6 ANÁLISIS ESTADÍSTICO DE FACTORES QUE
6.6 REGRESIÓN TENIENDO COMO VARIABLE
Icesave Deposit Accounts from a Branch to a Subsidiary
As was further described in Chapter 18.2.5, it has been established that on 5 August 2008 Landsbanki Íslands submitted a request to the CBI for a cer- tain facilitation so as to be able to transfer Icesave deposit accounts from the London branch of Landsbanki to a subsidiary in London. At this point in time it had become clear that it would be very difficult for Landsbanki to transfer the Icesave accounts from the London branch to the subsidiary, Heritable Bank. The economic outlook in Iceland had deteriorated significantly and the CEOs of Landsbanki feared that the Financial Services Authority would not accept the assets intended to be transferred from the parent company to Heritable Bank in order to cover the obligations arising from the deposit accounts. At this time, the deposits amounted to slightly less than £5 bil- lion, and it would therefore have been necessary to transfer about 20% of the parent company’s assets to Heritable Bank in order to meet the deposit obligations of the Icesave accounts. In light of covenants in the bank’s debt agreements, it was feared that such a large part of the bank’s assets could not be transferred without the consent of its lenders. Landsbanki therefore main- tained that the transfer of assets would have to be carried out in two stages. This was unacceptable to the FSA and an exemption from the rules on large exposures in transactions between Heritable Bank and Landsbanki was not granted. This position taken by the FSA was stated in a letter from the author- ity to Landsbanki on 5 August 2008. It should have been clear to both the rep- resentatives of Landsbanki and the Icelandic authorities, after receiving the aforesaid letter, that the decisive moment was near as to whether the transfer of the Icesave accounts from the London branch to a subsidiary would be suc- cessful and that this could be of crucial importance for the future operations of Landsbanki and consequently for the stability of the Icelandic financial sys- tem. Mr. Sigurjón Þ. Árnason, CEO of Landsbanki, stated in a meeting with the governors of the CBI that the current situation was the most critical in the bank’s history. The facilitation as requested by Landsbanki from the CBI was that the bank would take over the deposits from Heritable Bank amounting to £2.5 billion (just under ISK 390 billion) and then lend the money imme- diately back to Landsbanki against certain collateral.
It will now be examined further in what manner the CBI responded to the critical situation that had arisen at this point regarding the affairs of Landsbanki, which was brought to the CBI’s attention in the request sub- mitted by Landsbanki on 5 August 2008 and the information accompanying that request. The SIC does not see a reason as such to remark on the CBI’s position not to go with the idea of facilitation as put forth by Landsbanki, as such action would have been very risky for the CBI. It was also subject to complications that would probably have influenced the position of the FSA if the consent of the Authority had been sought. It should also be iterated that the idea by Landsbanki presupposed that the CBI would grant the requested facilitation without announcing it publicly. It must be considered rather questionable, that this would have been in compliance with laws govern- ing the operations of the CBI, and reporting requirements concerning the operations of financial institutions and companies listed in the stock market. On the other hand, the request from Landsbanki and the information which
the governors of the CBI and the Director of the International and Market Department of the CBI claim they received from a CEO of Landsbanki about the, at least, alleged attitude of the regulatory authorities in Britain concern- ing the quality of the loan portfolio of Landsbanki was of such a nature that it was imperative for the Icelandic authorities to take appropriate measures immediately. It should be iterated that Landsbanki had requested facilitation from the CBI which amounted to double the market value of Landsbanki as it was then registered at the stock exchange, and nearly a third of the GDP.
With reference to the role of the CBI to safeguard financial stability and, where applicable, to act as lender of last resort to the Icelandic banks in times of emergency, it shall now be resolved whether the conduct of the Board of Governors of the Bank in this matter constituted negligence in the sense previously described in Chapter 21.5.2. More precisely, this refers to the response of the Board of Governors whereby it was on the one hand omitted to ascertain whether the position of the Financial Services Authority had been described correctly, and on the other hand, there was no attempt to examine the quality of the loan portfolio of Landsbanki in light of the aforesaid information, and consequently whether the bank was experiencing equity problems.
Comments according to Article 13 of Act No. 142/2008 from the former Board of Governors of the CBI to the SIC include, among other things, the statement that in the board’s opinion the idea by Landsbanki did not make sense. The board also stated that the request of Landsbanki was not necessary to provoke anxiety among its members, because such anxiety already existed on the part of the board. The board then reiterated that monitoring the qual- ity of the loan portfolio of financial corporations was the responsibility of the FME, not the CBI. Finally, it was stated that it would not have made much difference even if the CBI had attempted to verify whether Landsbanki was experiencing equity problems.
With due consideration of the role of the CBI to safeguard financial sta- bility and, where applicable, to act as lender of last resort to the Icelandic banks, it is the opinion of the SIC that it was of vital importance to verify if the position of the FSA had been described correctly. Furthermore, the information previously referred to should by itself have been sufficient for the CBI to examine the quality of the loan portfolio of Landsbanki, either in its own capacity or by specifically requesting that the FME would conduct such an examination, and thereby establishing if the bank was in fact experiencing problems with its equity. It must be kept in mind that according to law, a spe- cial last-resort facilitation from the CBI can only be granted against adequate collateral from the bank concerned. In addition, the CBI had at this time already granted Landsbanki significant liquidity facilities both directly and indirectly in the form of collateralised loans. The Icelandic banking industry was also facing a general liquidity crisis.
The available documentation provides no indication that the CBI took special measures based on the aforementioned grounds to determine the quality of the loan portfolio of Landsbanki, or have it determined, or whether the alleged attitude of the FSA towards the loans was accurate. It is notewor- thy that the request from Landsbanki for the facility in question was submit- ted on 5 August 2008 but the draft memorandum drawn up by staff members of the CBI regarding the request is dated 26 August 2008. In the meantime,
i.e. 15 August 2008, a letter came to light from the FSA to Landsbanki that was a cause for great concern. It cannot be seen that any position is taken with regard to this letter in the aforesaid memorandum. Furthermore it can- not be seen that the CBI pursued this matter, despite the critical position of Landsbanki at the time, not least in light of the threats from the FSA that it would apply its formal public prerogatives with regard to the London branch of Landsbanki. In the draft of the memorandum of the CBI it is stated that the opinion of the staff members is that the patience and flexibility of the FSA, with regard to the transfer of the loan portfolio, should be tested and the possibility explored whether the owners of Landsbanki would provide it with more funds. There is no further documentation to show that at this time, i.e. well into August 2008, representatives of the CBI made any effort to contact the British authorities directly with regard to the situation that had arisen in the matters concerning Landsbanki. However, representatives of the Bank of England did contact the CBI. Mr. Ingimundur Friðriksson, one of the gover- nors of the CBI, is on record in the documents of the SIC as having stated that the tone of the British representatives during that conversation was particu- larly grave and that they even discussed the possibility of Landsbanki selling Icesave, cf. description of the meeting of the government consultative group on 11 August 2008 in Chapter 18.2.3.
The SIC is of the opinion that in light of the information regarding the critical position of Landsbanki and the attitude of the FSA towards the affairs of the bank, which according to the aforesaid had been brought to the atten- tion of the CBI by August of 2008, it was necessary for the bank to take appropriate measures in order to verify the actual position of Landsbanki at the time, with regard to the effect that position might have on overall finan- cial stability in Iceland.
The SIC finds that the aforesaid inaction of Governor Oddsson, Governor Guðnason and Governor Friðriksson constitutes an omission to respond in an appropriate manner to imminent danger and to make necessary arrange- ments, and thereby the aforesaid parties showed negligence in the sense of Article 1(1) of Act No. 142/2008.