Iceland announces relaunch of rescued banks

REYKJAVIK: Iceland on Monday unveiled a 1.5-billion-euro plan to recapitalise three major banks that it was forced to rescue when the financial crisis devastated its economy last year.

The government will issue bonds to the three new lenders that were born from the ashes of Iceland's biggest commercial banks, pillars of its economy, which were nationalised in October due to a worldwide credit crunch.

"The government is now in a position to capitalise all three of the new banks," Islandsbanki (formerly Glitnir), New Kaupthing and New Landsbanki, a statement from the finance ministry said.

Under the plan, the government will offer controlling stakes in Islandsbanki and New Kaupthing to the old banks' shareholders, while retaining some shares itself. A similar issue was planned for Landsbanki in ongoing discussions.

The issue will be worth a total of 270 billion kronor (1.5 billion euros, 2.12 billion dollars), it said.

"Our agreements announced today are a major step forward in the re-establishment of a strong banking system," Finance Minister Steingrimur Sigfusson said in the statement.

"Not only do today's announcements provide a firm basis for further progress, they also benefit customers of the new banks and the Icelandic economy in general."

The sale of the stakes is scheduled for August 14 and is subject to approval from regulators, the statement said.