Whispers, unanswered telephone calls, stone-walling, firm “no comments”… Something was up in Iceland on Friday.
The immediate focus was Kaupthing - one of Iceland’s two largest banks. The price of its CDS has now spiked through 2500bp, suggesting the credit markets believe default is imminent. Sources suggest emergency talks are now underway between Kaupthing and the Icelandic authorities.
But this is a run on a country’s financial system, not just one institution. The collapse of the Icelandic krona continued apace, threatening to hit 156 against the Euro on Friday.
And, behind the scenes, some furious finger-pointing is underway. The snap nationalisation of the third largest Icelandic bank, Giltnir, has led to accusations that the central bank, the Sedlabanki, has intensified the crisis by drawing attention to severe liquidity problems affecting all the country’s banks. Rival brokerages in London say most trading lines to Kaupthing and its main rival Landsbanki, were cut earlier in September.
Some sort of statement from the Sedlabanki is awaited.
UPDATE 16.00BST.
A statement from Kaupthing Singer Friedlander chief executive Armann Thorvaldsson:
In these extreme market conditions, everyone across the market is looking to deleverage - it’s the sensible thing to do. Kaupthing has been successfully deleveraging its business as part of its prudent risk management. Over the last week we have been going proactively to clients and closing down positions in a sensible and measured way. We are not the first to do this and we certainly will not be the last.”
And some comments on liquidity at Kaupthing:
- 360 days of secured liquidity all of which can be turned into cash within 15 days; this is split between cash, deposits with central banks, deposits with large commercial banks, high-grade bonds which can be repo-ed and committed standby and revolving loan facilities from well-rated commercial banks with at least 12 months to maturity and without material adverse change clauses.
- Further liquidity which we do not include as it may take more than 15 days to liquidate
- Identified a further (ie over and above the 360 days’ worth) €5bn of assets which can be securitised under the eligibility rules of several central banks (including ECB and Bank of England) or even sold if necessary
- Pre-funded all of the rest of our wholesale long-term facilities which mature this year and have pre-funded some of those maturing in 2009.
- Been able this week to continue to operate in the short-term wholesale market
- Over the past 6 months KaupthingEdge has had a run rate of around Euros700m per month across 11 countries. September has been a record month for new applications and whilst there has recently been some outflow, there continues to be strong net inflows.
- CDS and bond spreads do not reflect either our creditworthiness or our cost of funds, they reflect general nervousness in the markets and perhaps some continued speculation
- Liquidity, capital, funding, asset quality and profitably all remain in good shape
Related links
Iceland Savers Fear `House of Cards’ May Collapse After Glitnir - Bloomberg
Iceland takes over Glitnir - FT
