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July 21, 2009

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Iceland rearranges banking industry

ICELAND took a step toward clearing the debris of its financial meltdown yesterday, unveiling a deal with creditors of its failed banks and plans to capitalize the new ones.

The government said it expected the capitalization to total about 270 billion Icelandic crowns (US$2.1 billion) but this would be reduced to about 200 billion Icelandic crowns if the old banks subscribed to equity stakes in two of the new banks - Islandsbanki and New Kaupthing - as planned.

Iceland's main commercial banks - Glitnir, Landsbanki and Kaupthing - collapsed in the space of a week last October owing more than US$60 billion to foreign lenders.

Restructuring the banking sector and repaying creditors, as well as stabilizing Iceland's currency, are seen as key to reviving an economy in the clutches of a deep recession.

"Our agreements announced today are a major step forward in the reestablishment of a strong banking system," Icelandic Finance Minister Steingrimur Sigfusson said in a statement yesterday.

"They allow for the recapitalization of the banks, potentially at a significantly lower cost to the taxpayer than originally envisaged, and we believe will result in a fair and equitable outcome for all stakeholders."


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