One of the oddest things about the aftermath of the financial crisis is the extent to which things haven’t changed.
Yes, there are plenty of new rules, and stress tests, and of course there are more fines for wrongdoing, but the basic structure of the financial system doesn’t look much different from before it blew up. There is still plenty of money to be made (and lost) issuing short-term “safe” debt to buy long-term, illiquid, risky assets. Lenders still exacerbate the cycle by increasing their leverage when asset prices rise only to cut back on lending when the economy sours. And everyone knows that taxpayers are still on the hook when things go bad, which acts as a massive subsidy for the financial industry. Read more
“We are not involved in Icelandic banks,” an Elliott spokesperson said.
Yes, that’s an on-the-record statement from the notoriously publicity-shy hedge fund. The Icelandic banks part is going to need some explanation. Read more
Whatever it is that Iceland gains from winning this EFTA court case on the Icesave deposits…
Iceland, of course. Kitchen-sinked and cleaned-up, the Icelandic central bank has just decided to push up rates by 25 basis points to combat signs of inflation amidst “robust” domestic demand.
Statement: Read more
Some intriguing thoughts from Sebastien Galy, Societe Generale FX strategist, on Icelandic politicians’ interest in the Canadian dollar:
An independent currency for a country with the population of the size of a decently sized Canadian city was always going to be a problem. Having that country run a financial bubble while offering very high yield was a recipe for a very rapid rise of a financial empire followed by a catastrophic collapse with the currency ceasing to have a market at one point. The past few years have been of picking up the broken pieces and a move to a new currency would help to bring credibility while forcing adjustments in internal prices. Read more
Chinese tycoon Huang Nubo has revived his controversial bid to buy a vast tract of land in Iceland, just weeks after the deal was rejected by the government. The deal, in which Mr Huang sought to buy 300 sq km of wild heathland to build a resort, has sparked a heated debate within the Icelandic government over the role of foreign investment. In China it has come to be seen as epitomising the prejudice that Chinese investors face abroad, as Chinese companies step up overseas investments. Representatives of Zhongkun, Mr Huang’s company, met on Thursday Iceland’s Ministry of Industry, Energy and Tourism to discuss the possibility of pushing through a restructured deal. “We are looking for a new way to take this forward,” Mr Huang told the FT on Thursday. “I am somewhat optimistic.”
In 2008-2009, a sovereign crack commando unit was sent to debtor’s prison by a bond vigilante court for a crime they didn’t commit.
(Well, actually, private-sector balance sheet losses, exchange rate collapse, all sorts of dubious government decisions, that kind of thing — still hard to say who committed what, bit of a mess really.) Read more
Iceland is poised to raise up to $1bn in its first bond issue since the country’s banking sector collapsed in 2008, marking a step towards normalisation of its relations with international capital markets, the FT reports. The dollar-denominated five-year notes are expected to price this week at around 325 basis points over mid-swaps, Europe’s reference rate, according to people familiar with the sale. The sale is managed by Barclays Capital, Citigroup and UBS. A successful issuance would highlight Iceland’s gradual recovery from crisis and strengthen its public finances as the country nears the end of its International Monetary Fund bail-out this summer. Iceland was one of the first European countries hit by the financial crisis but investors now view its debt as less risky than that of several more recently crisis-hit nations.
A volcanic eruption in Iceland sparked a selloff in airline shares on Monday as investors worried about the extent of the possible impact of flight bans on European carriers, Marketwatch reports. Air-traffic control authorities said ash from the Grimsvotn volcano was due to reach parts of the UK by Tuesday raising concerns that the plume of ash and smoke could close some air space. The eruption of another Icelandic volcano last year caused weeks of severe disruption to the European air space and cost airlines millions of dollars. European airline shares were all trading lower at the open. Easyjet shares were down 4.14 per cent, Ryanair was off 4.9 per cent, while Air France-KLM was quoted down -3.92 per cent. For more on the story see FT Alphaville.
Britain and the Netherlands have vowed to take Iceland to court over €4bn ($5.8bn) lost in the failed Icesave bank after a deal to repay the money was rejected for a second time by Icelandic voters in a referendum, the FT reports. The result represented an act of defiance by Iceland’s crisis-hit electorate, with nearly 60 per cent voting against the deal in spite of warnings that a No vote could disrupt the country’s economic recovery and scupper its bid to join the European Union. The British and Dutch governments made clear there was no room for further negotiation with Reykjavik, setting the stage for an international court to decide who is responsible for foreign deposits lost when Iceland’s banking sector collapsed in 2008. The dispute involves money deposited by British and Dutch customers in the Icesave unit of bankrupt Landsbanki. They were reimbursed by domestic deposit insurance schemes, leaving the UK and Dutch treasuries out of pocket.
Police in Luxembourg have raided premises related to Iceland’s failed Kaupthing Bank in a joint operation with the UK Serious Fraud Office and Icelandic authorities, reports the FT. More than 70 investigators took part in searches of three business premises and two residential addresses in Luxembourg, a key offshore base for Kaupthing before its collapse in 2008. The operation signalled a widening of the international probe into Kaupthing, less than a month after the arrest of Robert and Vincent Tchenguiz, the UK property entrepreneurs, and several others in London. The Tchenguiz brothers were later released without charge. Among premises searched in Luxembourg on Tuesday were the offices of Banque Havilland, owned by Britain’s Rowland family, known for its investments in property, banking and internet ventures as well as for its ties to the UK Conservative party.
You’ve read the story in the FT…
Lawyers acting for the UK arm of the collapsed Icelandic bank Kaupthing, which is at the centre of a fraud probe, have withdrawn a request to retail entrepreneur Kevin Stanford to repay nearly $2m (£1.2m) as part of efforts to recover funds owed to the bank…. Read more
From page 75 of the Kaupthing annual report, 2006:
Robert Tchenguiz knows a good deal when he sees one. In fact, it is precisely this business acumen that enabled him to grow an enterprise, which began with rental housing for students and tourists, into one of the most prosperous property groups in the UK. Robert Tchenquiz’s relationship with Kaupthing Bank is characteristic of his eye for sustainable performance. The Investment Banking division has repeatedly demonstrated why Robert Tchenguiz calls on Kaupthing Bank, and it is this reliability and capability to deliver on projects that keeps him coming back time and again. Robert Tchenguiz is known among entrepreneurs for his financial savvy, unconventional funding strategies, and ability to realise a good opportunity when it presents itself. Interestingly enough, these are exactly the same qualities that make Kaupthing Bank his investment bank of choice.
The comparison between Iceland’s banking crisis and Europe’s debt version has been made before — most notably by Paul Krugman, and regarding Ireland specifically.
Iceland, the theory goes, declared a swift bankruptcy and devalued the krona. Ireland, locked into the eurozone union, has been unable to do the same. Read more
There are two nominations that go along with this post. One is for headline of the year; the other is the award for worst (synthetic) CDO ever made, quite possibly.
From Reuters on Tuesday: Read more
Frozen food retailer Iceland could become the subject of a bidding war after investors from the Middle East began talks to acquire the business for up to £1.5bn, reports the Telegraph. A consortium of Gulf investors headed by Global Banking Corp of Bahrain is said to be in talks with representatives looking after the assets of two collapsed Icelandic banks, Landsbanki and Glitnir, which held 76% of Iceland Foods. The Mail on Sunday earlier reported that Saleh Al Ali Al Rashed, chairman of Global, met officials of Lloyds Development Capital, the buy-out arm of Lloyds Banking Group, in London recently. It is thought the move could fuel interest from Iceland founder and CEO Malcolm Walker, who already owns 24% of the company, alongside other members of management.
Iceland is finalising a new deal with Britain and the Netherlands over €3.8bn lost in the Icesave online bank, eight months after an earlier agreement was rejected in a national referendum, reports the FT. Reykjavik said it hoped to sign an accord within weeks, citing progress in talks between the three countries. The UK and Dutch governments have been trying for more than two years to reclaim money lost by British and Dutch depositors in Icesave when Iceland’s banking sector collapsed in 2008. Resolution of the Icesave dispute is crucial to Iceland’s hopes of joining the EU and a condition for parts of its IMF bail-out programme.
As if the threat from radicalised printer ink cartridges wasn’t bad enough.
We wonder if airline investors are watching the following too (via Reuters): Read more
Hypo Real Estate — the nationalised German bank and the only one to have failed this summer’s stress tests — passed a(nother) milestone earlier this month.
It transferred assets worth a nominal €173bn to FMS Wertmanagement (FMSW) — the big bad bank set up by the German state earlier this year specifically to take on non-strategic assets and ‘risk positions’ from Hypo. The plan is for the government-guaranteed FMSW to eventually be wound down over the course of 10 years. Read more
Curious, this. The European Central Bank dialed back its buying of eurozone government bonds last week despite panic swamping Portuguese and, in particular, Irish bonds. The ECB bought a scant €134m of bonds, versus €323m a week earlier.
Or is it so curious? Perhaps it’s really just a lesson in liquidity. Read more
A squirm-inducing video of former Federal Reserve governor Frederic Mishkin:
For those with an aversion to video-taped awkwardness, the clip shows Mishkin talking about his “Financial Stability in Iceland” report, written in conjunction with the Icelandic Chamber of Commerce and published in May 2006. The document is generally very favourable to the island economy and indeed, gained some notoriety when Iceland collapsed spectacularly in late 2008 and early 2009. Read more
Markit’s Gavan Nolan wrote this piece
Europe’s air transport sector lost as much as €2.5bn ($3.3bn, £2.2bn) as a result of the Icelandic volcanic eruption, according to a preliminary assessment from the European Commission that is expected to set the stage for an industry bail-out, the FT reports. Europe’s transport commissioner said the Commission was inclined to approve state aid for carriers based on the extraordinary nature of the week-long event.
Nordic countries on Tuesday gave the go-ahead for up to €444m more aid for Iceland’s stricken economy even as northern Europe counted the mounting cost of travel disruption caused by the eruption of an Icelandic volcano, reports the FT. The Nordic region has been among the hardest hit by ash fallout from the Eyjafjallajökull volcano yet Sweden, Denmark, Norway and Finland appeared to be in a forgiving mood as they agreed to end a long delay in funding for Iceland’s economic recovery programme.
The volcanically-induced no-flight ban over Europe is having some follow-through on European jet fuel prices, reports FT Alphaville. Barclays Capital estimates that the ash cloud could be responsible for cutting up to 1m barrels a day of demand in the short term. But while that might sound a significant sum, the bank also says it should not have a significant impact on the actual oil market balance. Read more
Hopes that the crisis that closed much of Europe’s airspace for five days was finally showed signs of easing were dealt a blow late on Monday when a fresh ash cloud from Iceland was reported to be heading in the direction of the UK, the FT says. This news came as officials acknowledged flaws in the computer models that led them to ground thousands of flights after a volcanic eruption in Iceland. See also FT Alphaville for an RBS primer on the eurozone economy and the volcano.
So British Airways CEO Willie Walsh took to the skies this weekend — Icelandic volcanic ash, and the small matter of its closure of Europe’s northern air routes, be damned.
European authorities were facing growing pressure on Sunday night to lift airspace restrictions keeping large parts of the continent a no-fly zone for a fifth day on Monday after airlines said they had carried out test flights that landed safely, the FT reports. As officials said weather conditions showed no signs of dispersing the volcano ash drifting across the continent, some carriers warned European Commission officials in Brussels that there could be airline bankruptcies.
There was a chap in the audience of this year’s London City debate — claiming to be a vulcanologist — who questioned the whole point of carbon trading schemes given that any savings would be blown out of the window by just one or two major volcanic eruptions in the world.
Which got us at FT Alphaville thinking about the significance of Iceland’s latest volcanic eruption on European carbon markets. Read more
For crimes of bad taste back in October 2008.