Íslandsbanki hf. - Company Announcement

Islandsbanki hf. : Íslandsbanki hf. and Glitnir hf. Come to Heads of Agreement Regarding the Re-Capitalization of Íslandsbanki hf.

Íslandsbanki  hf.,  Glitnir  hf.,  ISB  Holding  ehf.  and GLB Holding ehf. have
entered into Heads of Agreement under which they agree to co-operate in order to
facilitate the composition of Glitnir.

On 8 June 2015, the Icelandic Ministry of Finance and Economic Affairs announced
the  terms of a proposal made by certain of Glitnir's creditors (the "Creditors'
Proposal")  which the  Task Force  on the  Liberalization of Capital Controls in
Iceland  has  confirmed  is  consistent  with  the  framework  for analysing and
addressing  the  balance  of  payments  implications  of domestic assets held in
winding-up  estates and  recommends that  the Central  Bank of Iceland grant the
necessary  exemptions from  the Act  on Foreign  Exchange no.  87/1992 to enable
Glitnir  to proceed with  a composition on  the basis of  the Creditors Proposal
(the "Composition")

The Creditors' Proposal requires the following steps to be taken by, or in
relation to, Íslandsbanki

  * Reduction of Íslandsbanki's current equity from 28.4% down to 23% capital
    level;

      * Íslandsbanki issuing equivalent to approximately ISK 16bn in foreign
        currency subordinated Tier 2 capital and/or additional Tier 1 capital to
        Glitnir, at market terms with a minimum tenor of 10 years.
      * Íslandsbanki issuing approximately ISK 36bn bond to Glitnir, at market
        terms with a tenor of 10 years.
      * Íslandsbanki paying approximately ISK 3bn dividend out to the
        shareholder, Icelandic State Financial Investments.

  * Tier 2; Íslandsbanki issuing new Tier 2 note to Glitnir replacing the
    existing Tier 2 note denominated in EUR at market terms with a minimum tenor
    of 10 years.
  * ISK deposit term out; Íslandsbanki issuing ISK denominated bonds to Glitnir
    in an aggregate principal amount equal to deposits held by Glitnir in ISK
    with Íslandsbanki, at market terms with a tenor of 10 years.
  * MTN programme; Íslandsbanki issuing notes equivalent to approximately ISK
    37bn under the Bank's MTN program to replace deposits held by Glitnir in
    foreign currency with Icelandic banks and approximately a further ISK 3bn
    under the same program upon subscription and payment for such notes with the
    proceeds of realisation of Glitnir's remaining assets situated in Iceland
    which are received in foreign currency. The notes will be issued in tranches
    with a minimum tenor of 7 years at market terms.
    The amounts issued will be adjusted to reflect the deposits held by Glitnir
    in foreign currency with Icelandic banks at the time of the Composition.
  * Transfer restrictions; Íslandsbanki's shares will be subject to certain
    transfer restrictions, whereby a sale of the shares to Icelandic investors
    will be restricted.

The Heads of Agreement is conditional upon all necessary consents and exemptions
from  the  relevant  parties,  including  the  Icelandic  Financial  Supervisory
Authority and the Central Bank of Iceland.

The Ministry of Finance and Economic Affairs' announcement regarding Capital
Control Liberalisation (Glitnir) can be found at the link below:
http://www.ministryoffinance.is/news/nr/19598

The Ministry of Finance and Economic Affairs' announcement in relation to the
adoption of Legislation on Stability Levy can be found at the link below:
http://www.ministryoffinance.is/news/nr/19712


Birna Einarsdóttir, CEO of Íslandsbanki:"Íslandsbanki's capital and liquidity ratios will remain very strong after the
execution of the steps above and will, going forward, leave the bank in a strong
position to service its customers. The parties have agreed on full cooperation
in order to facilitate the successful performance of the Heads of Agreement."

For further information:

  * Investor Relations - Guðbjörg Birna Björnsdóttir, ir@islandsbanki.is, tel:
    +354 440 4752.
  * Media Relations - Dögg Hjaltalín, pr@islandsbanki.is, tel: +354 844 3925.


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