The Icelandic government today announced further details of the country’s financial rescue package. Following the new law passed yesterday giving the Ministry of Finance wide ranging powers over all Icelandic financial institutions, the country’s second largest bank, Landsbanki has been put under administrative control and its board dismissed.
The Icelandic economy has been extremely volatile since the government took a majority stake in Glitnir Bank last week. Richard Portes, an expert on Iceland at the London Business School, said the government had made a mistake by nationalising Glitnir last week, creating fear in the markets instead of just providing it with liquidity.
“You have the same law of unintended consequences that you had in the case of Lehman Brothers,” he said to The Guardian. “The Iceland problem was immediately vastly exaggerated.”
Glitnir Bank and the Icelandic government repeatedly stress, however, that Glitnir has not been nationalised at all, and that the government is nothing more than a short or medium term investor like any other. The Bank’s board and leaders remain unchanged. Final confirmation of the government intervention will come at this Saturday’s Extraordinary General Meeting of shareholders.
Richard Portes continued that the Icelandic banks had been unfairly targeted. “The world is a little unjust. They don’t hold any toxic papers. The assets they will have to sell are perfectly good assets. They have been prudently managed and haven’t been excessively dependent on the wholesale money markets compared to anyone else,” he said.
Prime Minister Geir H. Haarde said in a press conference today that to avoid the catastrophic weakness of the Icelandic krona damaging the workings of the economy outside of the banking sector, the Prime Minister has given the Central Bank permission to pin the foreign exchange rate at 175 points; meaning a euro now costs 151 kronur instead of yesterday’s record high of 230, and all other major currencies have been similarly affected. It is widely agreed that the swift collapse of the currency was a danger to the whole economy and was gravely under valued.
It is hoped the krona will retain its higher value when trading resumes. Meanwhile, stock market trading in the country’s six largest banks remains suspended today to avoid panic selling. The government believes the reform package should be allowed to have an effect before allowing investors to pass judgement with their cash. “This is an action to save the entire banking system, so it is not a cost, it is a benefit.” Haarde said when asked how much recent government actions are going to cost the treasury.
The other major news is the revelation that Iceland is in the process of negotiating a large euro loan from Russia and will send a delegation to Moscow today or tomorrow to finalise the details. Prime Minister Haarde said in his press conference that the money from Russia will be used only to support the economy and ensure stability, and will not be loaned onward to commercial banks.
When asked why Russia, and not a closer ally, was coming to Iceland’s aid, Haarde said: “We have not received the kind of support that we were requesting from our friends. So in a situation like that, one has to look for new friends.”
The Prime Minister went on to stress that he remains happy with the support Iceland has received from its Nordic neighbours, but would not be drawn on which countries and central banks he was disappointed with. It is perhaps fair to assume that the United States, Canada, the United Kingdom and the European Central Bank are the targets of his anger.
As it stands, Glitnir bank remains a functioning and independent commercial bank with the government as probable 75 percent stakeholder. Landsbanki is not owned by the government, but as of this morning it is under government control for an unspecified period of time, and its board has been dismissed. While the government has insured all savings in Iceland and remains optimistic on Landsbanki’s domestic operations, the fate of its British savings bank, IceSave remains in doubt.
IceSave is not allowing deposits or withdrawals for the time being – but whatever happens, UK savers’ money is insured up to the value of GBP 50,000 even if IceSave folds.
Kaupthing remains entirely independent, but is working in close cooperation with the government and other banks to ensure the whole country is pulling in the same direction. The bank did however receive a EUR 500 million loan from the government today. The Kaupthing-Spron merger announced early in the summer was approved by the Competition Authority yesterday.
Kaupthing spokesman Jonas Sigurgeirsson said today the loan showed his bank was in “an entirely different situation” from the other two banks, as it was granted without any talk of government intervention in the Bank’s operations.
Sigurdur Einarsson, Chairman of Kaupthing Bank, warned against people being too alarmist.
“Over the years we have built a strong and well-diversified bank. We have some of the strongest capital ratios in the European bank sector. We’ve got good asset quality and a highly diversified loan portfolio.
Kaupthing has and continues to manage its business prudently and, with our strong fundamentals, we are naturally concerned when we hear malicious rumours and sensationalism about Kaupthing being reflected irresponsibly. We ask people to look at the facts, not rumour and innuendo.”
And I quote “IceSave is not allowing deposits or withdrawals for the time being – but whatever happens, UK savers’ money is insured up to the value of GBP 50,000 even if IceSave folds.”
You fail to mention that this guarantee is provided by the UK. The Icelandic Government have effectively stolen £4 billion of UK savers cash as the guarantee given by your own compensation scheme wasn’t worth the paper it was written on.
Our own chancellor has this morning pledged to reimburse us savers for your theft and will be taking legal action against you to recover it.
Personally I’d like to come over there and kick all your asses.
I’ve burnt my Bjork records in disgust.
Iceland, you should be ashamed of not reimbursing savers. Do you really think that if you act in this way people will trust your companies again? At some point even Iceland will get out of this misery but with no trust, no business..
Reading about this a lot in UK and Dutch newspapers is not good public relations..
Icesave-and the Icelandic Government,you are guilty of theft and have stolen the money of 300,000 UK citizens. If you have not already wasted,stolen or otherwise squandered this money then you should release it immediately before your country loses all credibility. The fact that the Icesave website has not been updated since you stole our money is a disgrace.
If you do not salvage this situation as soon as possible then Iceland will reap the consequences for decades to come and its country and people will be far poorer for it.
*IF* what our UK Chancellor has said this morning is true, ie that the Icelandic Government has renegued on its international law obligations to compensate UK Icesave savers (Landsbanki)up to the EEA requirement of approximately 20,000 euros, then effectively what others have said here is true…they have stolen our money. How any other investor or government can have any faith in the Icelandic authorities or government seems incredible. Trust works both ways…. at the moment, the Icelandic government has lost all that.
Iceland- you are a disgrace. I am glad our government is in the process of freezing all your uk assets in an attempt to salvage some of the money you have STOLEN from us. Hang your heads in shame. I too would like to take the trip over to iceland to kick some icelandic arse.
Wake up to your responsibilities Iceland – the credit crunch is a global issue that is hurting us all. Your recent inward looking selfish actions are fuelling fear and have had a significant impact on eroding banking confidence. For me, having lost my job earlier this year and put all my redundancy and life savings into Icesave, it is completely intolerable to learn that your nation has absolutely no regard for my situation – or that of other UK Icesave depositors
I feel sorry for the people of Iceland. Your PM is in hiding and your government are not to be trusted.
Here (in the UK) we will get all our money back from our own government, but Icelandic savers won’t do so well, and if your government does not honour its international guarantees, you won’t be trading with EU members in future.
No wonder “You have not received the kind of support that we were requesting from our friends. So in a situation like that, one has to look for new friends.”
Good Luck with that!
Think about it, the only two times Iceland has been invaded by a foreign power, it has been Britain. The only war we’ve fought is with Britain. The Bank of England declined to help us in the most difficult period of our tiny country.
Why should we as normal taxpaying people (with no savings at all) care what U.K. banking speculators have to go through? Yes, you are speculators, you thought you’d get better interests in IceSave than somewhere safe, like your Building Society. You’ve lost some extra cash you deposited in an internet bank. I don’t have GBP 50.0000 lying around I can put into a savings account, yet I have to pay for this with increased debt, higher mortgage rates, more expensive bread, higher petrol prices, inflation, unemployment and the rest.
The international banking community is guilty of behaving like raving lunatics, and people putting their “life savings” on an internet banking account backed by a private bank owned (almost) by one man (who by the way spends his money buying things like West Ham) are part of the lunacy. I’m not a shareholder or customer of Landsbanki and have in no way whatsoever benefited from Landsbanki’s expansion. Why should I pay for the greed of UK savers, who saw 2% extra interest on something that claimed on it’s website to be absolutely safe?
The Icelandic governments behaviour is disgraceful. The search for new freinds will be a long one I fear. We will not forget this when you come crawling for EU membership.
“Think about it, the only two times Iceland has been invaded by a foreign power, it has been Britain. The only war we’ve fought is with Britain. The Bank of England declined to help us in the most difficult period of our tiny country.”
Thanks for the history lesson
“Why should we as normal taxpaying people (with no savings at all) care what U.K. banking speculators have to go through? Yes, you are speculators, you thought you’d get better interests in IceSave than somewhere safe, like your Building Society. You’ve lost some extra cash you deposited in an internet bank. I don’t have GBP 50.0000 lying around I can put into a savings account, yet I have to pay for this with increased debt, higher mortgage rates, more expensive bread, higher petrol prices, inflation, unemployment and the rest.”
Whilst I have a lot of sympathy for the Icelandic population I have to say the above comment shows a remarkable amount of ignorance of the situation.
Regardless of your silly “speculators” comment the fact is your Government made guarantees and when the problems arose the point blank refused to honour them. I’m afraid things will get much worse for the general population as it is now clear to the world that your Government cannot be trusted.
I’m afraid you may have to start learning Russian and working in one of the new radar bases that will be coming your way.
Why should I pay for the greed of UK savers”
You may not have to but you will certainly pay for your own Governments dishonesty.
You have my best wishes.
Your bank stole my money.
I’d better get it back soon or i’ll pay a little visit to your itty bitty “poor” country that’ll go down in history books.
How can the Icelandic governemnt be so ignorent. I had like 1.200 euros on Icesave in the Netherlands and am shocked by the fact that Iceland is not meeting his guarantees towards the British savers. How can you say greed? We are all people who have to work hard for our money and want to make the most of the savings, which I trust you would too if you had savings. I have never seen developed countries (of which I think Iceland is one too) not meeting their word. In our country the government would be nearly hung if they had the guts to promise anything, domestic or abroad, and not standing up for his word when asked for. I;m now waiting what will happen for Dutch savers. I’m glad to have heared today that our ING bank has bought large parts of Icesave and other Icelandic saving banks in Britain and can only hope that some of those developed people will do so for the Dutch savings.
Further I don’t think that people in Iceland will ever see foreign products in their country or see any tourist (well maybe from Russia) if they don’t stand up for their word!
If you have any economic sense you will realize that if you are internationally ignored it will mean that you will be as poor as the average Northern Korean person.
Come on Icelanders,
let’s hope you leave the worst behind quickly (and also give the money to those jinxed guys from the UK). I am really sorry and sympathetic with you, but this is what happens when a tiny economy like Iceland’s thinks it can stand alone in times of globalization.
I hope this crisis will make you change your mind and you’ll join the EU and the euro soon. We’re all in the same boat, only by standing united we can face storms like these one.
ps
I’ll keep on listening to Sigur Ròs (thats for the Briton who threw Bjork’s cds away in disgust)
I have every sympathy for the Icelandic people. Its government have let them down, they would have been better to have said “we may have difficulty in meeting our commitments” rather than waving 2 fingers about.
IMHO its long term prosperity must lie as a Danish province
Why is Britain so upset ? Do you really think that if a british bank would fail on their duties outside of the GB, the british government would step in ? No, it would be deemed “free market” or another euphemism. I would say it was and is the british regulator who has to assure a proper functioning of its – and the foreign – banks in the united kingdom. So obviously, the british regulator (as many other regulators) has failed. I am neither living in Iceland nor am I an Icelander. But I strongly disagree on many of the comments I have just read. Of course, the whole situation in Iceland is ashaming. But I am very sure, that many Investment Banks in London made a hell of a profit in doing business with the Icelandic banks and in participating in carry-trades that are unwind now. Sorry, GB, don’t only blame the others…
Whilst I empathize with everyone commenting here I do not think this is a time for mudslinging and nationalism, this is a global crisis and will only be solved with cooperation, Indeed rumors and mudslinging caused the demise of NorthernRock.
The icelandic president is not saying he will not compensate, he is saying he cannot compensate. can you imagine what it must be like to be a citizen of a country on the verge of national bankruptcy? Imagine your hard earned pound being worth only half that in the global economy!
As for “looking for new friends” Britain is effectively bailing Iceland out to the tune of 4 billion pound, can britain afford this? It may be us Britains facing the same fate as Iceland in a few months time.
As for Greed, we have all been probably guilty of that at sometime, I personally would not invest my hard earned cash in anything offshore unless the returns were far greater, which could be considered greedy. These investors believed they were getting a good deal with no risk, they are not venture capitalists!
As for theft, the investors should be pleased they are getting their money back, my savings are in a British bank but what if Britain went the same way as Iceland (this genuinely concerns me) I may not be compensated, this is, I speculate, going to happen to Icelandic citizens.
This is a global problem of the cheap credit age (greed??), we must all learn from this
Monetarism is here to stay, money is power, power is money, it transcends national boundaries…as predicted! no one is safe, even those with money, there will always be someone with more money (power)
On that political note.. judging by the strength of the pound our government is doing a fine job, not sure I have confidence in the prime ministers leadership skills (sorry I cant even remember his name) but I cannot think of a better person to see Britain through and emerge triumphant from this economic crisis (yehee..nationalism!)
people will you just behave…?? icelanders have it hard enough,and yes, they have made mistakes,but who would like to throw the first stone on them….??UK (or any other country) had it’s mess up too….
i hope icelanders will learn from that lesson, and as francesco pointed out, a small economy like icelands,can not handle things well alone,when things globally go bad…get the euro so next time you will be safer…..
chris,dublin
The thing is that this is a global problem and it will need global answers. I really don’t think anyone in the Uk will loose money in a bank.Even in an icelandic bank. The real problem will be economy in the next years.
There are some who made billions on this scam and stashed it away in the Cayman Islands – Björgólfur I & II, Jón Asgeir Jóhannesson for starters. Don’t even talk about making hard working people in Iceland pay their debts. These were private businesses, remember all the “free market” spúa? The “guarantees” were given by their purchased government, bought and paid for. Maybe the day after that crew have been made to give it up to pay off the people (all over the world) they have stolen from, everything … down to the last eyrir…I’ll listen to this stuff, but not one moment before.
jon
Try to imagine being an Icelander you have for years been bloodmilked with high interest rates on mortgages in Icelandic banks.(Yeah that’s right your high interest rates are blood money from the average working Icelander) and now your pension is in a freefall and everyone call you a thief. When you feel that you have yourself been robbed. Icelandic people are honest and hard working and we are as much a victim of this BANKERS ADVENTURE that went bad.
We need to work together and help each other out. The moment people stop being fearful and blaming one another and start working together it will change. Remember what you give you get back.
Lend a hand and you have 10 hands when you need it.