attibú

Kaupþing, largest and last of the Icelandic commercial banks goes under

Landsbanki went under earlier this week - classic depositor run on its UK subsidiary, Icesave.

The problem came because the UK has a cap on depositor insurance, and Icesave depositors with over 50,000 pounds stood to lose their funds. The Icelandic government offered a guarantee for domestic depositors but could not offer an extended guarantee for foreign depositors - nor to should it, they took the risk when they went for the higher rate of return offered by Icesave.
The people screwed are the wholesale depositors - they are above the insurance limit, chasing high return, and second to last (I think) in line to get their money back, only the shareholders are behind them, and they're wiped out big time. Wholesale depositors included local councils, transport authorities and universities.
Ooops.
Icelandic pensions funds had large stakes in the banks, but they were also well diversified and should ride this out.

Some harsh words were exchanged between the UK and Iceland's governments over this. I think there was some misunderstanding... in particular the Financial Supervisory Authority is liquidating the banks assets, and these will payoff creditors, including foreign depositors. The "garage sale" will bring in crappy prices, but there are a lot of assets. ING has apparently bought out some depositor accounts.
Some of the harsh bluster seems to have toned down a bit now.

Now Kaupþing, the largest and best capitalized of the banks has been taken over also - presumably because of a run on its Edge, the UK based internet bank.
I took a quick browse through their 2007 annual report, either they were flat out lying, or they really do have substantial assets which should be saleable, they just have the usual bank problem - they borrow short from depositors, who can withdraw their funds with short or no notice, and they lend long to buy capital assets with decent cash streams and growth potential. Oh, they do not seem to have major exposure to Credit Default Swaps, maybe about $billion or so.

The Credit Default Swaps will come to a head friday when the Lehman CDS will be bid and canceled out. Also here and here for more details.
Then we will find out who is left standing - as Steve says, a lot of big banks are holding onto their cash until they find out how much they owe friday. 'course someone, hedgies, other banks, will get that payout. Be interesting to see where it resurfaces.

So now there are none.

Iceland is talking to Russia about a short term loan for 4 billion euros, nobody else is budging on lending anything to anyone. Be interesting to see what that will end up costing in good will. Terms bandied about are tolerable, just a few points above LIBOR.
Apparently Abramovich (Chelsea owner) and Deripaska (quant from Russian Aluminium industry) are the Russian players pushing for the loan to Iceland.

The Icelandic central bank is saying it will guarantee international trade starting next week. I suspect what they will do is guarantee lines of credit for critical imports with the full backing of the government, such as it is.

So... what is the mood back home?
Don't know I'm not there, but I'm getting some flavour from online traffic.
There has of course been a protest concert, Bubbi himself - I seem to recall I read recently he was broke, again, lost the royalties in bad investments.

There is a very strong sentiment for seizing the assets of the executives of the major investment firms, before the flee for the caribbean on their private jets, as it was phrased. Not sure how widespread it is, but politically it could happen.
That could get interesting - Iceland has such things as limited corporate liability and limited partnerships (I am not a lawyer), but also complex precedent in common law going back 1200 years or so, which can throw up some interesting obligations and liabilities.

There is talk of national unity government. Bah, maybe. May be necessary to contain the backbiting. I suspect the Good Old Boys are going to kick some of the asses of the Bright Young Things that triggered this mess, and it might get nasty. Be interesting to see who sticks around to take their medicine and who goes into voluntary exile to their numbered accounts. Probably not in the caribbean though - to hot, too much sun. I'm thinking Surrey.

Oh and Gordon Brown is not popular in Iceland right now.

The Icelandic Billionaires - bummernickels! I kept thinking they could be convinced to endow a science institute or something useful. After they got bored with football maybe.