Below is a summary of the business news of relevance in Iceland the week beginning on 19 June 2023. The summary, which is based on publicly available information only, is prepared by the BBA//Fjeldco team for the benefit of clients and contacts of the firm and is subject to the disclaimer noted below.
Wednesday, 28 June 2023
Islandsbanki agrees to a fine of 1.2 billion ISK issued by the Financial Supervisory Authority
CEO of Islandsbanki steps down after PM stated that governance of Islandsbanki was unacceptable and management has lost all public confidence
Shareholders´ meeting of Islandsbanki to be convened
Islandsbanki reviews its forecast for Q2 2023 following settlement – 10.7-12.1% return on equity expected
Norwegian based Equinor Ventures leads a 4 billion ISK investment in methanol tech company Carbon Recycling International
Revenue of tech company Controlant expected to exceed 100bn ISK – public listing postponed
Largest shareholder of real estate company Eik opposes take-over bid
Minister of Trade, Tourism and Culture opposes OECD recommendation of increasing taxes on tourism
Iceland ranks 16th on IMD World Competitiveness list
IMF reiterates that the Icelandic economy shows remarkable resilience and has rebounded quickly
Consumer prices in Iceland second highest in Europe
New indexed deposit accounts well received by customers
Overall debt burden increases
National power company Landsvirkjun signs a 125 million sustainability linked revolving credit facility
Alfa Enterprise fund acquires two hotels in Iceland
Suspension of whale hunting season by Minister of Food, Agriculture and Fisheries causes friction in government
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Disclaimer
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Islandsbanki agrees to a fine of 1.2 billion ISK issued by the Financial Supervisory Authority
Last week Islandsbanki agreed to a settlement offer from the Financial Supervisory Authority (FSA) and a fine of 1.2 billion ISK. The bank admits in a statement that in the offering of 22.5% of shares in the bank in March 2022, it did not comply with the applicable legal requirements and internal rules of the bank on the provisions of investment services, particularly in relation to the recording of telephone communications, disclosures made to participants in the offer, investor classification requirements, and measures to prevent conflicts of interest such as segregation of duties and employee transactions. The settlement agreement states that the bank’s implementation of governance and internal controls as well as a risk-based approach to the supervision of recordings of telephone communications were insufficient and that the bank should have carried out a separate risk assessment regarding its role in the offer. The agreement also states that in the execution of the offer, the bank did not fulfil its obligation to act honestly, fairly, and professionally and to promote market integrity in any and all respects. According to the statement from the bank, the FSA considers the execution of the offer by the bank to include serious violations of the relevant laws According to business web site Innherji, this is by far the largest fine FSA has ever issued, with the second highest being 88 million ISK that Arion Bank paid in 2020. During the period 2019-2022, total fines issued by FSA amounted to 300 million ISK
CEO of Islandsbanki steps down after PM stated that governance of Islandsbanki was unacceptable and management has lost all public confidence
After a board meeting of Islandsbanki last night, it was announced that the current CEO, Birna Einarsdottir, will step down and Jon Gudni Omarsson, who has been the bank’s CFO since 2011, will be appointed as interim CEO On Tuesday, all three leaders of the government, Prime Minister Katrin Jakobsdottir, leader of the LeftGreens, Minister of Finance Bjarni Benediktsson, chairman of the Independence Party and Minister of Infrastructure Sigurdur Ingi Johannsson, leader of the Progressive Party, clearly stated that the directors and management of Islandsbanki had lost all public confidence and that they expect that the bank s malpractices will have consequences for those responsible Prime Minister Katrin Jakobsdottir says it is understandable that the general public is demanding that directors and management of Islandsbanki should shoulder responsibility as the bank has admitted that it did not comply with the law and regulations, and did not act honestly, fairly or professionally when conducting the sale of 22 5% of shares in Islandsbanki, owned by the State, in a book building offering in March of 2022.
On Monday, the Financial Supervisory Authority (FSA) published the conciliation and settlement offer of 1 2 billion ISK, which was agreed to last week by Islandsbanki In the conciliation report of 96 pages, FSA argues that the bank has systematically diverted from rules and protocols, deceived the Iceland State Financial Investments that were responsible for the sale of the State´s shares and not being truthful when informing investors on the terms of trading Islandsbanki is a listed company where the State is the largest shareholder with 42.5% of all shares.
Shareholders´ meeting of Islandsbanki to be convened
ISFI – the Icelandic State Financial Investments, the body responsible for the State’s 42,5% share in Islandsbanki, has expressed its disappointment with how Islandsbanki handled the sales process, and on Monday requested that a shareholder’s meeting be called, “where the board and management of the bank can provide its explanations and describe the actions planned to regain trust in the bank ” Subsequently the board of Islandsbanki announced yesterday that a shareholders’ meeting of Islandsbanki will be convened shortly
Islandsbanki reviews its forecast for Q2 2023 following settlement – 10.7-12.1% return on equity expected
Following the FSA settlement offer and 1 2 billion ISK fine last week, Islandsbanki issued a statement where the forecast for Q2 2023 was reviewed. “The Bank will record a charge of ISK 860 million in the second quarter in connection with this matter and had previously made a provision of ISK 300 million in its 2022 annual accounts The additional charge to the accounts is estimated to bring the after-tax profit for the second quarter of 2023 into the range of ISK 5 8 - 6 5 billion, amounting to annualised return on equity in the range of 10 7-12 1%,” the statement from Islandsbanki reads Islandsbanki will publish its Q2 2023 financial results after the market closes on 27 July 2023
Norwegian based Equinor Ventures leads a 4 billion ISK investment in methanol tech company Carbon Recycling International
Carbon Recycling International (CRI), developer of technology to produce methanol from carbon dioxide, announced the closing of a 30 million USD equity investment round last week, according to a statement from the company. Equinor Ventures, the venture capital arm of the Norwegian international energy company Equinor (former Statoil and StatoilHydro), is leading the group of new investors that is joining CRI’s shareholder group. Along with Equinor Ventures, the pension fund Gildi, Sjova Insurance and the pension fund of Vestmannaeyjar also participated in the investment round. “The 30 million USD investment of Equinor Ventures and the other strong investors joining the shareholder group of CRI is an incredible validation of CRI's technology and market potential The company is poised for international growth, with a unique technology that has a significant role to play in the transition to greener fuels and feedstocks, “ says Sigurlina Ingvarsdottir, chairman of CRI’s board of directors in the statement
Revenue of tech company Controlant expected to exceed 100 billion ISK – public listing postponed
Business website Innherji reports that the Icelandic tech company Controlant, which offers digital solutions for the automation of supply chains for pharmaceutical companies, doubled its revenue last year to 133 million USD and expectations are that through market expansion in US, the revenue will grow to 927 million USD before the
end of 2027, or 130 billion ISK The company is currently raising 50 million USD in equity and 40 million USD in lending. According to Innherji, the Icelandic pension fund Gildi has shown interest in acquiring nearly half of the equity on offer. The funding is for supporting product development as well as sales and marketing efforts that will drive the expected growth. Gisli Herjolfsson, CEO and a co-founder of the company, says that the planned listing of the company will not serve the interest of the company in its current growth phase over the next two to three years Two experienced international executives, former CEO of the global AP Moller-Maersk Soren Skov, and Steve van Kuiken, former senior partner at global management consulting firm McKinsey & Company and founder of McKinsey Technology, were elected as members of the board of directors at this month´s AGM.
Largest shareholder of real estate company Eik opposes take-over bid
Private investment firm Brimgardar, the largest shareholder in the listed real estate company Eik with 29% of all shares, announced last week that it opposes the takeover bid made by real estate company Reginn, according to daily newspaper Morgunbladid Earlier this month Reginn, the second largest real estate company in Iceland, announced a take-over bid of Eik, which is Iceland´s third largest real estate company Both companies are listed on Nasdaq Iceland Eik was going to receive 46% of all shares in the merged company The price reflected the share prices in the two companies at the time when the market cap of Eik was 35.5 billion ISK and the valuation of Reginn was 41 6 billion ISK Gunnar Thor Gislason, a leading investor in Brimgardar, encouraged Reginn to withdraw the offer in an interview with daily newspaper Morgunbladid. The offer from Reginn requires support from 67% of all shareholders of Eik
Minister of Culture and Business Affairs opposes OECD recommendation of increasing taxes on tourism
Lilja Alfredsdottir, Minister of Culture and Business Affairs, does not welcome the recommendations from OECD of increasing taxes on tourism to the levels of other industries in the country as the growth in tourism is a great contributing factor in the rapid expansion of the economy Alfredsdottir has said that the taxation of tourism in Iceland is comparative to EU countries and that an increase would hurt the competitiveness of the Icelandic tourism industry
Iceland ranks 16th on IMD World Competitiveness list
Iceland ranks 16th on IMD World Competitiveness list for the second consecutive year, according to a report in daily newspaper Morgunbladid Denmark tops the list, followed by Ireland and Switzerland. Iceland tails behind the other Nordic countries - Sweden is in 8th place, Finland is in 11th place and Norway comes in at 14th The World Competitiveness Ranking is based on 336 competitiveness criteria selected as a result of comprehensive research using economic literature, international, national, and regional sources, and feedback from the business community, government agencies, and academics
IMF reiterates that the Icelandic economy shows remarkable resilience and has rebounded quickly
The Icelandic economy has shown remarkable resilience and rebounded quickly from multiple shocks in recent years, according to an IMF staff report and a statement by the executive director for Iceland that was published earlier this month. The report states that real GDP grew by 6 4% in 2022, the fastest since 2007, on the back of a strong rebound in tourism and domestic demand, and higher incomes from an improvement in the terms of trade. The economy is operating well above potential which, together with high import and house prices, has pushed inflation significantly above target, and contributed to external imbalances While growth is expected to moderate to 3.2% in 2023 and 1.9% in 2024 on headwinds from abroad and tight macroeconomic policies, the medium-term outlook is favourable according to the IMF report In the near term, policy tightening coupled with headwinds from the deteriorating terms of trade will dampen domestic demand and reduce imbalances, though private consumption growth is likely to remain robust on a further drawdown of household savings and strong employment growth supported by continued immigration. Over the medium term, exports will be the main growth driver, while continued policy tightening brings domestic demand to sustainable levels Inflation is expected to decline modestly to around 7 percent by end-2023 The outlook is subject to significant downside risks including more persistent inflation, tensions around the upcoming wage negotiations, and tighter global financial conditions Potential upside risks stem from breakthroughs in the pharmaceutical industry and other non-traditional industries, and commercialisation of climate mitigation technologies the IMF report states Link to full IMF report
Consumer prices in Iceland second highest in Europe
The consumer prices in Iceland are the second highest in Europe, at 59% above average, according to a report from Eurostat and reported by daily newspaper Morgunbladid. Switzerland is at the top of the list where consumer goods are 74% above average prices in Europe
New indexed deposit accounts well received by customers
The Icelandic general public has welcomed the indexed deposit accounts that the commercial banks began offering this month, following new regulation from the CBI on lifting the minimum fixed term period on such accounts, according to daily newspaper Morgunbladid. However, none of the banks offer easy access indexed deposit accounts as they all require a minimum deposit term of 90 days with 0 55% interest on top of the inflation index.
Overall debt burden increases
The proportion of borrowers with a debt burden above 35% of their monthly income has increased from 8.5% to 11% since January this year, according to a news report in daily newspaper Morgunbladid, which is based on a CBI report 49 9% of all borrowers
have a debt burden that is less than 20% of their income Since January, mortgage payments of 4.7% of all households have increased by more than 100 thousand ISK, or 671 EUR per month.
National power company Landsvirkjun signs a 125 million sustainability linked revolving credit facility
Landsvirkjun, the national power company of Iceland, has signed a 125 million USD revolving credit facility with a tenor of three years and two one-year extensions. The transaction was led by Barclays Bank Ireland PLC as financial advisor, bookrunners and mandated lead arrangers were Barclays, ING Belgium SA/NV, BNP Paribas, and Cooperative Rabobank. The terms are 45 basis points over SOFR with a sustainability pricing mechanism. The margin is linked to Landsvirkjun’s climate and environment targets, the company aims to become carbon neutral by the end of 2025 and to stop purchasing fossil fuels by the end of 2030 The facility will be used as backup liquidity for general corporate purposes and refinances Landsvirkjun’s undrawn 150 million USD facility signed in 2019
Alfa Enterprise fund acquires two hotels in Iceland
Alfa Enterprise funds, which in recent years have bought a number of operating companies in tourism in Iceland, acquired two hotels earlier this month One in Borgarfjordur in West Iceland, Hotel Hamar, and another in Hornafjordur in South-East Icleand, Hotel Hofn, according to business website Innherji Hotel Hamar profited 19 million ISK in 2021 from a turnover of 311 million ISK and Hotel Hofn made 9 million ISK in profit the same year from a turnover of 292 million ISK. Alfa Enterprise invested in tour operator Iceland Travel in 2021 and rebranded the company Travel Connect The company operates seven subsidiaries, including Iceland Travel, Nordic Visitor and Terra Nova. The number of employees is 350 and expected turnover this year is 21.5 billion ISK
Suspension of whale hunting season by Minister of Food, Agriculture and Fisheries causes friction in government
Tuesday last week, Minister of Food, Agriculture and Fisheries Svandis Svavarsdottir postponed the start of whale hunting season until September. This was one day before the whale hunting vessels were scheduled to head out to sea The decision was based on a newly published report that concluded that current hunting methods cannot meet legal requirements of animal welfare. While conservationists have welcomed the decision, industry leaders and union representatives have protested strongly and argue that the sudden decision breaches the principle of proportionality Members of the Left-Green Party, which Svavarsdottir is a member of, have welcomed the decision while the leaders of the other two coalition parties, Bjarni Benediktsson of the conservative Independence Party and Sigurdur Ingi Johannsson of the centrist Progressive Party, have questioned the legitimacy of the decision. Political analysts have pointed out that this is the latest example of increasing friction between the
coalition parties, which cover almost the entire left-right spectrum in Icelandic politics
They predict that each party will now be tempted to exercise their ministerial and executive powers to a greater extent to serve the political agendas of each party far beyond the shared coalition agreement As none of the coalition parties are currently doing well in the opinion polls, pundits argue that it is unlikely that frictions and rifts on isolated issues will bring this government down.
