Friday August 14, 10:12 PM
Iceland recapitalises two banks
REYKJAVIK (AFP) - Iceland said Friday it had recapitalised two of its three main banks which it had to bail out when the global financial crisis devastated its economy and banking system last year.
Islandsbanki was given 65 billion kronor and New Kaupthing 72 billion kronor in government bonds which they will put on their balance sheets, the finance ministry said.
It said negotations with creditors on a 133 billion krono capital injection for New Landsbanki will continue.
"The capitalisation of Islandsbanki and New Kaupthing represents another step in the re-establishment of a stable banking system for Iceland," Finance Minister Steingrimur J. Sigfusson said in a statement.
"Negotiations in respect of Landsbanki continue and we expect to be able to capitalise Landsbanki shortly," the minister added.
In July, the government unveiled a 270 billion kronor (1.5 billion euros, 2.13 billion dollars) plan to recapitalise the three restructured banks after the financial system collapsed in 2008, plunging the economy into turmoil and a deep recession.
The banks had been on a spending spree fuelled by cheap money but when the global financial crisis took a sharp turn for the worst with the failure of Lehman Brothers (NYSE: LEH - news) in September 2008, they could no longer raise cash so easily to meet their commitments.
At that stage, their liabilities were roughly equal to 11 times Iceland's total economic output and their rescue triggered howls of protest from taxpayers facing tough times who had to foot the bill.
The restructuring and return to health of the financial sector is seen by the government as essential to getting Iceland's economy back on its feet.
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