Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698058865208.pdf (Liberia)
Cutting the Gordian Knot Concluding the Winding-Up Proceedings of the Failed Banks’ Estates Iceland Chamber of Commerce 24 June 2014 Executive Summary Excerpt from the full report1 ▪ Iceland has been unable to lift the capital controls due to a shortage of foreign currency.

This is in large part due to the currency need of the failed banks’ estates.

▪ Creditor expectations of domestic asset recovery exceed the Chamber’s estimated scope for exemptions from the capital controls.
A disbursement of domestic assets needs to be approx.

600 bn.

ISK below book value to fall within this scope.

▪ The optimal solution to the current stalemate is through composition agreements within the current scope for capital control exemptions.

This has benefits for both creditors and the national economy: – Creditors stop accumulating losses through lost time value of capital, operating costs and the bank tax.

In total these losses amount to 260 bn.

ISK per annum.
ISK per annum.

– The Icelandic economy gains through a more rapid relief of the capital controls once the estates’ situations has been resolved.

▪ If such agreements cannot be reached, bankruptcy proceedings are a better alternative than a continued stalemate without any disbursement of assets.

This holds true for both creditors and the national economy.
1 The full report from 18 June 2014 is only available in Icelandic and can be accessed through the following link: http://www.vi.is/files/ Skodun%20throtabu_1795107629.pdf.

Please contact the Chamber for additional information, tel.

+354 510 7100.
Iceland Chamber of Commerce | 1 Iceland may need up to 130% of GDP in foreign currency to lift the capital controls, in large part due to the estates Iceland‘s Currency Need (ISK billions / % of GDP) Payments problem “Snow hang”1 2,025 320 530 550 Failed banks’ estates Pension funds and individuals2 Foreign investors Total 525 Currency outflow (2014-19) 100 Firms 43% + 5% + 31% + 30% + 18% = 127% 1 Key assumptions behind the size estimates is covered in further detail in the ICoC’s opinion piece (only available in Icelandic) 2 There of 470 bn.
ISK from pension funds and 60 bn.
ISK from individuals Sources: Central Bank of Iceland; ICoC analysis Iceland Chamber of Commerce | 2 The estates receive high payments on foreign loans, reducing the economy’s ability to accumulate currency Estimated payments on foreign loans (ISK billions)1 Others Failed banks’ estates Past Projected Total 1 Estimated payments by parties other than the Treasury and Central Bank of Iceland on foreign loans and foreign denominated loans to the failed banks Sources: Statistics Iceland; Central Bank of Iceland Iceland Chamber of Commerce | 3 No resolution committee has submitted a request for capital controls exemptions that has been approved Resolution Committee Submits a request for an exemption from the capital Text controls to pass a proposed composition agreement 1 4 Central Bank of Iceland Assesses whether the request puts economic or financial stability at risk 2 3 Creditors Approve or reject a composition agreement through a voting process in a creditors’ meeting Minister of Finance Assesses whether the request has a negative impact on the national economy No request has passed this stage of the approval process Sources: Central Bank of Iceland; Minister of finance’s speech at the CBI annual meeting 2014; ICoC analysis Iceland Chamber of Commerce | 4 The resolution committees have liquidated two thirds of the assets, resulting in a lower yield for creditors Cash / asset ratio of the failed banks‘ estates (%)1 Cash / asset ratio Cash paid out to creditors 42 38 34 29 22 17 60 55 50 64 13 51 2009 2010 2011 2012 2013 1 Balance at the end of each 6 month period, From H1 2009 to H2 2013.
Weighted average of Glitnir, Kaupþing and LBI according to the value of their assets at EOY 2013.

13% of assets has already been paid out to creditors, which is only indicated on the most recent column Sources: Central Bank of Iceland (Financial Stability 2014/1); ICoC Iceland Chamber of Commerce | 5 Accumulated operating costs of the estates exceed 100 bn.
ISK, further reducing the value of the assets Operating costs of the failed banks‘ estates (ISK bn., 2014 prices) Glitnir Kaupþing LBI 23 20 24 22 15 103 31 33 39 2009 2010 2011 2012 2013 Total Sources: Resolution committees of the failed banks’ estates; Statistics Iceland; ICoC analysis Iceland Chamber of Commerce | 6 Feasible composition agreements require an asset write-down equivalent to additional 2.5 years of delay Creditor recovery of domestic assets of the estates (ISK bn.)
s e i t i r o h t u A s r o t i d e r C Stability condition1 100 Assets with no current account impact2 Benefit from earlier capital controls relief2 Scope for disbursement exemptions 220 50 370 Full disbursement of assets in 3 years2 260 Delay of 3 years Delay of 2 years Delay of 1 year Full disbursement of assets 220 245 260 960 Break-even point in 2.5 years 1 The authorities’ preconditions for capital controls exemptions are that such esuch exceptions do not negatively impact the balance of payments.
2 Iceland Chamber of Commerce analysis/estimates.

Key assumptions can be accessed in Icelandic in the full report.

Sources: Central Bank of Iceland; Minister of finance; Resolution Committees of the Failed Banks’ Estates; ICoC estimates Iceland Chamber of Commerce | 7 Creditor expectations exceed the estimated scope for authorities to grant exemptions from capital controls Creditor recovery of all assets of the estates (ISK bn.)
2,550 590 130 1,830 2,180 +350 Book value of assets Domestic asset write-down1 Disburse- ment delay 2 Market value of claims Recovery through composition agreement 1 Assuming full utilization of the scope for capital controls exemptions 2 Assuming 12% required rate of return and disbursement of assets in 6 months Sources: Keldan; Central Bank of Iceland; ICoC estimates Iceland Chamber of Commerce | 8 Creditors would lose more from a continued stalemate than a disbursement from bankruptcy proceedings Creditor recovery of all assets of the estates (ISK bn.
)1 Continued stalemate Bankruptcy proceedings Book value of assets Time value Bank tax Operating costs 2,550 910 60 80 Present value of assets 1,500 2.550 770 40 1.740 1 Present value of assets.

Assuming end of period in mid-year 2019, required rate of return of 12% and a 51% cash to total asset ratio.

In the case of continued impasse a 0% return on cash and 5% return on non-cash assets is assumed as well as 49 bn.

ISK annual costs from operating costs and bank tax.
In the case of bankruptcy proceedings, a 40 bn.

ISK operating costs is assumed.
Sources: Central Bank of Iceland; ICoC estimates Iceland Chamber of Commerce | 9 The current winding-up proceedings are protected from creditor intervention in the US and EEA Cash / asset ratio of the failed banks‘ estates (%)1 Legal venue of the estates Protection from creditor intervention No assets Sources: ICoC Iceland Chamber of Commerce | 10 A composition agreement within the scope for exemptions is the best option for creditors Creditor recovery of all assets of the estates (ISK bn.
)1 2,550 2,180 1,830 1,740 1,500 Book value of assets Market value of claims Composition agreement1 Bankruptcy proceedings2 Continued stalemate2 1 Assuming full utilisation of the scope for capital controls exemptions and a disbursement of assets in 6 months 2 Present value of assets.

Assuming end of period in mid-year 2019, required rate of return of 12% and a 51% cash to total asset ratio.

In the case of continued impasse a 0% return on cash and 5% return on non-cash assets is assumed as well as 49 bn.
ISK annual costs from operating costs and bank tax.

In the case of bankruptcy proceedings, a 40 bn.

ISK operating costs is assumed.

Sources: Keldan; Central Bank of Iceland; ICoC estimates Iceland Chamber of Commerce | 11