Agreement on the capitalisation of Islandsbanki complete

• Íslandsbanki will be fully financed and have strong liquidity
• Emphasis on linking creditors’ interests with those of Íslandsbanki
• Ensures maximum value to creditors
• No impact on the bank’s day-to-day activities and services
• Equity injection by the state lower than originally estimated
• Reinforces Íslandsbanki and the Icelandic financial system

Agreement has been reached on Íslandsbanki's capital structure. Under the agreement, Glitnir banki hf. has the right to subscribe for a majority shareholding in Íslandsbanki. This is the outcome of negotiations between the government and representatives of Glitnir's creditors. This implies that Íslandsbanki might soon be fully owned by foreign parties. According to the agreement the Icelandic government will provide the Bank with new equity to begin with which the creditors will have an option to acquire before 30 September given certain conditions. Government will as well support the capital of Islandsbanki with a subordinated loan to strengthen the bank's capital ratio and liquidity.

Glitnir's ownership of Íslandsbanki will link the interests of Glitnir's foreign creditors to Íslandsbanki's future profitability. At the same time, it ensures that the bank will have a strong capital base and sound liquidity position.

Participation of foreign creditors
In recent months, Íslandsbanki's employees and Glitnir's Resolution Committee have worked extensively in connection with the negotiating process. Foreign ownership will mean Íslandsbanki will be directly connected with international financial systems, as many of the leading financial institutions in the US and Europe are among Glitnir's creditors. The involvement of foreign creditors will contribute to improving the bank's access to international financial markets, enabling it to better serve it's clients in the future. This is also an important factor for the reconstruction of Icelandic business and industry, as well as its financial system, in the years to come.

An efficient bank with a sound capital position
Under the agreement between the state and Glitnir's Resolution Committee, a strong Íslandsbanki will have a solid balance sheet, a sound capital ratio and good liquidity.

Since the beginning of 2008, the bank and its predecessor have undergone major streamlining, with the number of employees in Iceland reduced from around 1300 to just under 900. While the bank currently has a similar number of employees as it did in 2003, its balance sheet is one-third larger. Íslandsbanki's branch network is the most cost-efficient in Iceland, reflecting the bank's ongoing emphasis on efficient operations.

Reconstruction work will continue
Successful efforts on rebuilding and formulating the bank's strategy since the new bank was established last autumn will continue. Íslandsbanki offers universal corporate and retail banking services in Iceland. Outside of Iceland the bank can primarily take advantage of its expertise within the seafood and geothermal energy. The creditors' representatives have indicated that they regard the Bank's unique position within these two sectors provide it with a considerable future potential.

Participation of foreign parties in Íslandsbanki will further strengthen the Banks' position in these sectors.

Árni Tómasson, chairman of Glitnir's Resolution Committee:
"We in Glitnir's Resolution Committee are pleased to have reached an agreement with the state which we feel ensures creditors both maximum rights and options which they can decide on, following due diligence which will be carried out in coming weeks.

The agreement gives Glitnir's Resolution Committee, on behalf of its creditors, the right to fully acquire Íslandsbanki without a further capital contribution from Glitnir, and the state has pledged to provide the bank with ISK 25 billion liquidity support. In our estimation, this will fully capitalise the bank and ensure its liquidity for the foreseeable future.

If the creditors should conclude, once due diligence is complete, that instead of acquiring Íslandsbanki completely immediately, they consider it more advantageous to acquire debt instruments and a call option for up to 90% of the bank's share capital over the next five years, then this option is also open. A decision on this will be taken in the best interests of creditors no later than 30 September this year."

Birna Einarsdóttir, CEO of Íslandsbanki:
,,We welcome the participation of Glitnir's creditors in Islandsbanki. This is a major step towards rebuilding a new bank. Linking together the interests of foreign creditors and the interests of Islandsbanki will accelerate the reconstruction of the Icelandic financial system and economy. Islandsbanki's employees have moved mountains in building up our new bank in recent months and this work will continue with renewed effort. The bank's operations are very cost-efficient and our heritage and expertise in the geothermal energy and fisheries sectors will continue to provide us with an important advantage and international scope."