Iceland wins bank compensation case

Iceland didn’t break the law by refusing to compensate British and Dutch customers of Landsbanki Islands after the lender collapsed, a European court ruled.

The ruling means the nation won’t have to pay damages claims of as much as 335bn kronur (€1.93bn) for customers who had money in the bank’s Icesave high-yield savings accounts.

The court for the European Free Trade Association, (EFTA) yesterday rejected all the arguments against Iceland, saying the country “has not failed to comply with the obligations” under European Economic Area law by failing to pay compensation to Icesave depositors in the Netherlands and Britain.

“In a systemic crisis of the magnitude experienced in Iceland,” the bloc’s law “does not envisage that the defendant itself must ensure payments to depositors in the Icesave branches in the Netherlands and the UK”, the court said in its ruling, which is binding.

Iceland in 2008 refused to cover $5.4bn in guarantees to 350,000 British and Dutch citizens who opened accounts at Landsbanki, one of three banks to fail during the financial meltdown.

The EFTA surveillance authority sued the island nation in 2011 over its failings after the British and Dutch governments covered the guarantees.

Landsbanki, which had sought to attract foreign depositors through high- yielding internet banking accounts, collapsed in Oct 2008 with the rest of Iceland’s debt-laden banking industry.

The IMF last week estimated a defeat for Iceland may lead to damage claims by the Netherlands and Britain as high as 20% of Iceland’s economic output.

The EFTA surveillance authority argued Iceland was obliged under European rules to guarantee minimum compensation of €20,000 to Dutch and British citizens with Icesave accounts. Even though Iceland rejected the argument, the administrators of Landsbanki last year began repaying priority British and Dutch claims.

They have now covered 50% of all such obligations, or 650bn kronur, Pall Benediktsson, a spokesman for the lender, said.

“It is a considerable satisfaction that Iceland’s defence has won the day,” Iceland’s Foreign Ministry said in a statement.

The “ruling brings to a close an important stage in a long saga”.