Hedge funds stuck with Icelandic kronur for the last eight years will soon be shown the door, whether they like it or not, the governor of the central bank said as the Atlantic island prepared to take the final steps before ending capital controls.
Sedlabanki is busy hammering out the details of a plan designed to free about 290 billion kronur ($2.33 billion) held by investors in so-called Glacier bonds, high-yielding krona-denominated notes sold outside Iceland before the financial collapse of 2008.
Iceland is seeking to craft an auction that limits the impact from outflows that could overwhelm the $17 billion economy.
The funds holding the assets include Loomis Sayles, Eaton Vance Management, Discovery Capital and Autonomy Capital, according to documents seen by Bloomberg.
Financial statements suggest some of the funds are expecting a haircut on their kronur holdings of as much as 38 percent.
“We approach this in the same manner we approached the estates of the failed banks: What is it that we need to do to minimize the balance of payment risk and the financial stability risk and what can be considered normal in light of what has happened in the past."
The government and the central bank at the end of last year also reached an agreement to release about $17 billion in cash for creditors in the banks that collapsed in 2008.
With the economy growing at a fast clip and the political fallout from the Panama Papers now fading, Gudmundsson says he isn’t concerned by the fact that investors might be reluctant to accept the terms of the auction.
"As the economic outlook improves and reserves grow, there are greater chances of us being able to resolve the whole matter," he said.
The governor compared dealing with hedge funds to herding horses when he was a child. "Just like then,
some are easy to drag along and others are more difficult," he said.