Continuing its coverage of the Icelandic parliament’s report into the country’s banking collapse, FT Alphaville moves from dodgy loan quality to a broader question: were Icelandic banks even solvent when they were finally taken over? Read more
Iceland’s parliament has released its vast investigative report into the collapse of the country’s banking system in 2008. Its damning account of Icelandic banks’ loan improprieties leaves FT Alphaville to ask: why didn’t more people see the collapse coming? Read more
An official report on Monday accused the Icelandic government and regulators of “extreme negligence” in the run-up to the country’s 2008 banking crisis, the FT says. Former prime ministers and a central bank governor, were among those blamed for the crash. The commission created by parliament to investigate the crisis also pointed to possible illegality within the banks, including share price manipulation and exaggeration of asset values. FT Alphaville presents Iceland’s Theatre of Financial Horror. Read more
Is this the most boring theatrical production in the world?, FT Alphaville asks of an artistic bid to ‘perform’ a 2,000-page report on Iceland’s 2008 banking collapse, which is due to be released on Monday. It depends how bleak the report’s findings will be. Read more
The European credit markets widened today as the worsening Greece situation wore down the resilience shown in recent days. Greece’s spreads soared through the 400bp barrier and hit 415bp today, its widest level since the beginning of February. The sovereign is now trading wider than Iceland for the first time on record.
An IMF delegation arrived in Athens today, and a rescue package now appears inevitable given the currents yields on GGBs. But the reports emerging over recent days have unnerved the markets, with eurozone members seemingly at loggerheads over the rate they will lend to Greece. There are also suggestions – denied by the Greek government – that it is reluctant to accept IMF conditionality, fearing social unrest. Unless there is some reassurance from EU leaders then we could see the 425bp record wide levels reached in February tested in the coming days. Read more
The prospects for Iceland were looking slightly bleaker on Tuesday, as Moody’s downgraded the country’s ratings to negative from stable on “uncertainty over external liquidity”.
Moody’s said the country’s recovery was also threatened by delays in the resolution of the country’s Icesave dispute. Read more
Events in history come in big and small packages. Sometimes these moments come as flashpoints; sometimes they are more subtle. Two of today’s headlines seem to be small and subtle shifts inside of a larger era in financial markets history. First, AIG announced that it had sold a portion of its asset management unit to Pacific Century. The move is a continuation of a larger effort to liquidate assets in order to repay government rescue funds. The second involved an announcement from the US Treasury that it planned to sell about 7.7bn common shares of Citigroup throughout the year in a “orderly and measured fashion”. The US Treasury originally acquired preferred shares as part of the Troubled Asset Relief Program (TARP) which it then later exchanged for these common shares.
Intraday CDS levels showed both credits trading tighter. AIG 5Y CDS was about 20-25 bps tighter in early trading, quoting around 230-235 bps. Citigroup 5Y CDS was 4 bps tigher at 144 bps. Read more
Iceland on Sunday was scrambling for a last-ditch solution to the Icesave debt dispute, ahead of a referendum next Saturday on a deal to repay to Britain and the Netherlands €3.9bn ($5.3bn) lost in the failed online bank. Officials said “informal” exchanges took place at the weekend after negotiations with the UK and Dutch governments broke down on Thursday. Both sides played down prospects for a deal before next Saturday’s plebiscite, in which Icelanders are expected to reject a repayment plan agreed by the three sides last year. Read more
Talks have collapsed between the UK, the Netherlands and Iceland about repayment of £3.4bn lost by depositors in the failed online bank Icesave, raising fears that the country will fail to meet its obligations. Iceland on Monday rejected an offer to soften repayment terms, British officials said, dashing hopes of avoiding a March 6 referendum in which Icelanders are expected to reject the original repayment plan. A ‘no’ vote would plunge Iceland into fresh turmoil. Read more
Markit’s Otis Casey wrote this CDS report
If the volatility in the sovereign CDS market is not enough to get the blood going then reports that protesters and Greek police were clashing in Athens today might. The protest against deficit reduction measures apparently numbered in the tens of thousands. A small group of protesters threw Molotov cocktails and debris at police. Perhaps in an effort to calm tensions, European Council President Herman Van Rompuy applauded Greece‘s efforts in taking responsibility for cutting its budget deficit and indicated that the EU was preparped to “take determined and coordinated action if needed to safeguard stability in the euro area…”. CDS on Germany was unchanged to 1 bps wider. Read more
An Icelandic delegation headed to London on Monday in a bid to persuade Britain and the Netherlands to reopen negotiations over a controversial €3.9bn ($5.3bn) debt repayment deal, after the Icelandic government reached agreement with opposition parties on a potential compromise. Reykjavik is scrambling to find a solution to the dispute over money lost in the failed Icesave online bank after a previous repayment deal was blocked by Olafur Ragnar Grimsson, Iceland’s president, last month amid fierce public opposition. Read more
Gavan Nolan of Markit wrote this CDS report
Credit indices outperformed stocks for the second-day running and fulfilled their promise of breaking through key resistance barriers. The Markit iTraxx Europe index closed at 68bp, over 2bp tighter than yesterday and the first time it has closed below 70bp since May 2008. The Markit iTraxx Crossover surged through 400bp and, at 393bp, is at its tightest level in two years. North America was not to be outdone and the Markit CDX IG index is trading at 78.25bp, the first time it has traded below 80bp since year-end 2007. Read more
Iceland’s president blocked a deal to repay Britain and the Netherlands almost €4bn ($5.7bn, £3.6bn) lost in the Icesave division of failed Icelandic bank Landsbanki. The British and Dutch governments condemned the decision by Ólafur Ragnar Grímsson and hinted at repercussions. Fitch, the credit rating agency, warned of “a renewed wave of domestic political, economic and financial uncertainty” for Iceland and downgraded the country’s main sovereign rating to junk status. Read more
It was a lesson writ large by the financial crisis; dabble in carry trades denominated in dinky currencies at your own peril.
The tale of the Icelandic krona serves as a particularly brutal parable of carry traded excess. Read more
Ratings agency Moody’s takes up the sovereign subject again on Tuesday, with its 2010 outlook on sovereign risk. And the mood, as the below chart should demonstrate, is rather miserable.
Did the events of last week in Dubai really send jitters through emerging markets?
Here’s something to ponder in the emerging vs developed market debate — an issue aptly summed up in Deutsche Bank’s 2010 outlook on Wednesday. On Thursday, Fitch Solutions has provided an update of its sovereign CDS liquidity indices — and they show that liquidity in CDS for developed markets surpassed that of emerging markets in the last week of November: Read more
Gavan Nolan of Markit wrote this CDS report
European credit and equity markets suffered a torrid session today as the debacle in Dubai sparked a fresh bout of risk aversion. The Markit iTraxx Europe index ended the day at 89.5bp, over 5bp wider than yesterday’s close. It breached the 90bp earlier today, the first time it has done so since the beginning of the month. The Markit iTraxx HiVol index was over 7bp wider at 140.5bp, while the Markit iTraxx Crossover closed at 540bp, 27bp wider on the day. Read more
That’s Deutsche Bank, to be exact, in a note entitled “Iceland v Ireland: Is the difference really only one letter?”
In it, DB is exploring the differences between the two island economies — starting with a bit of historical background: Read more
Iceland on Thursday fell off the global map for investors who track stock market indices when it was dropped from key equity benchmarks. FTSE, the global equity index provider, has removed Iceland from the investable universe that make up its indices following the plunge in its financial markets after the collapse of its three main banks. It is the first time FTSE has removed a country from its lists since its global equity index series was established in late 2003. The MSCI, another big provider of stock indices, does not list Iceland on its global benchmark index. Read more
In an interview with the Sunday Times, Eva Joly – the judge working with the Icelandic government on the investigation into the collapse of the country’s financial system – compared the implosion of the island’s banks with Bernard Madoff’s Ponzi scheme.
In Ms Joly’s view, the parallels between the two relate primarily to the failure of regulators to, well, regulate: Read more
Iceland’s parliament is close to approving the repayment of nearly €4bn lost by British and Dutch savers in a failed Icelandic bank – but with a series of conditions that could yet cause the pact to unravel, the FT reported. The compromise legislation, expected to be published on Monday, aims to end a two-month impasse since Iceland’s government struck a provisional deal with the UK and the Netherlands on the compensation. The bill is considered crucial to secure additional billions of euros of international support for Iceland’s shattered economy and to clear the way for talks on its application to join the European Union. Read more
Iceland’s top financial regulator is preparing to hand over more cases of suspected market manipulation to a special prosecutor as the probe into last year’s bank crash intensifies. Gunnar Andersen, director-general of the Financial Supervisory Authority, said his agency was convinced that “serious” manipulation had taken place and had referred 20 cases to the prosecutor, who is considering possible criminal charges related to the crisis. “Many more” were under investigation, he added. Read more
In the same way that glaciers occasionally disgorge relics from earlier times, frozen and perfectly preserved, so the defunct Icelandic bank Kaupthing has thrown up an apparent curiosity – a document detailing who owed the bank serious amounts of money just before it finally imploded.
The document, dated September 28, 2008, and titled Kaupthing Bank – Corporate Credit, Presentation of large exposure > €45 million, is available at Wikileaks, but we should quickly say that someone called Thorarinn Thorgeirsson, a senior director at Kaupthing, has already contacted the web organisation demanding that it be removed from public view. Read more
Iceland’s plan to save its banks looks good on the surface, but there are at least three problems with it.
First, the agreement to compensate British and Dutch retail savers the $5.5bn they deposited in internet bank Icesave requires parliament’s approval. That will be a contentious vote given the number of angry locals wearing “Iceslave” t-shirts. Second, the creditor workout at the old “international” banks is yet to begin; with liabilities of around $60bn, claimants will form the usual disorderly queue. Finally, the new local banks’ assets are unlikely to be as white as the driven snow, so further restructuring of dud domestic loans will be needed. Read more
Iceland is set to announce a €1.5bn recapitalisation of its banking sector and unveil a deal to hand control of two of the country’s healthy new banks to foreign creditors. The steps mark an important milestone in efforts to rebuild Iceland’s shattered banks and reintegrate the north Atlantic island nation into the international financial system. The government will issue bonds worth IKr270bn ($2.1bn) next month to three new banks set up last year after the country’s three main banks fell victim to the global credit crunch. Read more
Iceland is preparing to make a formal bid for European Union membership within days as it turns to Brussels for help in stabilising its shattered economy. Its parliament on Thursday narrowly voted in favour of accession talks, a decision that reflected a shift in public opinion that had been fiercely opposed to membership. It now faces two years of negotiations before it holds a national referendum on whether to join the bloc of 27 countries. Read more
FT Alphaville has seen a copy of Stroud District Council’s internal audit report, detailing the fact that the council lost £3m through investments in failed Icelandic bank Glitnir.
The council has already been good enough to provide the unwashed with an executive summary of its report, but the real thing is obviously far more instructive. Read more
April 2008 (FT):
Details of the investigation are confidential, but the authorities are expected to pay close attention to movements in the credit default swap markets for Iceland’s banks. Spreads in these markets – a proxy for investors’ fears the banks will collapse – have ballooned from about 50 last August to more than 1,000, indicating a very high level of fear about their viability. Read more
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