Supreme Court confirms District Court verdict

Yesterday, September 16th 2010, the Supreme Court ruled in the case concerning which interest rates to use to settle an FX linked car loan. The verdict confirmed the verdict of the District Court, that the lowest Central Bank rates at each interest date should be used to calculate the outstanding balance. This is a result that was expected by the RC and corresponds with the work currently being done to settle the Íslandsbanki car loans.

Following the verdict, the Minister of Economic Affairs held a press conference where he announced that a legislation is being prepared with the goal in mind to have all car loans and mortgages to individuals to fall under the ruling and be settled accordingly. Furthermore, the Minister of Economic Affairs announced that the legislation in question will not apply to corporate loans as there are strong arguments for granting greater consumer protection to individuals than to corporates. A draft of the legislation has not yet been made public and it has to be passed through the parliament.

If the verdict and legislation hold up as announced then there should be no negative impact on ISB equity, but if the verdict would also apply to corporate loans ISB could see a negative impact of about 4bn ISK. This is in line with the estimates provided in ISB notes to the latest accounts (June 30, 2010).

Glitnir holds 95% stake in Íslandsbanki.

Here is a link to the press release from the Ministry of Economic Affairs