Although Landsbankinn hf. was established on 7. October 2008, its roots extend as far back as 1886. The Bank is owned by the National Treasury of Iceland, which holds a 98.2% stake, Landsbankinn hf., which holds about 1.5% of own shares, around 900 current and former employees as well as former guarantee capital owners of the savings banks Sparisjóður Vestmannaeyja and Sparisjóður Norðurlands, other than the Icelandic state, own around 0.3% of the Bank's shares.
The largest financial undertaking in Iceland, Landsbankinn provides reliable, comprehensive financial services to individuals, corporates and investors throughout Iceland based on long-lasting business relationships. Landsbankinn operates the most extensive branch network of any Icelandic bank.
The Treasury's holding in Landsbankinn is administered by Icelandic State Financial Investments, which was established following the banking collapse in 2010. Its purpose is to control the state's holdings in financial undertakings in accordance with current legislation, good business and corporate governance practice and the state's ownership strategy, providing them with funding as necessary through budget allocations. Icelandic State Financial Investments elects seven board members at the Bank's AGM.
High drama in autumn of 2008
Icelanders are not likely to forget the events of the autumn of 2008 any time soon. As financial undertakings in Iceland and throughout the world grappled with serious difficulties, the situation proved too much for Iceland's largest financial undertakings and they became insolvent. On 6 October 2008, the Icelandic parliament Althingi responded to the situation with the adoption of Act No. 125/2008, commonly known as the Emergency Act. It gave the state extensive legal authority to take action on financial markets. The purpose of the Act, in the words of the then Prime Minister, was to "safeguard the interests of the Icelandic people in every respect, prevent the nation from being burdened by indebtedness in coming decades and make the best of a bad situation". Under the authority of the Act the authorities could intervene broadly in the financial market, not least to protect the domestic financial system and Icelanders’ assets in financial undertakings.
On the evening of 7 October 2008, the Financial Supervisory Authority (FME) decided to take over the operations of of Landsbanki Íslands hf. from the Bank's owners and senior management. Part of the operations of Landsbanki Íslands hf. were transferred to a new bank, Nýi Landsbankinn hf. (NBI hf.), fully owned by the state. Nýi Landsbankinn (NBI hf.) assumed all domestic deposit obligations of Landsbanki Íslands and the majority of its assets related to domestic operations, such as loans and other claims. Other assets and liabilities remained in Landsbanki Íslands hf. under the management of a Resolution Committee appointed by FME to supervise the settlement of the Bank's insolvent estate.
Initial balance sheet of Landsbankinn
In December 2009 a settlement was negotiated between Landsbankinn (NBI hf.) and Landsbanki Íslands hf. (later LBI hf.). It provided for the former to issue an ISK 247 billion bond in foreign currency with a 10Y maturity to the latter; in addition, shares were to be issued to the old bank.
This agreement determined the ownership of the new Landsbankinn. It now had two shareholders, the National Treasury acquired an 83.333% stake in the bank and Landskil ehf., a subsidiary of Landsbanki Íslands hf., 18.667% of the total ISK 24 billion share capital issued. The issue of the bond furthermore ensured long-term funding in foreign currency. This was enormously significant for the bank's operations, as well as for all Icelandic business and industry.
A new Board of Directors was elected following the determination of the bank's initial balance sheet, with one director representing Landskil.
Change of ownership
Ownership of Landsbankinn changed on 11 April 2013 when the 18.67% stake owned by Landskil on behalf of the Winding-up Board of LBI hf. was transferred to the Icelandic state and Landsbankinn hf. in accordance with the agreement between these parties in December 2009. The Icelandic state then owned 98% while the bank itself held 2%. This concluded the direct involvement of LBI hf. in Landsbankinn's management.
On this occasion Landsbankinn hf. issued a foreign currency bond to LBI hf. equivalent to ISK 92 billion. The bond is part of the purchase price of those assets acquired by Landsbankinn from LBI hf. under the agreement signed in December 2009. A previous bond was issued by Landsbankinn in 2009.
A shareholders' meeting held on 27 March 2013 approved receipt of the shares from LBI hf. and obliged the bank to transfer these shares to employees. Upon issuance of the contingent bond to LBI hf. in April, the requirement to transfer shares to employees was confirmed by the Ministry of Finance on behalf of the State.
A shareholders' meeting of Landsbankinn hf. on 17 July 2013 approved rules on the allocation of shares to employees. In allocating shares to employees, Landsbankinn fulfils the requirements of the financial settlement with LBI hf. imposed on it by the Icelandic state. A total of 500,000,000 shares (2.08% of total share capital) previously owned by LBI hf. were to be allocated, and about half of their value accrued to the Treasury through taxes. The holding of just over 1400 current and former employees of Landsbankinn hf. is therefore less than 1%.
On 29 March 2015, the Icelandic Financial Supervisory Authority (FME) issued a decision providing for the merger of Landsbankinn and the savings bank Sparisjóður Vestmannaeyja and on 4 September 2015 the merger of Landsbankinn with another savings bank, Sparisjóður Norðurlands, was approved. As a result of these mergers, the former guarantee capital owners of the savings banks received shares in Landsbankinn, including the Treasury, which held a major portion of the savings banks‘ guarantee capital. Former guarantee capital owners other than the Icelandic state thereby acquired holdings equivalent to around 0.11% of Landsbankinn‘s share capital.
Operations of Landsbankinn hf. since 2008
Since its establishment, the main challenges of Landsbankinn hf. have been to reorganise the finances of households and companies following the failure of Landsbanki Íslands hf. in October 2008 and to recover losses incurred when the Icelandic financial system collapsed. Conditions were difficult; trust had been lost, unemployment levels were high, most companies and many households were highly indebted, defaults were high, the banks' balance sheets were not complete until year-end 2009, Landsbankinn's equity was subject to restrictions imposed by FME and the community felt a great deal of anger towards financial undertakings. A new Board of Directors was elected in early 2010 and it engaged a new CEO in June. The new CEO implemented extensive structural changes, hired new managing directors and introduced a fresh strategy in October. Clear goals were adopted for the bank and various measures implemented to improve the finances of customers as well as the bank itself.
Landsbankinn through 120 years and more
The first decades of Landsbanki’s 120-year history, following its opening on 1 July 1886, were characterised by its limited financial capacity; it was little more than a savings bank. After the bank had regained the right to issue notes in the 1920s and become a national bank, however, it secured itself a position as Iceland’s largest bank. Once the issuing of banknotes became the prerogative of the Central Bank in 1961, Landsbanki continued to develop as a commercial bank, and its branch network grew in the ensuing decades. Liberalisation of financial services, beginning in 1986, opened up new opportunities, which the bank managed to avail itself of despite some economic adversity. In 1997 Landsbanki was incorporated as a limited-liability company, and the last of the state’s holding sold in 2003.
1886-1895: Banking as a Sideline
Created by an Act of the Icelandic parliament, Althingi, Landsbanki Íslands commenced operation on 1 July 1886, when it opened on the street known as Baker’s Hill (Bakarabrekka), later called Bank Street (Bankastræti) in the centre of Reykjavík, the name it still bears today. The bank’s establishment was intended to boost monetary transactions and the country’s nascent industries. Lárus E. Sveinbjörnsson, a high court judge, worked part-time as managing director of the bank, as did its comptroller and cashier. The first spring after it opened, the bank was augmented by the acquisition of the assets and goodwill of the Reykjavík Savings Bank (Sparisjóður Reykjavíkur).
Money shortage was a prime characteristic of those early years, as was the need for funding on credit. Residents living elsewhere in the country soon complained that there were no signs of the local branches promised in the statute adopted by the Icelandic parliament Althingi. Reykjavík’s own citizens were far from satisfied with having the bank open only for several hours, two days a week and in 1889 daily opening hours were introduced. Two years later, the wages of the bank’s employees were raised to reflect their longer working hours, making them Iceland’s first banking professionals.
1896-1905: Head Office Built and Branches Opened
Just prior to the dawn of the new century, the stately Landsbanki headquarters opened on the corner of Austurstræti and Pósthússtræti, where the bank has remained to this day. The imposing Neorenaissance style of the structure made it “quite the equal of such premises in the world’s great cities”. Its operations grew steadily – not least following the establishment of a mortgage department, which could grant credit secured by real estate other than farm property. A few years into the new century, the parent bank in Reykjavík was well enough established to expand, opening an Akureyri branch in North Iceland in 1902 and another in Ísafjörður, in the West Fjords, in 1904. In 1904 a new private bank, Íslandsbanki, mainly owned by Danish investors, appeared on the scene and launched its operations by opening three branches. Competition on financial markets had begun.
While Landsbanki had done its best to provide credit for upgrading of the fishing fleet with decked vessels, its funding was limited during these early years and clearly constrained the fishing industry’s development. Despite being a private bank, Íslandsbanki at this time had exclusive right to issue banknotes backed by gold and provided Landsbanki with healthy competition.
1906-1915: Weathering the Storms
Subject to the control of the Althingi and the cabinet, Landsbanki has more than once been the focus of political disputes. A change in government in 1909 meant difficulties for Tryggvi Gunnarsson, Landsbanki’s director and prominent member of the outgoing Home Rule party led by his nephew, Hannes Hafstein. Within a year Hafstein’s successor, Björn Jónsson, was to dismiss Gunnarsson, together with the bank’s two appointed supervisors. He followed up by appointing a fellow Independence Party member, the merchant Björn Kristjánsson, to be director of the bank. Soon it was decided to divide responsibility for the bank's affairs between two men, and henceforth Landsbanki would have two directors.
A major fire in central Reykjavík in 1915 destroyed Landsbanki’s headquarters plus another 11 buildings. The bank’s accounts, valuable documents and its notes and coin were saved, however.
1916-1925: In Temporary Premises
Following the 1915 fire, Landsbanki was provisionally housed across the street in the main Post Office and the Reykjavík Apothecary. Despite the cramped and less than suitable quarters Landsbanki continued to grow, opening branches in Eskifjörður in the East Fjords and Selfoss in South Iceland in 1918. Beginning in 1924, however, the bank regained its vitality and re-opened in new and even more imposing premises designed by State Architect Guðjón Samúelsson and decorated with murals by painters Jón Stefánsson and Jóhannes Kjarval.
1926-1935: The Country’s Leading Bank
In the autumn of 1922, Íslandsbanki had lost its monopoly to issue banknotes and after a two-year dispute, the question was resolved and Landsbanki was granted this right. The situation then soon changed, with Landsbanki becoming Iceland’s largest bank by the beginning of 1927. An act passed later that year formally made it the country’s national bank, with a new central bank division created alongside its savings bank and mortgage lending operations. The bank’s Board of Governors was to be comprised of five members, four of them elected by Althingi and a fifth, the Chairman, appointed by the Minister. The bank’s first branch in Reykjavík opened in 1931, and contributed to keeping the wheels of business and industry in motion after the Great Depression had reached Iceland.
1936-1945: Depression and War
The Great Depression stifled economic activity in Iceland, and it was only with the beginning of World War II that Landsbanki’s situation began to improve significantly. An addition to its city centre headquarters was taken into service in the summer of 1940. Soon after that official trading in securities began, when the Landsbanki Securities Exchange opened just before Christmas 1942. Growth during the wartime years from 1939 to 1944 was so rapid that turnover at Landsbanki’s main branch in Reykjavík increased tenfold – not least due to favourable trading terms between Iceland and the Allied nations.
1946-1955: Trade Protectionism
Not long after the war, foreign currency was in such short supply that a variety of restrictions were imposed on trade and commerce. In an attempt to cope with the difficult economic situation, the currency was devalued, but correcting the persistent current account deficit proved difficult. A severe housing shortage prompted the introduction of state funding for housing mortgages implemented through Landsbanki’s mortgage division to help rectify the situation.
Concerned at sluggish economic growth, the government sought ways to support industry - recognising that fisheries was the key sector - and a Fisheries Credit Department was established under Landsbanki’s auspices. As a result of its open-handed lending policy to the fishing industry, borrowing by this sector doubled in the following decades, rising from 23% of total loans outstanding in 1941 to 46% in 1960. The development was reflected in the major surge in the contribution of fisheries to GDP.
1956-1965: Cod War and Social Democracy
In 1957, Landsbanki was split up into a central bank and a state-owned commercial bank. Four years later the final connections between the two were severed and from then on the Central Bank of Iceland controlled foreign currency trading and supervised the country’s commercial and savings banks.
Despite the separation, commercial banking operations continued to grow during these years. Landsbanki’s branch in eastern Reykjavík moved into new premises and a new branch was opened in western Reykjavík. Another branch in the city centre and a suburban one as well, enabled the bank to serve the growing capital at four locations. A new branch was also opened in Húsavík, in northeast Iceland, the first rural addition since 1918.
1966-1975 Contraction and Development
During the latter part of the 1960s, the Icelandic economy suffered a series of setbacks. The herring stocks collapsed in 1967-1968 and prices for other principal seafood exports fell. Once more the authorities tried to put the economy back on an even keel through devaluation, which fanned inflation and destroyed the savings of many innocent people who failed to foresee the impact of high inflation. Landsbanki, however, managed to keep the wind in its sails, boosting still further its rural services and branches in the capital. Technology was now making major inroads in banking. At the beginning of the 1970s, the Icelandic economy picked up once more, with high investment in new fishing vessels and processing plants, as Landsbanki’s lending records bear clear witness.
1976-1985: Runaway Inflation
Savings were soon swallowed up by the insatiable inflation. The way to profit was to obtain non-indexed loans at negative real interest rates from commercial and savings banks. Such loans soon shrank to a pittance as double-digit inflation raged, leaving deposit owners with mere remnants of their savings. The unacceptable situation was eventually brought to an end by legislation providing for indexation in 1979. The banks did their best to attract savings from Icelanders who had long since given up on depositing their money only to see it wither away. No less urgent was the need to combat excessive and often unprofitable investment which had become endemic in times of negative real interest rates. Although inflation was far from contained, the defense of indexation used by the banks to protect their operations managed to mitigate its damaging impact. A new króna was introduced, various technological changes transformed the banking system and new financial services appeared.
1986-1995: Deregulation of Interest Rates and National Consensus
In 1986, a new Act on Commercial Banks and Savings Banks granted deposit institutions increased independence from the Central Bank. They now began to set their own deposit and lending rates, and service charges. Free competition arrived in the financial market practically overnight. Landsbanki emphasised its traditional leading role with the slogan, “Where all Iceland banks”. Price levels in Iceland underwent a rapid transformation following the collective bargaining agreements of 1990 generally referred to as a “national consensus”. The entrenched inflation subsided so rapidly that by the latter part of the year it had reached a level on par with that in neighbouring countries. Deposit institutions were indirectly involved and contributed to restraining price levels by agreeing, as part of this consensus, to accelerate cut backs in their interest rates. At last a long sought era of stability had dawned. Business dealings were altered to confirm with more modern practices and electronic communications began to change the face of banking.
1996-2008 Landsbanki Íslands hf.
Privatisation of the state-owned bank began in the autumn of 1997 with the incorporation of Landsbanki Íslands hf. The first cautious steps were taken with public share offerings, following which the state sold a 45.8% holding in Landsbanki to Samson Holding ehf. at the end of 2002. The bank’s new shareholders elected a Board of Directors, which directed the bank under the leadership of its Chairman, Björgólfur Guðmundsson.
On 7 October 2008, faced with the deteriorating financial market situation, the Icelandic Financial Supervisory Authority (FME) decided to take over Landsbanki's operations.
The bank was then split into two, with a new bank, NBI hf., wholly owned by the Icelandic state, taking over domestic deposits and the majority of the old bank's domestic assets. Other assets and liabilities remained in Landsbanki Íslands hf. under the management of a Resolution Committee appointed by FME to replace its existing Board of Directors.
In December 2009 a settlement was negotiated between Landsbankinn (NBI hf.) and Landsbanki Íslands hf. It provided for the former to issue an ISK 247 billion bond in foreign currency with a 10Y maturity to the latter; in addition, shares were to be issued to the old bank.
This agreement determined the ownership of the new Landsbankinn. It now had two shareholders, the National Treasury acquired an 83.333% share in the bank and Landskil ehf., a subsidiary of Landsbanki Íslands hf., 18.667% of the total ISK 24 billion share capital issued. The issue of the bond furthermore ensured long-term funding in foreign currency. This was enormously significant for the bank's operations, as well as for all Icelandic business and industry.
In March 2011 Landsbankinn merged with the savings bank SpKef. Employees of SpKef now work for Landsbankinn, which is responsible for all operations of the merged company.
At its Annual General Meeting in 2011 the bank's legal name was changed to Landsbankinn hf. and the former name NBI hf. abolished.
In March 2015 Landsbankinn merged with the savings bank Sparisjóður Vestmannaeyja and in September 2015 the merger of Landsbankinn with another savings bank, Sparisjóður Norðurlands, was approved.