank's subsidiary Landsvaki.
  • New Kaupþing acquired debt securities held by the investment funds Peningamarkaðssjóður and Skammtímasjóður which were part of New Kaupþing's subsidiary Rekstrarfélag Kaupþings Banka.

The assets consisted largely of bonds issued by the collapsed banks or bonds issued by companies owned or controlled by the collapsed banks' owners.

The investment funds at issue had a high number of investors in Iceland (unit share certificate holders), from institutional investors such as pension funds to businesses and private persons. The investors in the funds at issue received between 60 and 85% (depending on the fund) of the last recorded value of their unit share certificates.

The Authority concludes that the acquisitions of the impaired bond portfolios were financed by state resources and that the decisions to make the transactions were imputable to the Icelandic state. When the assets were acquired, the banks were fully state owned and  were controlled by temporary boards of directors consisting mainly of civil servants. The banks operated on the basis of temporary balance sheets with limited start-up capital and were exempted from the normal capital requirements for banks.

The transactions were not made on market terms acceptable for a private investor since the value of the assets at the time was highly uncertain. The advantage favoured selected undertakings, and was liable to distort competition and affect trade in the EEA. Therefore the transactions amounted to state aid.

However, the Authority considers that the state aid is compatible with Article 61(3)(b) of the EEA Agreement that allows for aid to remedy a serious disturbance in the economy. In October 2008, the financial sector in Iceland had collapsed and the Government had to implement extraordinary measures in an attempt to stabilize the economy. The Authority considers that the measures at issue were necessary in order to try to restore faith in the financial sector. It was in that regard necessary and proportionate to protect the investors from even bigger losses on their savings.

A non-confidential version of today's decision will be made available on the Authority's website, normally within one month.


For further information, please contact:

Mr. Trygve Mellvang-Berg
Press & Information Officer
tel. (+32)(0)2 286 18 66
mob. (+32)(0)492 900 187



[1] On the exchange rate of the Central Bank of Iceland on 31 October 2008 the amount corresponds to EUR 536 million.

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