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State Aid

State aid: Investigation opened into Icelandic loan conversion agreements



Today, the EFTA Surveillance Authority opened an investigation into potential unlawful state aid granted to Íslandsbanki hf. and Arion banki hf. through loan conversion agreements on allegedly preferential terms.

The Authority started looking into the matter after receiving a complaint.

The case concerns two separate loan conversion agreements concluded between the Central Bank of Iceland and Íslandsbanki (formerly Glitnir) and Arion banki (formerly Kaupthing) respectively, in September and November of 2009. The purpose of the two loan agreements was to reschedule short-term collateral and securities loans from the Central Bank to long-term loans.

These short-term collateral loans were secured against various collateral securities, including mortgage loan portfolios. On the capitalisation of the new banks (Íslandsbanki and Arion), domestic assets and liabilities of the predecessor banks, Glitnir and Kaupthing, were transferred to the new banks, including the liabilities towards the Central Bank. As the debt consisted of short-term collateralised lending, instant repayment would have had a serious impact on the new banks' liquidity positions. 

According to the Central Bank, it endeavoured, through the loan conversion agreements, to protect its interests by maximising the possibility of recovering its claims and therefore acted in line with the conduct of a private creditor. The Authority, however, has doubts whether the terms agreed by the Central Bank are in line with commercial conditions. If not, the loan conversion agreements could be regarded as unlawful state aid within the meaning of the EEA rules.

The decision to open a formal investigation procedure is without prejudice to the final decision of the Authority. The Authority will now call for further comments from the Icelandic authorities and third parties with an interest in the case.

A non-confidential version of the opening decision will shortly be published on the Authority's website and in the Official Journal of the European Union.

For further information, please contact:

Mr. Andreas Kjeldsberg Pihl
Press & Information Officer
tel. (+32)(0)2 286 18 66
mob. (+32)(0)492 900 187

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