In a crippling ripple effect of the Wall Street market meltdown, Norway’s special “oil fund” may have lost nearly all of its profits garnered over the last 10 years in the space of a few months. A decade ago, the government invested around NOK 1,000 billion in the stock market. Steep drops in the market this year have potentially wiped out all of the wealth fund’s gains.

Economists suggest that the sovereign wealth fund would have more money in it today had the government simply placed the cash in the bank. The newspaper Aftenposten figures that at the end of 2007, the oil fund had earned NOK 302 billion over the first 10 years since it was established. By June 2008, the fund’s gains had been cut to NOK 165 billion.

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In these times of economic uncertainty, Denmark has taken the pre-emptive step of creating a 35 billion kroner fund in conjunction with the country’s banking institutions to maintain stability in its financial markets. On Sunday, the government, parliament, and Denmark’s major banks agreed to set up the massive fund to restore consumer confidence.

Lene Espersen, minister for economic and business affairs, who said that the banks will all pay into the fund as a safety net against Read the full story

Yesterday afternoon at 16.00, the Icelandic Prime Minister, Geir H. Haarde addressed the nation in a live broadcast to appraise the current financial crisis gripping the country, and the world.

The speech was unusually frank and emotional and detailed the government’s intention to give far greater powers to the Finance Ministry and the Financial Supervisory Authority to steer the banks, and the whole nation, through the troubled financial markets.

The law was later passed with support from Read the full story

Following last week’s massive government investment in Glitnir, the Bank today released details of the deal:

As per the announcement on Monday, 29th September, the Government has agreed to subscribe for EUR 600 million of new ordinary share capital in Glitnir, and will acquire a 75 percent ownership position post capital increase. Read the full story

Icelandic cabinet ministers met this morning to discuss economic reforms to stabilise the Icelandic economy, MBL.is reports.

After the meeting, the Prime Minister, Geir H. Haarde, had little to say other than that the proceedings are at a very “serious” stage. The PM then went on to meet opposition leaders and then on to a meeting with pension fund managers at 11.00.

Last night, the Icelandic government sent out a statement on the security of Icelandic banks:

“The government of Iceland reiterates that deposits held by domestic commercial banks and savings banks and all their operations in Iceland will be insured in full.

By deposits, all deposits of general public and companies that the insurance of the deposit department of the State Insurance Institute covers are inferred.”

This means that the state treasury insures all private savings which fall under insurance fund definitions, and any savings over the amount automatically insured according to law will by directly insured by the treasury.

IceNews will offer further updates as they come.

Reuters reports that the Icelandic investment company Baugur, which owns or has stakes in a many recognized British high street retailers, said on Wednesday its interests continue to perform well and are unaffected by turbulence in the Icelandic economy.

Stodir, an investment company formerly known as FL Group, had been due to hold a shareholder meeting on Tuesday to vote on its plans to take a 39 percent stake in Baugur. That meeting was cancelled, fuelling market and media speculation that Baugur might have to sell some of its assets. Read the full story

As announced earlier this morning, the Icelandic government has purchased a 75 percent stake in Glitnir Bank to ensure the Bank’s continued stability and to cover a gap in short term funding due to changes on international markets over the last few Read the full story

A deal has been struck between the Icelandic government and the owners of the Nordic bank Glitnir hf. In cooperation with the Financial Supervisory Authority (FSA) and the Central Bank of Iceland, the state treasury will provide new capital for the bank and become 75 percent owner. Read the full story

Concerns over the Icelandic economy have receded following the publication of financial results of the three main banks in Iceland, reports the Financial Times.

Icelandic banks Glitnir, Kaupthing and Landsbanki released their second quarter results on Friday which showed better results than many analysts had forecast. Capital strength, core lending and fee and commission income remained strong for all three banks during the quarter, despite credit losses and weaknesses in global markets.

There were concerns that the rapid international expansion of Icelandic banks, financed principally by overseas borrowing, could prove detrimental in light of the increased cost of borrowing during the credit crisis.

These fears helped create a surge in CDS (credit default swap) spreads to around 1,000 basis points, indicating that the market considered a banking collapse in Iceland to be likely.

However, the second quarter results show that a collapse is increasingly unlikely. Instead, they demonstrate that Icelandic banks have responded by deleveraging, diversifying their operations geographically, reducing their reliance on wholesale funding in favour of deposits, and expanding fee and commission based income.

Glitnir’s net profit was up 29.3% from the first quarter to ISK 7.6 bn whilst its net interest income rose 84 per cent to ISK17.8bn compared with the same period last year.

Landsbanki’s net interest income rose 37 per cent. “There is nothing in our results to justify CDS spreads of 1,000 basis points,” said Sigurjon Arnason, joint chief executive.

Even though loan losses are increasing, Icelandic banks’ capital adequacy ratios remain solid by international regulatory standards. The banks have met funding requirements for next year and reduced their wholesale borrowing, and are also increasingly relying on deposits as a source of funding.