GCNN – Oslo – 18.05.09

2. Ari Skúlason Landsbanki - Iceland GCNN – Oslo – 18.05.09 Corporate Responsibility in times of financial crisis and climate change Iceland - experience and future

3. Is it wonderful to become rich?

4. Isn’t it still better to get green!

5. Are we always telling the truth about ourselves?

6. Are there a lot of crooks amongst us?

7. Contents • International banking crisis • Why did this happen in Iceland • Present situation • Ways out – Iceland • Ways out – Landsbanki

8. Financial system – some landmarks • Consumer trust in financial services companies has decreased. • The morality of the industry is severely questioned. • The very fundament of financial services is damaged. • Creation of shadow banking industry of leveraged products, so complex and intransparent that the risks could not be assessed. • This industry was mainly driven by greed: remuneration, incentive systems and huge bonuses • This complexity made government supervision fall short. • In the end banks and insurers did not trust each other any more • so why should the public trust them? • Eventually, the whole financial system had to be rescued by governments, with huge financial injections and nationalisations at the expense of the taxpayers and consumers.

9. The Icelandic experience We took part in all this – the dimensions were only wider in all possible ways – risk, greed, ideas, arrogance, ... What caused the failure of the Icelandic Banking Sector? Economic anwer: • Systemic problems in the financial system and the global liquidity crisis • Immense size of the banking sector relative to the Icelandic economy • Banking system 10 times GDP • The Icelandic krona, a very small currency with little credibility • Some banks were very dependent on wholesale funding • Other had accumulated large deposits abroad (UK, Holland) • No access to liquidity: Global capital markets closed down • No safety net: The Icelandic government and the Central bank were too weak to support the banking system

10. Why? • The liberalisation of financial markets and capital movements in the 1990s, together with EEA membership, created conditions that made the phenomenal growth of the financial sector possible. • The privatisation process of the banking system started at the beginning of this decade • Big mistakes were made in the privatisation process. Instead of spreading ownership,investor groups were allowed to get a de facto controlling interest. Samson holdings owned 45 % of Landsbanki • At this time, the global financial market was flush with liquidity • The Icelandic banks enjoyed favourable ratings from the international rating agencies, which greatly facilitated their access to the international bond markets. • The collapse of the Icelandic banking sector resulted from a combination of several factors. An analysis of the Norwegian banking crisis in the late 1980s concluded that it was caused by bad banking, bad policies and bad luck.

11. Difficult present situation • Most of the new borrowing by the corporate sector was in foreign exchange. • Households also had a rising share of their consumer credit in foreign exchange • Mortgages were increasingly denominated in foreign currencies. • Most mortgages remain in ISK, but are indexed, as are term deposits. • The value of the krona has decreased by 50% • Inflation up to 18% on a yearly basis • Huge costs to society – A whole society almost bankrupt • Large part of corporates technically insolvent – 40% increase in bankrupties • Equity in housing from 65% in 2008 down to 44% now • 30% of households have negative equity in their housing (around 90% of housholds in Iceland own their own houses).

12. Ways out – the Icelandic economy • With over 70% of the nation’s power consumption derived from renewable energy sources, Iceland enjoys a unique position in environmental matters. • Iceland has suffered great setbacks due to the financial crisis. Increased use of clean energy sources, by Landsbankinn as well as other Icelandic companies, will be a major factor in rebuilding our economy. • The knowledge Icelanders possess on all aspects of hydroelectric and geothermal power production is a resource we wish to share. • We see more positive future for the harnessing of energy with these methods – USA, Obama • Sustainable fishing is also important – have been able to manage our stocks • Tourism – Iceland has become cheap country – have to show that we live up to the reputation of sustainability • Sustainability is one of the key words

13. Ways out - Landsbanki • The CEO of Landsbanki has publicly apologized towards the nation because of Landsbanki‘s part of the collapse of the financial system in Iceland • Reconciliation with the past – problems left in “the old bank” we are trying to build up a new one • Huge loss of reputation – Landsbanki is probably the worst case: • Our emplyees: 85% say that Landsbanki lost most • The common public: 61% biggest loss for Landsbanki • The future banking system in Iceland will be very different from the old one. Traditional commercial banks based on domestic Icelandic markets • No major foreign subsidiaries or branches. • Hopefully a foreign-owned bank – owned by a respectable and reliable major international bank • This simpler and smaller banking system will be easier to supervise. • The lessons from the crisis will hopefully move the corporate culture in a more positive direction so that consciousness of risks and the benefits of effective regulation and supervision will be better appreciated.

14. Ways out - Landsbanki • Landsbankinn has over the past years been active in financing renewable energy projects in Iceland, both in the field of geothermal and hydroelectric power production. Almost all domestic undertakings in this industry in recent years have been at least partially financed by the bank. Landbanki will continue to emphasise funding and participating in projects in this field • The bank endeavours to contribute to these developments by continuing to support Icelandic companies in promoting their experience and knowledge of harnessing geothermal and hydro energy both domestically and abroad. • Under conditions of social and economic change, it is especially significant that environmental awareness and CSR focus remain on the agenda in the building of our future • With the exception of car fuel, all of the bank’s energy use is based on renewables. Greenhouse gas emissions from the bank’s operations have decreased greatly in recent years

15. Ways out - Landsbanki • We have to win back the lost support and trust of the society and our customers • and to engage fully with all our stakeholders in a humle and friendly way • Society and the general public have become an important stakeholder • We are state owned – rescued by taxpayers’ money – everyone feels us indebted in some way • We are looking for a robust and clearly defined CSR strategy that makes us believe that we are responsible and effective in all areas of our operations • We have to make CSR a concrete and visible part of every day work - integrate CSR to the way we do business - engage our employees in CSR-thinking

16. Ways out - Landsbanki • We have to manage our own environmental impacts in a responsible way • We have to introduce more systematic measurements and reporting • Our aim is to take a leadership role concerning CSR in Iceland • We want to continue participating in international CSR work and promote the principles of the Global Compact in Iceland • We have to ... • We are already on our way and the starting point was a gathering of 800 of our staff who came together to start and plan a new future

19. Thank you