VARIOUS: Iceland takes over biggest bank Kaupthing, European banks update, latest

Record ID: 1539339

  • Title: VARIOUS: Iceland takes over biggest bank Kaupthing, European banks update, latest
  • Date: 10th October 2008
  • Summary: (BN09) BRUSSELS, BELGIUM (OCTOBER 9, 2008) (REUTERS) EXTERIOR PALAIS D'EGMONT AT DAWN WHERE MINISTERS FROM FRANCE, BELGIUM AND LUXEMBOURG MET TO DISCUSS THE FUTURE OF DEXIA WINDOWS OF ROOM WHERE THEY ARE MEETING
  • Embargoed: 25th October 2008 15:55
  • Keywords:
  • Topics: International Relations,Finance
  • Reuters ID: LVA95E9WL9GY4MGHC6GIKXDEQG9A
  • Aspect Ratio: 4:3
  • Story Text: Iceland seized control of its biggest bank, Kaupthing, on Thursday (October 9) to try to shore up its banking system and halted all trade on its stock market.
    The state has now taken over three of the nation's major banks after Landsbanki and Glitnir were put under state control earlier this week.
    The stock exchange suspended trading in all shares, citing unusual market conditions and would not resume until Monday (October 13).
    At the centre of a financial hurricane which has claimed several of the world's biggest banks, Iceland's prime minister has warned of the risk of national bankruptcy. Home to just 300,000 people, Iceland epitomised the global credit boom that turned to bust.
    Iceland's Financial Supervisory Authority (FME) said Kaupthing's domestic deposits were fully guaranteed and that all its domestic branches, call centres, cash machines and Internet operations would be open for business as usual.
    Employees going into Kaupthing's main offices in Reykjavik on Thursday morning were tight-lipped.
    When the central branch of Kaupthing opened at 09:00 local time (0900 GMT) there were no queues outside the bank.
    Kaupthing said its board had resigned and that it had requested the authorities take control. In a demonstration of how fast Iceland's crisis is moving, Kaupthing said that as late as September 26, directors believed it was performing well and third quarter results would be good.
    The final straw came when Britain transferred control of the business of Kaupthing Edge, its Internet bank, to ING Direct and put Kaupthing's UK operations into administration. That put Kaupthing in technical default according to loan agreements.
    Matilda Johansdottir, an industrial designer on her way to work, was critical of British actions.
    "I think it's quite interesting that they are using terrorist laws in England to take down Landsbanki and the rest of the holdings that they have over there. I'm wondering if that was the purpose of the laws in the beginning," she said.
    Iceland adopted sweeping powers late on Monday (October 6) that gave the state the ability to dictate banking operations and allow it to push through mergers or even force a bank to declare bankruptcy.
    The government swiftly used them to dismiss the board of directors of Landsbanki and put it into receivership. Glitnir, and now Kaupthing, rapidly followed into the state's clutches.
    Iceland's banking assets amounted to about nine times its gross domestic product and its current account deficit has billowed to 16 per cent of GDP last year.
    Valerie Picolec, who moved from France to Iceland one year ago said she and her family had no plans to leave Iceland.
    "No, we're not going back to France because we love Iceland.
    Iceland is a very nice country and we have to wait now. God bless Iceland," she said on her way to work.
    Meanwhile, a London-based senior financial strategist at BGC Partners, Howard Wheeldon, says he expects the worst is over following the rescue packages announced by governments around the world, and the coordinated move by countries around the world to drop interest rates by half a per cent.
    "I think we are moving to a pivotal point in this crisis now," Wheeldon said. "What governments and what central banks have done in a combined effort so far with more to come - we've still got France and Germany to make respective financial stability actions for their banks but I think we are moving to a point where we can believe that the worst of this crisis is now behind us," he said.
    Wheeldon said recovery from the financial crisis would take years and had to be done slowly in order to ensure stability.
    He said while the situation had stemmed from banks, they were not entirely responsible for the crisis.
    "Yes, mistakes have been made but they have followed, they've followed a system that they were forced to from the competitive pressures that were placed on them by deregulation in the decades that went before."
    Wheeldon added that there would be fewer banks once the market settled.
    "I think there will be fewer of them, particularly in the U.S., there will clearly be fewer in the U.K., Germany will shrink back, Germany's got far too many banks now, and maybe so in France so we will get more consolidation," he said adding, "In terms of the health of them, I think they will end up being a lot more healthy than they've been over the last four or five years. Their basics - they will go back to what they used to do in the 1980s which is affordability; loans - the whole credit market will work on the basis of affordability and lesser risk so I think the future for them actually looks better than the past," Wheeldon said.
    In Italy, the Economy Minister, Giulio Tremonti, ruled out on Thursday the possibility that any Italian bank would fail, as shares in banks and insurers were boosted by a crisis package offering them public cash injections.
    Prime Minister Silvio Berlusconi's cabinet approved a decree late on Wednesday (October 8) offering banks the option of a public cash injection in return for non-voting shares -- which Rome stressed would keep banks privately run, even if the state takes a stake.
    Tremonti, explaining the measures to parliament on Thursday, said Italian banks had sufficient levels of capitalisation and liquidity to weather the storm -- partly thanks to conservative strategies leaving them less exposed than European peers.
    Italy has not created a "rescue fund" but will allocate resources on a case-by-case basis. The state becomes guarantor of last resort for bank deposits of up to 103,000 euros.
    "It is not in the interest of the country that a bank fails and it is in the power of the government to avoid banks failing. When there is a need for capital, the government will put in capital and it won't do it for a return of politics in banking but it does it in the public interest,"
    Tremonti said.
    Berlusconi has said the Italian model for bank intervention was different from others because Italy's system was stronger. Bank of Italy Governor Mario Draghi agreed, but acknowledged that some of the crisis fallout had extended to Italy.
    Meanwhile, after all night talks in Brussels from Wednesday night to Thursday morning, France, Belgium and Luxembourg agreed a fresh rescue bid for the troubled French Belgian Dexia bank and agreed to guarantee new financing.
    Belgian Prime Minister Yves Leterme said such a system of guarantees could also be provided to all of the country's banks under the same conditions, while France stressed that the Dexia measures were not required for the French market.
    Dexia shares on Euronext rose 18 per cent to 5.90 euros ($8.12 U.S.
    dollars) in early trade after the deal was announced.
    The overnight talks came after shares in the cross-border municipal lender and retail bank continued to dive this week despite an earlier 6.4 billion euro ($8.72 billion U.S. dollars) emergency rescue by the three governments and public bodies.
    "The three governments have jointly engaged themselves to guarantee from today until the 31st of October 2009, the new inter-banking and institutional financing as well as the new obligatory financing for institutional investors for a three year maximum maturity for Dexia SA, Dexia International Bank Luxembourg and Dexia Belgium and Dexia Local Credit France," said Leterme.
    Dexia's situation is complicated by the fact that it is largely in the hands of public bodies, including Belgium's three regions and local authorities, who signed up for last week's capital injection at 9.90 euros ($13.6 U.S. dollars) per share.
    A source close to the talks said Belgium would provide 60.5 per cent of the guarantee, France 36.5 per cent and Luxembourg 3 per cent. The guarantee would run until October 31, 2009 and could be extended by another year.
    Dexia has lost half of its market value in the last month and its shares continued last week's emergency rescue.
    They fell a further 15.4 per cent on Wednesday after credit rating agency Standard & Poor's downgraded Dexia's core entities on Tuesday (October 7) for the second time in a week. It also said it may cut FSA's triple-A rating.
    Leterme urged depositors on Tuesday not to withdraw funds from Dexia, vowing the government would stand by the bank and Dexia CEO Pierre Mariani said, "After the recapitalisation and the state guarantee I believe that this unanimous and firm support from the three governments represents an important stage for Dexia and I think that this state guarantee under the conditions announced by the Belgian Prime Minister is in the interest of the bank and therefore of the bank's clients who can be reassured with regards to the deposits they have made with the Dexia group."
    Belgian Finance Minister Didier Reynders said Belgium was likely to raise its raise deposit guarantees to 100,000 euros ($135,900 U.S. dollars) from 20,000 euros now.
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