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09 Oct 2008 15:54
Iceland seized control of its biggest bank on Thursday to try to shore up its listing financial system, halted all trade on its stock market and maintained that it should cope without International Monetary Fund (IMF) help.
By taking hold of Kaupthing, the state has now grabbed three of Iceland’s major banks after Landsbanki and Glitnir were put under national control earlier this week.
As the crisis deepened, the stock exchange suspended trading in all shares, citing unusual market conditions. It said trade would not resume until Monday.
Battered by a financial storm that has claimed a clutch of the world’s biggest banks, the north Atlantic island’s prime minister had warned of the risk of national bankruptcy, while the central bank tried and then abandoned attempts to prop up the currency.
But Prime Minister Geir Haarde said he had not asked for help from the IMF, which has sent a delegation to Reykjavik.
“The IMF is an option, but we don’t think it will come to that,” Haarde told state radio on Thursday.
Separate negotiations to secure a €4-billion loan from Russia will begin next Tuesday.
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 guaranteed and that all its domestic branches, call centres, cash machines and internet operations would be open for business as usual.
“The action taken by the FME is a necessary first step in achieving the objectives of the Icelandic government and Parliament to ensure the continued orderly operation of domestic banking and the safety of domestic deposits,” it said.
Paying the price
Iceland adopted sweeping powers late on Monday 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.
Employees going into Kaupthing’s main offices in Reykjavik were generally tight-lipped but one said: “We’ve been told that we should work like it’s business as usual. We’ve got to keep our heads up high.”
Haarde said on Wednesday that Iceland was probably paying the price for its banks overstretching themselves.
Iceland’s banking assets amounted to about nine times its gross domestic product and its current account deficit billowed to 16% of GDP last year.
A leading politician in one of the ruling coalition parties called for the directors of the central bank to be fired.
“I believe that the central bank directors have made repeated mistakes and should go,” said Agust Olafur Agustsson, deputy chairperson of the Social Democratic Alliance.
Adding to a string of asset sales by Icelandic firms scrambling to raise funds, Norwegian mutual insurance company Gjensidige Forsikring BA agreed to buy Icelandic investment firm Exista’s 8,7% stake in Norwegian insurer Storebrand for an undisclosed sum.
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 United Kingdom operations into administration.
“It did not matter that the parent company had sufficient liquidity and its position was solid,” Kaupthing said in a statement.
Iceland’s President, Olafur Ragnar Grimsson (65), had a successful heart procedure on Monday and left the hospital the day after, his spokesperson said.—Reuters
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