October 9, 2008 2:20 PM

Iceland's Lawyers Prepare for Deep Freeze

Posted by Brian Baxter

Am Law 100 lawyers thinking they have it bad because of the economic meltdown might want to take a moment and consider the plight of lawyers in Iceland. The current economic crisis in the U.S. pales in comparison to that in the land of Bjork and Sigur Ros.

The small island nation in the North Atlantic--known for its natural beauty and with a population of roughly 300,000--is now being buffeted by an economic storm that has the country teetering on the brink of bankruptcy. The government has essentially nationalized the nation's banking sector and citizens are wondering what will become of their savings as the country awaits a possible $5 billion loan from Russia to ward off insolvency. On Thursday, Iceland announced the closing of its stock exchange until October 13.

How are the country's lawyers weathering the storm? The Am Law Daily called Gudmundur Oddsson, a corporate finance and banking lawyer who heads the London office of 70-lawyer LOGOS Legal Services, one of Iceland's leading law firms, to find out.

Gudmundur, thanks for taking the time. How are things?
It's been absolute chaos, that's the only way to describe it. In the past few weeks people have been trying to figure out what we can do to salvage things, but everything obviously took a turn for the worse. There's not much we can do except advise desperate people in desperate times. The whole international banking community is now interested in what's happening, so we've been flooded with requests for a review of what's going on. We're just trying to deal with things as they come up.

I understand you just got off a plane in London. Were you in Iceland?
Yes, I went to Reykjavík two weeks ago and am just getting back now. I guess at the end this is what you might call an 'experience,' but it's tough when you're at it.

Who are you advising?
Iceland is a small place so we have a difficult position in the sense that in the past we've acted for all the banks and the shareholders behind those banks. And we've also been involved with members of the international banking community that have significant exposure to Iceland. So we're in a bit of a situation in terms of conflicts and how we manage our team and resources and whom we can serve in times like this.

How are you dealing with potential conflicts?
After consulting with other major law firms in Iceland, we decided to simply split up our firm into teams, which act within Chinese walls. Hopefully we can provide services to our existing clients and have resources available to standardize our advice to the international banking community, which has exposure to Icelandic banks through loan participation and complicated derivative transactions. [The latter] have values that involve fairly complicated legal questions that need to be answered quickly.

It sounds overwhelming.
On top of that we have emergency legislation, which grants [Iceland's government] extremely wide authority in taking control of the banks. So that's how we are dealing with things, but as you can imagine, it's all quite hectic.

Is the government nationalizing the banking sector?
More or less. We have a special winding-up committee that has been put in place for two of the three major commercial banks: Landsbanki and Glitnir. [Note: After this conversation, Iceland's largest bank, Kaupthing Bunadarbanki, was the third to fall.] That's authorized by this special emergency legislation and it effectively means that the Financial Supervisory Authority controls these banks. [The FSA is] currently operating those banks but it can also send them into liquidation. Everyone is hoping that the dust will start to clear in the next few days and the banks will be effectively operational as commercial banks.

I understand Iceland is an important banking center for Europe. Is that correct?
The banking system in the last 12 or 15 years has grown immensely from fairly small local banks into international banking institutions. You can count the investment bank Straumur in that group and fortunately they seem to have avoided this turmoil to date. But the three main commercial banks--Kaupthing, Landsbanki, and Glitnir--have been extremely active in Northern Europe and the U.K. Those three banks alone owe 12 times the GDP of Iceland, which is one of the wealthiest countries in the world. Someone told me we have the fifth-highest GDP per person in the world. But that gives you the scope of the importance of the banking system.

What now for Iceland?
This is a huge blow for everyone but I guess what we can rely on is our natural resources, a well-educated population, and hope for brighter times ahead.

What about you? Think you'll find some time to relax amidst all this?
Most of the drastic actions have already been taken by the government, but now there are all the pieces of that. We've probably received 50 new cases in the last 24 hours from the international banking community and that is obviously something that will take quite a bit of time to advise on. People are expecting assets in the international portfolios of the banks to be sold and some of the private equity investors that are already stretched will need to get some liquidity going. So we'll be very busy in the coming weeks, that's for sure.

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