Tag Archives: icelandic banks

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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UK to compensate all Icesave customers

The Chancellor has today agreed to guarantee 100% of savings for UK Icesave customers.  Yes, that’s not just £50,000 that’s the whole amount.  He said that the Icelandic compensation scheme had no money to meet its obligations and that he would step in and protect depositors.

This is fantastic news for all those with their retirement savings stuck in Icesave right now.

Darling said that he “wouldn’t normally do this” for the subsidiary of an overseas bank.  It really is every nation for itself at the moment.

“The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here,” said Mr Darling.

“Because this is a branch of a foreign bank the first call would be on the Icelandic compensation scheme which, as far as I can see, hasn’t got any money in it.

BBC, 8 October 2008

It seems to me that offering a guarantee without sufficient backing is tantamount to fraud and we should now be asking all guarantee schemes to tell us precisely what reserves they have.  Primer Minister Gordon Brown said the UK would take legal action against Iceland over its failure to guarantee compensation.

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Icelandic bank guarantee only for Icelanders

When the chips are down nations seem to retreat from international schemes and look after their own domestic affairs.  It seems to be our natural instinct and certainly the instinct of politicians who know where the voters are.  Iceland yesterday guaranteed all domestic deposits in Icelandic savings accounts, although UK savers in Icesave and Kaupthing Edge will not be covered.

Of course Kaupthing Edge savers are covered by the £50,000 UK compensation scheme so unless you have over £50,000 you are protected.  Savers with Landsbanki (Icesave) have to use the passport scheme.  That means applying to the Icelandic compensation scheme for the first tranche (around £15,000 or so) of compensation then apply to the UK compensation scheme for the balance.  This system is more complex and has never been tested.  If you have savings in Icesave then you may have been worried yesterday when you couldn’t withdraw your money:

Times readers reported yesterday morning that they could not withdraw their money from Icesave accounts over the internet. But a spokesman for the bank said that Icesave was now operating normally and depositors could withdraw money. He added that the Icelandic Government had ample foreign reserves to cover the £4bn of British deposits in the event of any collapse.

Times Online, 7 October 2008

Perhaps the Icelandic government has sufficient foreign reserves to cover UK customers’ deposits but I wouldn’t want to rely upon that.


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Iceland suspends trading in financial firms

If you are worrying about your savings in Icelandic banks – Icesave (Landsbanki), Kaupthing Edge – then you will be interested in this announcement today.  Iceland has suspended share trading in financial companies.

“This decision is made in order to safeguard the equality of investors while awaiting an announcement,” the statement said.

Reuters, 6 October 2008

And Times Online reports:

All the major credit ratings agencies moved today to downgrade Iceland’s four big banks and its sovereign credit rating. Fitch cut Iceland’s long-term foreign-currency IDR rating by two notches to A-, while Standard & Poor’s cut Iceland’s long-term foreign currency sovereign credit rating to A- from A and Moody’s put its Aa1 rating on review.

Read the rest of this very good article on The Times site.


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Icelandic banks give savers reassurance

Icelandic banks Landsbanki (IceSave) and Kaupthing Edge have been under real scrutiny since early this year over concerns that they might collapse.  They have always maintained that they are not in difficulty.

But Tryggvi Herbertsson, economic adviser to the Icelandic prime minister, said the government could and would step in.

“Definitely we would come to the rescue of a bank – definitely.

“The banking system in Iceland is very large compared to the economy, but still we think we can maintain the problem because the balance sheet of the bank is very good.”

“They have not been involved in sub-prime or buying housing debts from abroad and we are pretty confident that the balance sheet is healthy and the banks can operate healthily in the future.”

BBC Money Box, 4 October 2008

Both Icesave and Kaupthing are larger than the Icelandic economy.  It seems to me that the Icelandic government is saying is that they would come to the rescue because they believe the banks are well managed and run – their only problem being their inability to raise money on the markets.  Quite an assumption to make.


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Will the banks bankrupt countries?

I mentioned yesterday that people might now be looking at the creditworthiness of countries rather than the banks themselves.  This is after recent moves to bail out banks by several nations – most notably Ireland.  You see the funny thing is that in some cases the banks are now bigger than the gross domestic product (GDP) of their nations.  Here are a few examples:

Kaupthing Edge has total assets of €53bn – that’s 623% of Iceland’s GDP.

Landsbanki (IceSave) has €32bn – 374% of Iceland’s GDP.

They’re not the only banks in Iceland but between them represent around 1,000% of Iceland’s GDP.  With Glitnir having recently drained the Icelandic government’s coffers, would there be anything left to support other banks?  Of course it’s not quite that simple – if a bank goes bust all of it’s cash deposits don’t suddenly disappear.  On the other hand, this market is all about confidence – or rather a lack of it.

How about Ireland’s bank guarantee?

Bank of Ireland – €183bn – 102% of Ireland’s GDP.

Anglo Irish – €97bn – 54% of Ireland’s GDP.

Just two of the guaranteed banks have assets worth around 150% of GDP.  And let’s not forget that Ireland’s economy has been rather bloated recently due to an astonishing property boom that has now become a property crash.  The guarantee was a very shrewd move but essentially backed by thin air.

Now we turn to another bank popular with savers, ING.  It has assets of around €1,370bn which equated to 290% of the Netherlands GDP.

The UK has a number of huge banks.  RBS, HSBC, Barclays, HBOS, Lloyds TSB, Standard Chartered, Alliance & Leicester, Bradford & Bingley between them have assets of €6,900bn which represents 420% of GDP.

There is a nice list of these figures on the FT website here.

Banks declare each other likely to default due to their excessive leveraging then countries take on their bad debts to support them.  We are simply transferring all the bad debt to the countries instead.  Would I loan money to Iceland or Ireland?  Nope.


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