Yesterday, Iceland’s Ministry of Finance and the Resolution Committee of Landsbanki Íslands hf issued a joint press release regarding a final settlement following the division of Landsbanki Íslands, one of the largest banks in Iceland. The Icelandic state first took control of Landsbanki Íslands on October 7, 2008 due to its serious financial problems, which also threatened the Icelandic banking system as a whole.

Pursuant to the settlement, the Icelandic state is contributing ISK 122 billion (approximately $965 million) to Landsbankinn hf, the new bank, in exchange for an 81% stake in the new bank. In addition, the new bank will issue a debt instrument to Landsbanki Íslands, the old bank, in the amount of ISK 260 billion (approximately $2.0 billion) and the old bank will also receive shares in the new bank amounting to ISK 28 billion, or a 19% stake in the new bank.

The old bank’s creditors believe this represents a minimum value of the old bank’s net assets. Should the value of the assets transferred prove to be more than this assessment assumes, the new bank will issue an additional debt instrument to the old bank, which could amount to ISK 92 billion, and the ISK 28 billion in equity capital received by the old bank would be returned to the Icelandic state. A final assessment of the value of the assets will be made at year-end 2012.