The business volume of Landsbankinn Asset Management grew in 2018. Landsbankinn held a 20% total share in a securities market where eight parties compete.

Fara neðar
Economic conditions in Iceland have in many respects been very favourable in recent years. Low inflation and robust economic growth have not translated into general equity price increases.

Sophisticated and universal asset management

Landsbankinn offers its customers universal asset management services suited to both individuals who are building their asset portfolios, as well as larger portfolio holders. The Bank consults on and manages liquidity for companies, provides comprehensive investment advice to institutional investors, etc. Landsbankinn offers several options suited to different needs, depending on such factors as investment time.

As in previous years, the business volume of asset management by Landsbankinn increased. At year-end 2018, the Group managed ISK 438 bn*, as compared with ISK 417 bn* at year-end 2017.

*Including pension savings.

Asset portfolios that are comprised of several diverse investment objectives, domestic and foreign, carry much less risk than a narrow portfolio of related or similar investments. Asset diversification can be a very successful way to achieve results.
Total assets under management by the Landsbankinn Group (ISK bn)*
*Including pension savings.

Responsible investment on a global stage

Landsbankinn emphasises having a wide product selection on offer to ensure that all customers can find an option that suits their needs and circumstances. The Bank’s selection of foreign investment objectives is no exception. Landsbréf hf., a subsidiary of the Bank, offers investment in foreign UCITS and Landsbankinn partners with several well-known overseas fund management companies. The Bank’s partners include AllianceBernstein, BlackRock, Carnegie Funds, T. Rowe Price Funds, UBS and Axa Investment.

In 2018, Landsbankinn concluded a partnership agreement with international asset management firm LGT Capital Partners. The agreement gives Landsbankinn’s customers the opportunity to invest in the diverse funds of LGT Capital Partners, variously emphasising venture capital investment, asset diversification and liquidity management based on sustainability principles.

Work has been on-going on the implementation of Landsbankinn’s policy on responsible investment ever since it was adopted in 2013. The aim is to allow the Bank to integrate social responsibility and investment decisions.

In 2018, strategic efforts were made to expand and deepen the Bank’s experts’ knowledge of the methodology of responsible investment. All of the Bank’s fund managers, who take investment decisions, have completed courses offered by PRI, an international association of investors and proponent of responsible investment. Emphasis has also been placed on raising awareness about green bonds. The Bank has cultivated in-house expertise that has been leveraged to educate key issuers about this interesting new approach. Landsbankinn expects the asset class to grow in coming years.

Work has been on-going on the implementation of Landsbankinn’s policy on responsible investment ever since it was adopted in 2013.
In 2018, Landsbankinn held a leading 20% total share in a securities market where eight parties compete.

Pension savings under management*

145ISK billion
*Including Lífeyrisbók pension savings accounts.

Assets under management by the Group*

438ISK billion
*Including pension savings.

Market share in the Stock exchange

20%of total turnover

Importance of market making

Robust market making with the notes of main issuers is key to the domestic market. On the equity market, Landsbankinn currently acts as market maker with the shares of Arion Bank, Eimskip, Heimavellir, Sýn, Icelandair, Marel, Festi, Origo, Reginn, Reitir, Síminn, Sjóvá, Skeljungur and VÍS. Landsbankinn is primary dealer and market maker for bonds issued by the National Treasury, the Housing Financing Fund, the Municipal Authorities’ Loan Fund and the City of Reykjavík. Landsbankinn is also market maker in covered bonds issued by Arion Bank and Íslandsbanki.

In 2018, there was inaugural market making with the bonds of Orkuveitan and Almenna leigufélagið, and equities of Heimavellir and Arion Bank.

Landsbankinn plays an important role as one of three market makers with the ISK on the interbank market.

Robust corporate finance services

Landsbankinn Corporate Finance participated in numerous transactions in both listed and unlisted companies in 2018. In the travel sector, the Bank consulted on the sale of Hótel Katla to Kea Hotels, and with the owners of Hertz in Iceland in relation with the sale of a 40% shareholding to Horn III investment fund. Other noteworthy transactions include management of the sale of Landsbankinn’s 9.2% shareholding in Eyrir Invest towards the end of the year. In 2018, Heimavellir was listed on NASDAQ Iceland and Landsbankinn managed both the listing and the preceding IPO. Corporate Finance also managed the acquisition of Reginn of outstanding shares in real estate company FM-hús.

Good service and professional advice on pension savings

Landsbankinn has in recent years emphasised acquainting its customers with the benefits of supplementary pension savings. The Bank offers various options in pension savings suited to the diverse objectives of its customers, including the Lífeyrisbók pension savings accounts and the pension plans of Íslenski lífeyrissjóðurinn, managed by the Bank. Despite stiff competition in the market, customers have consistently increased in recent years. In 2018, around 15,000 customers paid their pension contributions to Lífeyrisbók pension savings accounts and Íslenski lífeyrissjóðurinn had 14,000 active contributors. Around 6,000 new agreements for supplementary pension savings were signed in 2018 and 1,500 agreements for mandatory pension savings with Íslenski lífeyrissjóðurinn. The combined market share of Landsbankinn and Íslenski lífeyrissjóðurinn in supplementary pension savings is around 20%.

Supplementary pension savings and real estate purchase on Umræðan

  • One of the most advantageous ways to save for down-payment on first housing is to begin supplementary pension savings, as such savings can be used tax-free towards a down-payment. Umræðan has published material on supplementary pension savings and housing purchase.
Supplementary pension savings* Young people and the housing market**In Icelandic
Pension savings under management (ISK bn)*
*Including Lífeyrisbók pension savings accounts.

Challenging year on markets

Economic conditions in Iceland have in many respects been very favourable in recent years. Low inflation and robust economic growth has nevertheless not managed to translate into a general rise in equity prices and the past years have been rather lean on the Icelandic stock market.

In 2018, the selected shares index, having regard for dividend payments (OMXI8GI), remained more or less unchanged while the selected shares index capped (OMXICAP) fell by 4.28%. Having regard for dividends, the shares of Hagar rose most, by around 33.3%, while shares in Sýn decreased most, by around 38.3%.

International equity markets also struggled and showed negative yield figures, with an especially bad outcome in December. The MSCI World Index fell by 10.4% during the year, measured in USD.

The Icelandic króna (ISK) depreciated by over 11% against the USD in 2018 and just under 7% against the EUR. In the bond market, the indexed bond index NOMXIREAL rose by 8.3% and the non-indexed bond index NOMXINOM by 2.7%.

Higher interest rates and inflation

After over four years of low inflation in Iceland, inflation picked up towards year-end 2018 and exceeded the Central Bank of Iceland’s (CBI) inflation target. In December 2018, 12M inflation measured 3.7%. The CBI’s 12M inflation target is 2.5%. The CBI’s Monetary Policy Committee responded by increasing policy rates by 0.25% in 2018, up to 4.5%.

Last year was characterised by considerable uncertainty about the operating environment of airlines Icelandair and WOW air, along with rising inflation. Despite WOW air not being listed, news about the company had a considerable impact on the market.

The CBI partially lifted reserve requirements on capital inflow in November and, in December, a bill was submitted for the liberalisation of capital controls on offshore ISK. Two new companies were listed on the Icelandic stock market, Arion Bank and Heimavellir. The acquisition of Festi by N1 was approved in 2018 and the merged company is called Festi. The purchase of Olís by Hagar was also approved.

Expect conservative growth

Economic growth is expected to slow somewhat in 2019 following robust growth in recent years and inflation can be expected to remain above target for some time going forward. This is not to say that economic contraction is expected; rather, more conservative growth is in the cards. In early 2019, two factors will be key to stock market developments. The outcome of collective bargaining talks will have a considerable impact on the performance of companies with domestic wage expenses and the conclusion of Indigo’s purchase of a minority shareholding in WOW air will impact the domestic travel sector in general and Icelandair in particular.

Considerable changes in the air

The year 2018 saw several mergers in the domestic market, N1 and Festi, Hagar and Olís, and finally Vodafone and 365. Synergies can be expected to actualise in this year’s operations. Marel aims at double-listing abroad in 2019 and the outcome will be interesting. Successful double listing can be expected to have a positive impact on other listed companies. It will be interesting to see if listed companies continue to grow in number in 2019 and whether changes are made to the State’s holdings in Landsbankinn and Íslandsbanki. Liberalisation of capital controls is imminent and will most likely have a positive impact on the market. In fall, Iceland will be incorporated into international Frontier Markets indices which can be expected to positively affect foreign investor interest.

Macroeconomic forecast

  • Landsbankinn Economic Research published its macroeconomic forecast with a horizon of 2021 in November 2018.

Economic Research's macroeconomic forecast