Iceland Lenders May Lose $4.3 Billion on Court Ruling

This is just a follow up post on last weeks piece about Iceland making foreign currency loans illegal:

July 7 (Bloomberg) -- Iceland’s lenders may lose as much as $4.3 billion, equivalent to a third of the economy, after a court last month found that some foreign loans were illegal, said Finance Minister Steingrimur J. Sigfusson.

“This is the largest single loan category of the banks, with a value of between 800 billion kronur and 900 billion kronur ($7.2 billion),” Sigfusson said today. “If the capital on all these loans is written down by 40 percent to 60 percent, we’re talking about enormous amounts.”

The Supreme Court ruled June 16 that loans indexed to foreign-currency rates were illegal in three cases involving private car loans and a corporate property loan. The decisions may mean that borrowers with such loans are only obliged to repay the principal in kronur, making the lenders liable for currency losses on about $28 billion in debt after a third of the krona’s value against the Japanese yen and Swiss franc was erased since September 2008.
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