Valuation of the HFF bonds. The HFF will give HFF bonds in return for the impaired assets received. To ensure the compatibility of the swap transaction with the EEA Agreement, it is necessary to calculate the correct value the HFF bond, in the same manner as the impaired assets. The Icelandic Authorities have explained that they have calculated the value of HHF bonds by matching HFF bonds with the relevant mortgage loan portfolios (nominal value, duration, etc.), discounting with the yield of the mortgage loan portfolios, and subtracting operational costs.
(1) Annex 1 IAG. As regards the methodology, the Authority is of the view that the value of the HFF bonds should have been calculated separately from the valuation of the mortgage loan pools, instead of linking the two. By linking the two valuations, the evaluation of the HFF bonds becomes blurred and non-transparent thereby preventing the Authority from verifying that the correct value is fixed. In addition, the Authority considers that the value of the HFF bonds should be calculated using the yield of the HFF bonds, i.e. finding the net present value of the future yields of the HFF bonds over their remaining duration. Based on the information provided by the Icelandic authorities, this methodology does not appear to have been applied in the case at hand. On this basis, the Authority doubts whether the Icelandic authorities have carried out a correct valuation of the HFF bonds, given in exchange for impaired assets, from the financial institutions under the Mortgage Loan Scheme. In order to assess whether the Mortgage Loan Scheme is compatible with the EEA Agreement, the value of the HFF bonds given, in exchange for the mortgages loans, by the Icelandic Authorities would have to be obtained and assessed.
