Cross Border Crisis Management in the Banking Sector The problems in practice: Kaupthing Norway Siv Sandvik INSOL Europe Academic Forum & Centre for European Company Law Joint Insolvency Conference, Leiden, 2 July 2010

2 July 2010 Leiden Conference 2 The Public Administration Decree of 12 October 2008 The Norwegian Government has today, based on a recommendation from The Financial Supervisory Authority of Norway, resolved to make the Norwegian Branch of the Icelandic bank Kaupthing Banki Hf subject to public administration. The decision will arrange for a proper handling of the branch's suspension of payments in Norway and ensure an equal treatment of creditors in Norway. The decision comprise Kaupthing's banking- and securities activities in Norway and concern all assets and liabilities in Norway.

2 July 2010 Leiden Conference 3 The background  On 9 October 2008, The Financial Supervisory Authority of Iceland (FME) resolved to place Kaupthing Banki hf under supervision according to Icelandic Act no 125/08 due to unusual market circumstances  Kaupthing Banki hf suspended its payments and stopped paying out amounts deposited with the Norwegian branch of the bank  At the same time, Kaupthing maintained its operations in Iceland  Considerable uncertainty regarding the status of Kaupthing’s operations in Norway and whether the Icelandic bank guarantee scheme would be able to live up to the guarantee given to Kaupthing’s Norwegian depositors  Resolute handling by The Norwegian Ministry of Finance and The Norwegian Financial Supervisory Authority  On 10 October 2008, the Norwegian deposit guarantee scheme had effective freezing orders in place to protect Norwegian assets from being disposed over  On 12 October 2008, the issuing by the Norwegian Ministry of Finance of a regulation stipulating that it could order the branch to be subject to public administration  Act of necessity; adequate and proportionate measure

2 July 2010 Leiden Conference 4 How it was done  Guarantee Schemes Act (1996) in compliance with the Winding-up Directive  Regulations issued by the Ministry of Finance on 12 October 2008  The appointment of a Board of administrators  Roles and responsibilities  The regulators  The courts  The Bankruptcy Act and the Recovery Act applies as far as deemed appropriate  Winding-up proceeding with subsequent distribution of the proceeds thereof  No banking licence

2 July 2010 Leiden Conference 5 The Deposits Guarantee Decree of 13 October 2008 The Norwegian Government has today decided to guarantee for deposits in the Norwegian branch of Kaupthing Bank up to the amount to be covered by the Icelandic deposit guarantee scheme. The Icelandic deposit guarantee scheme shall cover up to an amount corresponding to appr euro per depositor. The total amount of the guarantee is 400 million NOK. Depositors in the Norwegian branch of Kaupthing Bank are, through Kaupthing’s “topping up” membership in the Norwegian deposit guarantee scheme (Bankenes sikringsfond) covered for up to 2 million NOK with a deduction of the amount that shall be covered by the Icelandic deposit guarantee scheme. The Government will cooperate with Bankenes sikringsfond with respect to the further management of the guaranteed deposits. NOK 2 million = EUR

2 July 2010 Leiden Conference 6 Press Release by Norway’s Minister of Finance Kristin Halvorsen on 3 February 2009: On 3 February 2009, The Financial Supervisory Authority of Norway approved an agreement between the Board of Administrators for Kaupthing’s Norwegian branch and the Icelandic Resolution Committee for Kaupthing Banki hf. This agreement allows the Board of Administrators to have access to sufficient funds to ensure the tidy winding up of the Norwegian branch. “I’m very pleased that we managed to safeguard the estate’s assets so that all the creditors of Kaupthing’s Norwegian branch can receive full settlement of their preferential claims. These are depositors, the Norwegian Government Bank Guarantee Fund and the Norwegian state. Due to the fast and tidy handling by the Norwegian authorities, we have also managed to secure a considerable amount that can be returned to the Icelandic authorities,” states Minister of Finance Kristin Halvorsen, who will meet the Icelandic minister of finance in Reykjavik this Friday. “This is one of many stories from the most dramatic days of the financial crisis. Resolute handling on the part of the authorities has ensured that assets which could have been lost have been handled correctly and this has led to a good result. I would like to praise the Board of Administrators for its excellent work in this case," says Halvorsen.

2 July 2010 Leiden Conference 7 Some of the challenges faced  A separate legal entity or not  Counterclaims, set offs and nettings  Various duties laid upon a finance institution such as reporting responsibilities etc.  Norwegian assets and liabilities  Professional liability insurance and indemnification  Ranking of creditors  Depositors  How to equal the unequal and measure the immeasurable  Conversion rates applicable on foreign exchange deposits  Employee bonus programmes  Conversion rates applicable  A total of NOK (appr. EUR ) has been paid out  Assets originally seized by the Board of Administrators totalling appr. NOK 3.3 billions (appr. EUR 412 millions) has been handed over to the Kaupthing Resolution Committee in Reykjavik

2 July 2010 Leiden Conference 8 The End  The administration order of 12 October 2008 has not been challenged  The Administration Committee has submitted its final report to the Norwegian Financial Supervisory Authority  All depositors and all other creditors related to the Norwegian branch have received full payment (with exception of deferred claims such as interest accrued post cut-off date)  A total of NOK (EUR 158 million) has been paid  This includes, among other things, the Norwegian state’s claim for NOK 381 million and the Government Bank Insurance Fund’s claim for around NOK 800 million  Assets originally seized by the Board of Administrators totalling appr. NOK 3.3 billion (EUR 412 million) has been transferred to the Kaupthing Resolution Committee in Reykjavik

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