Glitnir Creditor Update – Interim Distributions

1 Introduction

On 28 March 2011, the Winding-Up Board (“WuB”) and Resolution Committee (“ResCom”) of Glitnir published on Glitnir’s website a creditor update regarding interim distributions, with a revised version being published on 13 April 2011 (the “Creditor Update”). Creditors are recommended to read the Creditor Update in full, however, the WuB and ResCom would like to provide an update to creditors in relation to the expected timing of Glitnir being able to make its first interim distribution to creditors.

In section 4.4 of the Creditor Update Glitnir outlined how, in order to propose a first interim distribution and have sufficient confidence that creditors would support such a distribution, the WuB would need to have achieved two milestones.

These milestones remain the same with respect to the interim distribution process and are listed below:

• The WuB needs to have made a decision on all remaining claims registered by creditors.
• Sufficient progress needs to have been made with respect to resolving objections made against claims decisions of the WuB.

With respect to resolving objections, the WuB’s preliminary view is that all significant priority claims and 60% - 75% of all unsecured claims (by value) would need to have been unconditionally resolved.

2 Current status

In assessing Glitnir’s ability to be able to make a first interim distribution, and the likely timescales, the WuB and ResCom have undertaken an assessment of the progress against these milestones. In this regard, the following updates are relevant.

2.1 Decisions of the WuB

The WuB continues to work towards being able to have made its decisions on all claims by the open creditors’ meeting scheduled for 31 August 2011.

2.2 Resolution of disputed claims

The resolution of disputed claims is taking significantly longer than envisaged in the Creditor Update, specifically in relation to the following items.

2.2.1 Wholesale ‘depositors’ (ISK 51.5bn)

On 1 April 2011, the District Court of Reykjavik handed down its judgement regarding wholesale ‘depositor’ claims in Glitnir. The District Court found that these claims do have priority status and upheld the objections made by those creditors claiming priority status to the rejection of the priority status decision made by the WuB. The WuB has subsequently referred the District Court’s decision to the Supreme Court.

In the Creditor Update, the WuB noted that whichever party was unsuccessful at the District Court stage would likely make an appeal to the Supreme Court. However, whereas in the Creditor Report the WuB anticipated having a Supreme Court judgement in late August/ early September, the date of the Supreme Court oral hearing is now anticipated for September 2011, with a judgment expected three weeks later.

In addition, should the Supreme Court rule in favour of the wholesale ‘depositors’, the Winding-Up Board will likely amend its decisions on the other wholesale ‘depositor’ claims.

2.2.2 Money market ‘depositors’ (ISK 50.6bn)

The date for the District Court hearing for the Money Market ‘depositors’ has been set for 29 November 2011. The WuB is aware that similar cases within other Icelandic banks have District Court hearings in September 2011.

2.2.3 Unresolved unsecured claims

As noted in the Creditor Report, a significant proportion (6,654 of 7,887 total submitted unsecured claims) related to bonds issued by Glitnir. In turn, a significant proportion of the WuB’s decisions regarding these claims have been objected to, in many instances by a third party creditor. In order to facilitate the resolution of the issues that have caused certain creditors to object to every one of their decisions in respect of bond claims made at the 2 December 2010 and 14 April 2011 creditors' meetings, the WuB has decided to initiate a number of test cases before the Icelandic courts. Following discussions with certain creditor representatives, the WuB has selected four bond ISINs which between them provide a suitable basis for determining questions of principle regarding the applicability of Icelandic statutory penalty interest, the treatment of original issue discount, and whether costs can properly be claimed.

At the time of the Creditor Update, it was the WuB’s anticipation that the bond test cases would be referred to the District Court and expected a District Court judgement in July 2011 and a Supreme Court judgement in October 2011. However, the date for the District Court oral hearing has been scheduled for 20 September 2011, representing a delay of approximately two months from that envisaged in the Creditor Report.

Furthermore, it was anticipated that receiving a judgement from the District Court in respect of the bond test cases in July 2011 would allow sufficient time for the judgement to be assessed by both the WuB and relevant claimants in order for it to materially reduce the number of unresolved unsecured claims by the Decision Date. As such, with the delay in receiving the judgement of the District Court, the Decision Date will likely need to be deferred in order to accommodate the period of time required by both the WuB and relevant claimants to fully assess the judgement.

3 Conclusion

On the basis of the above, the WuB and ResCom do not consider that it will be possible to proceed with an Interim Distribution by the end of 2011. The WuB and ResCom are hopeful that the necessary preconditions to decide to proceed can be achieved during December 2011. If that occurs, the WuB and ResCom would expect to be able to make an Interim Distribution by the end of the first quarter of 2012. However, the WuB and ResCom note that certain matters remain outside their control, and this timetable may not be achieved. The WuB and ResCom will provide further updates to creditors as additional material information becomes available.

7 June 2011