Tag Archives: Glitnir

The last Kaupthing in the coffin for Iceland

Iceland’s biggest bank, Kaupthing, was today the last of the big three to go under.  Well, the UK arm you and I know and love as Kaupthing Edge anyway.  

Kaupthing earlier agreed to sell its own Kaupthing Edge deposit business to ING, the Dutch bank, and had been approached with offers for Kaupthing Singer & Friedlander Capital Markets, which is 30 per cent owned by staff. The Treasury emphasised that “savers’ money is safe and secure”.

The bank had earlier told the Financial Times that its London operations were “a superb business, with an excellent franchise and is core to our long-term future”.

The Financial Times, 8 OCtober 2008

The details hardly matter – it’s been on the cards for months.  UK customers are protected by the Financial Services Compensation Scheme but of course we know the UK government would have stepped in as they did with Icesave anyway.  

The event is significant though as it is the last nail in the coffin for Iceland which looks set for bankruptcy with debts 12 times GDP. I have a lot of sympathy for the everyday people of Iceland but their government has conducted itself with a distinct lack of honour. 

Iceland tried to nationalise it’s banking system without the resources to back it up.  They knew that their compensation scheme was useless and that their reserves couldn’t cover it either but did they come clean?  No, they let their banks carry on soliciting for business.  Kaupthing Edge were still advertising online (the sort of campaign that can be turned on or off instantly with no penalty) the day before they were shut down.  If our money was safe then I wouldn’t mind but clearly they put customers at risk.

The Chairman claimed that they were doing well until Glitnir hit the news and people panicked.  The Icelandic compensation scheme was still a joke though and Kaupthing were still frantically trying to reduce their leverage.  They were hardly healthy so I’m not sure how he was measuring success.  It is unfair to call it panic when people withdraw their hard-earned money from irresponsible banks.

And what about Glitnir?  Nationalised and then put into receivership when they realised that they couldn’t afford it.  Surely they knew their reserves were low when they nationalised it – looks like a hollow show of strength to me.  They fooled nobody and from that moment on their behaviour just went downhill. 

A pathetic attempt to peg their currency, now in freefall and about as valuable as the paper its printed on. It was like trying to turn back the tide.

Iceland may be able to save itself with a loan from Russia.  Even then they announced a deal which was actually only in the pipeline and not agreed!  A junior PR executive could have told them not to do that! Russia can now, for a very modest sum, acquire a fantastic base in the north atlantic.  Hey, is there oil in the Arctic?

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Kaupthing Edge update

With events moving so quickly it’s difficult to keep track of critical events.  There’s some interesting stuff on Reuters this morning regarding Icelandic events:

The Swedish central bank said it would grant liquidity assistance to the Swedish arm of Icelandic bank Kaupthing with a loan of up to 5 billion crowns ($702 million). The central bank said it had judged the unit, Kaupthing Bank Sverige, was solvent, but conditions in the Icelandic banking industry made it difficult for it to meet its payment obligations.

“In the situation that has arisen there is an imminent risk that the bank may suffer liquidity problems,” the central bank said in a statement.

So they are suggesting that Kaupthing’s issue is purely liquidity.  Remember that this is in reference to the Swedish arm of Kaupthing.  Bloomberg on the same topic adds:

Kaupthing has put the Swedish subsidiary up for sale, joining other Icelandic banks in scaling back international operations as the credit crisis hits the Atlantic island.

Meanwhile, it is not clear whether or not Glitnir will survive despite last week’s announcement that the government would nationalise it:

Oddsson late on Tuesday raised the prospect that the goverment might not pump money into Glitnir after all.

“The state will not inject new capital into the bank unless there is actually a bank,” Oddsson said, referring to a shareholders’ meeting which is slated for Saturday.

The rest of the Reuters article can be found here.

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