Iceland FSA Takes Over Kaupthing in Banking Meltdown (Update1) By Tasneem Brogger
Oct. 9 (Bloomberg) -- Iceland's government seized control of Kaupthing Bank hf, the nation's biggest bank, completing the takeover of a banking industry that has collapsed under the weight of its foreign debt. Iceland is guaranteeing Kaupthing's domestic deposits and taking control of banks in an attempt to provide a ``functioning domestic banking system,'' the country's Financial Supervisory Authority said in a statement on its Web site today. The banks are saddled with about $61 billion of debt, 12 times the size of the economy, according to data compiled by Bloomberg. The government is seeking a loan from Russia and may ask for aid from the International Monetary Fund to help guarantee deposits. The central bank ditched an attempt to fix the krona yesterday as the currency went into freefall. ``This looks like a total collapse,'' said Thomas Haugaard Jensen, an economist at Svenska Handelsbanken AB in Copenhagen. ``It'll take several years before the economy can start to return to growth.'' Trading in the krona ground to a halt today following the FSA's announcement. Nordea Bank AB, the biggest Scandinavian lender, said the krona hadn't been traded on the spot market today, while the last quoted price was 340 per euro, compared with 122 a month ago. Assets at Iceland's three biggest banks, Glitnir Bank hf, Landsbanki Island hf and Kaupthing, have grown five-fold since 2004, with most of the funding from debt sales and some from offshore deposits. U.K. taxpayers will probably face a bill of at least 2.4 billion pounds ($4.1 billion) to compensate about 300,000 U.K. holders of accounts at Icesave, a unit of Landsbanki, the Financial Times reported, citing unidentified U.K. officials. U.K. Losses At least 20 local authorities across the U.K. stand to lose 10s of millions of pounds as the British government refused to guarantee wholesale deposits in Icelandic banks. The central bank had tried to fix the trade-weighted krona index at 175, corresponding to 131 against the euro. It said yesterday it was forced to abandon that peg, created on Oct. 7, due to ``insufficient support'' from the market. All trading in Iceland's equity markets is suspended until Oct. 13 due to ``unusual market conditions,'' the country's exchange said today. Iceland will start talks with Russia on Tuesday to secure a loan of as much as 4 billion euros ($5.48 billion), Prime Minister Geir Haarde said late yesterday. He added that loans from the IMF and Russia ``are not mutually exclusive,'' though the government hadn't, ``at this point at least,'' asked the IMF for a standby loan or an economic program. `Severe Recession' Fitch Ratings Ltd. cut Iceland's long-term foreign currency issuer default rating to BBB- from A-. The rating remains on negative watch, Fitch said. ``Iceland faces a very severe recession which will result in a further deterioration in banks' domestic assets,'' Fitch said in a statement. ``It remains uncertain as to the extent that the sovereign can distance itself from the foreign liabilities of failing Icelandic banks.'' Kaupthing's entire board of directors has resigned and the FSA has appointed a committee to wind up the lender's business, the bank said in a statement today. ``It's difficult to find any parallels to what's happening in Iceland in the industrialized world,'' Jensen said. ``You'd have to look to emerging markets, and after the Asian crisis, for example, those economies contracted about 10 percent.'' The debts of the Icelandic banking system are too big for the government to repay. ``There is no way that the Icelandic population can assume responsibility for the private debt'' that the banks have built up, Haarde said yesterday. Global Rates Other countries are in a better situation. The U.K.'s banks will get a 50 billion-pound ($87 billion) government lifeline and emergency loans from the central bank after the freeze in credit markets threatened to bring down the financial system. The Federal Reserve, the European Central Bank and four other central banks lowered interest rates yesterday in a coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression. This year and next, Kaupthing has 5 billion euros of debt obligations maturing, according to Bloomberg data. Glitnir's debt obligations over the same period are about 4 billion euros and Landsbanki has about 2 billion euros to finance. To contact the reporters on this story: Tasneem Brogger in Copenhagen at [EMAIL PROTECTED]; Last Updated: October 9, 2008 07:15 EDT --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
