UK: The Next Iceland?
The global financial crisis could be entering a 'new and more treacherous phase', which could push international countries to the brink of failure and further hinder the global economic recovery, according to Hennessee Group.
Charles Gradante, co-founder of the Hennessee Group, points out that Iceland had one of the highest standards of living in the world just a few months ago, but after experiencing the fastest economic collapse in history, it is suffering from soaring unemployment as well as double digit interest rates and inflation.
Hennessee Group says there are other countries that share some of the same characteristics as Iceland, particularly with regards to its debt to economic output, and could be vulnerable to the same devastating effects of the financial crisis.
It believes it is imperative that world leaders pursue the appropriate policies to stimulate trade and promote worldwide growth so it does not enter a global economic crisis similar to that of the 1930's.
After privatising the banking sector in 2000, Iceland's banks went from being largely domestic lenders to major international financial intermediaries with foreign assets worth nearly ten times the country's GDP.
As the banks dramatically expanded overseas and foreign money poured into the country, the Icelandic economy experienced exceptional growth and prosperity.
Iceland was considered in 2007 to be one of the richest per capita countries in the world. However, as the global financial crisis picked up steam, it exposed the weakness and dependence of Iceland's economy on the banking sector, as well as its vulnerability to a staggering economic collapse.
Hennessee Group Research believes a primary contributor to the rise and fall of Iceland's economy was the vast size the country's financial sector grew relative to its GDP and fiscal capacity.
Gradante says: 'Iceland's three main banks (Kaupthing, Landsbanki and Glitnir) built total liabilities of approximately ten times the size of their GDP, up from about two times in 2003. In addition, approximately 80 per cent of the liabilities were in foreign currencies leaving them at risk of a currency collapse.'
As the markets seized up, Iceland's banks started to collapse under the heap of foreign debt they took on over the years. As concerns mounted about the stability of Iceland's banks, foreign investors fled the country, prompting the value of its currency to drop nearly 50 per cent in just one week.
The collapse of the currency left banks and citizens with loans originated in foreign currencies in a very tenuous situation; the weakening currency led to their debt obligations nearly doubling. As the nation's economic crisis deepened, unemployment rose from one per cent to ten per cent, inflation soared to nearly 18 per cent and the stock market lost approximately 90 per cent of its value.
Hennessee Group Research believes that while Iceland's circumstances were unique in many ways, there are countries suffering from similar risks which could leave them just as vulnerable in the current crisis.
One particular statistic of concern is the large amounts of external debt certain countries are currently carrying relative to the size of their economy (GDP) and will continue to build as they battle the economic slowdown.
While the there has been a lot of discussion regarding the mounting debt of the US due to recently implemented bailout programs and stimulus packages, Hennessee Group Research believes the US appears relatively stable in comparison to their international counterparts.
Currently, the US debt to GDP ratio is approximately 100 per cent with the bulk of its external debt mostly in dollars.
The Netherlands currently has a ratio of approximately 328 per cent, while Ireland has built a debt to GDP ratio of 900 per cent.
However, the two countries that appear most susceptible to an economic collapse are the UK and Switzerland. The UK's debt to GDP ratio is currently 456 per cent while Switzerland's is 433 per cent.
Gradante says: 'While these countries are much bigger than Iceland, they do share certain characteristics that make them vulnerable to further economic hardship. Both countries have developed into major financial intermediaries over time, and have grown sizeable external debts that are denominated in foreign currencies.'
The Hennessee Group believes if either country were to experience a crisis of confidence whereby investors flee the country for safer havens, their currencies could experience a crash similar to that of Iceland's and leaving them potentially insolvent.
Icelandic Baugur In Administration
Baugur, the Icelandic investment group has gone into administration.
The company owns, or has stakes in, some major High Street names in the UK such as Hamleys, House of Fraser, Goldsmiths - the jeweller, Whistles - the fashion chain and Iceland the frozen food retailer. There are clearly a wealth of puns there. And that's before we even get started on the country electing the world's first openly gay PM at the weekend!
The company says it has applied for a moratorium to allow it to stop paying its creditors.
A company statement says that the moratorium involves the "Baugur Group and a number of its wholly owned subsidiaries" without going into specifics.
Glitnir Files For Bankruptcy In US
The 104-year-old Icelandic bank Glitnir has filed for bankruptcy in the US listing both debts and assets of more than $1 billion in Chapter 15 documents filed Wednesday in U.S. Bankruptcy Court in Manhattan.
According to court documents, the banks assets are bank accounts and loans made to U.S. companies.
Glitnir is one of Iceland's biggest three banks, all of which were recently seized by the government there, after they were unable to secure short-term funding.
The three banks together amassed debt of $61 billion, equivalent to about 12 times the size of the economy.
Icelandic Airline Bankrupt
Up to 700 passengers have been left stranded at London's Gatwick airport after an Icelandic-owned airline said it would file for bankruptcy.
Sterling Airways, which is based in Danish capital Copenhagen, blamed the Icelandic financial collapse for making its owner unable to continue funding.
All Sterling flights have been cancelled, including services from Gatwick to Copenhagen and Stockholm. The airline was owned by Iceland's Northern Travel Holdings.
Invest In Iceland - Interest Rates Raised To 18 Pct
Iceland's central bank unexpectedly raised the benchmark interest rate to 18 percent today after the island reached a loan agreement with the International Monetary Fund.
Policy makers raised the key rate by 6 percentage points, the Reykjavik-based bank said in a statement today, taking the rate to the highest since the bank began targeting inflation in 2001.
The IMF deal is due to be presented to the fund's executive board later this week. One of the conditions attached to the loan was that policy makers raise the key rate to 18 percent, the country's central bank said.
Iceland Announces USD2 Billion Deal With IMF
Iceland has reached an agreement with the International Monetary Fund for a two-year, $2 billion loan as part of an aid package to assist the crisis-hit country.
The Icelandic government says the deal, tentatively reached Friday, will give it immediate access to $830 million IF approved by the IMF board in Washington.
Haven't we been down this road before? Didn't Iceland announce a rescue package with Russia a couple of weeks ago before it was a done deal? That one subsequently fell apart.
Still, $2 billion should pay the wages at West Ham for a few weeks.
The Unluckiest Couple In Britain?
A couple who ran a caravan park may have lost their £1.2m life savings after they sold the business and deposited the profits in a failed Icelandic bank.
Darren and Ruth Johnston cashed in the 17-acre site, a family business for three generations, after a drop in takings last winter made them fear a recession (at least they called that one right). They hoped to ride out the storm with their money in a high-interest account and buy a smaller caravan business during brighter economic times.
The Johnstons chose an offshore bond offered by Royal Skandia after a financial adviser recommended the six per cent interest rate. But the bond was deposited with an Isle of Man subsidiary of Icelandic bank Kaupthing Singer & Friedlander (KSF), which went bust this month.
While UK depositors have had their money guaranteed by the Government, offshore KSF accounts are not covered. Nor is the money protected by an Isle of Man guarantee for personal depositors, as the Royal Skandia bond is regarded as a corporate one.
Mr Johnston was yesterday formally told he can no longer access his savings.
To add insult to injury the couple also face a £120,000 capital gains tax bill on their vanished profits!
Shop Local, Support Local Business, Invest In Iceland
It appears that local councils all over Britain have been following Kerry Katona’s lead and going to Iceland. Unfortunately so have large wads of your money.
Had anyone taken any notice of the lessons of history, this might have been avoided. However, as no one studies history any more, preferring to get degrees in media studies, that didn’t happen. As recently as 1994, the municipality of Orange County, California went bankrupt after its treasurer ‘invested’ in derivatives. This was an object lesson in not letting people of somewhat limited intelligence get their hands on large sums of money, particularly when it’s your money.
Local authorities tend not to attract the brightest minds of their generation and sooner or later someone will come along with a whizzer scheme for ‘investing’ municipal funds at an unbelievably high rate of interest. This always ends in tears. So it turns out that all these councils who never tire of telling the rest of us to 'shop local, support local businesses', have been depositing lots of your council taxes in Bjork’s local bank.
Gordon Brown leapt into action and froze Icelandic assets using anti-terrorism laws. Yet another lesson in why politicians should not be allowed to pass 'terror' laws that cancel out all the normal conventions – because they will use them whenever they feel like it. Ok, all the local councils involved were terrifyingly stupid but that’s as close as it gets.
Still, extraordinary times call for extraordinary measures, and what could be more extraordinary than bringing back Peter Mandelson to the cabinet? Admittedly he may be able to solve the mortgage crisis as he’s a chap that knows a thing or two about borrowing money to buy a house. Though, regrettably, most of us will probably be unable to raise a loan from Geoffrey Robinson. And if we could, and didn’t declare it on our mortgage applications, unlike Peter we’d be prosecuted for fraud.
But the news of Mandy’s return to Blighty was manna to many. Gay bars all over London were putting out the bunting and satirists everywhere wept openly. A clearly emotional Rory Bremner sobbed, “It’s no secret that things have been tough since Tony was replaced by someone so bland as to be beyond parody, but this is great news.”
So, crisis, what crisis? With men like these at the helm and plans already afoot to lend billions of pounds of your money to the banks so that they can lend it back to you at high rates of interest, we can all rest easy in our beds.
Icelandic Stocks Plummet 76 Pct As Trading Resumes
Iceland's benchmark stock index plunged 76 percent in the first day of trading after a three-day suspension following the collapse of the country's banking industry.
The OMX Iceland 15 Index fell 2,287.53, or 76 percent, to 717.09 as of 10:15 a.m. local time. Trading was halted since Oct. 9 after the index lost 30 percent in nine days.
Iceland has become one of the highest-profile victims of the credit crunch.
Last week, authorities took control of the operations of three major banks, Kaupthing, Landsbanki and Glitnir, in which hundreds of thousands of Britons have savings.
Trading in six financial stocks - Kaupthing, Landsbanki, Glitnir, Straumur-Burdaras, Reykjavik Savings Bank (SPRON) and Exista - remains suspended.
Iceland Could Run Out Of Food In A Fortnight
Icelandic shoppers are flooding supermarkets to stock up on whatever food items they can get their hands on, as the financial crisis there worsens.
One grocery store manager said, "We have had crazy days for a week now. Sales have doubled."
Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency.
Wholesalers are demanding that importers pay before any goods are shipped. Under normal circumstances, wholesalers abroad would extend credit for 30 to 90 days
Store owners say that they can't get any foreign currency to pay for incoming shipments and, even if they could, the exchange rate would be prohibitively high.
What The Hell Is Happening In Iceland?
Icelandic assets in Britain have apparently been frozen under anti-terrorism legislation!
Stephen Timms, Financial Secretary to the Treasury, has confirmed that this was indeed the law which had been used, because “that’s where the power happened to be”, as if there was nothing odd in using such legislation for a purpose for which it cannot originally have been intended.
It is becoming apparent that many of the supposed 300,000 British depositors with money in Icelandic banks are town councils.
Mr Timms was again unable to shed any light on what will happen to their (our) money, beyond saying that a meeting was to be held that afternoon at the Treasury.
Now I'm firmly in the camp that thinks, hey you put your money in a foreign bank to earn a bit of extra interest, you have to face the consequences and abide by the laws of the foreign country you decided to invest in.
Suppose that my local council have "invested" my council tax in Iceland & now can't get it back? What are they going to do? Ask me to pay it again? Stop collecting the rubbish & lighting the streets? Or expect Darling to bail them, and all the other local councils, out?
This thing is going to get far worse before it gets better.
Iceland Having A Haarde Time
Things just keep getting worse for poor old Iceland, the country who has buckled under the weight of debts equal to 12 times the size of the economy.
Kaupthing Bank hf, the nation's biggest bank yesterday became the third lender to be seized by the government since the financial crisis escalated.
Financial regulators were already in charge of the second and third largest lenders, Glitnir Bank hf and Landsbanki Islands hf.
Having said Tuesday it was going to fix the rate of its currency, the central bank yesterday abandoned its attempt, indicating it is powerless to halt the slump in the krona.
Prime Minster Geir Haarde announced earlier in the week that he gad secured funding from Russia, only to later admit that it was not yet a done deal.
Yesterday he said that he may be forced to seek aid from the International Monetary Fund after failing to secure loans from European governments and central banks.
Meanwhile Iceland will now re-start talks with Russia next Tuesday in a last-ditch attempt to secure a loan of as much as 4 billion euros ($5.46 billion), Haarde said yesterday.
Iceland Latest (If You Don't Want To Know The Score Look Away Now)
It has to be asked how could a country with a population the size of Coventry be allowed to run up foreign liabilities seven times the size of its GDP?
With the deregulation of its financial market in the mid-1990s and subsequent stock market boom, Iceland had transformed itself from the poor cousin in Europe to one of the region's wealthiest countries. Icelandic banks and companies made acquisitions across Europe, including the iconic Hamley's toy store the West Ham soccer team, and a sizeable stake in at least one major UK compounder.
But its all gone the shape of a small soft edible fruit for poor old Iceland.
In recent days, Iceland's government has taken over the country's second-biggest bank, fixed the exchange rate of its plummeting currency, and asked Russia for a €4 billion loan as it scrambles to stop the collapse of its economy.
It has also introduced emergency laws that give the government sweeping new powers to take over companies, limit the authority of boards, and call shareholder meetings.
The one thing apparently keeping the country's tottering economy from complete collapse is an influx of money from foreign journalists and camera crews flying into Reykjavik to film the action!
After watching the currency free-fall for several days the Central Bank of Iceland stepped in yesterday to fix the exchange rate of the krona at a level equal to 131 krona against the euro.
Some analysts, however, are not convinced by measures such as the fixing of the exchange rate.
"Given the fact that the Icelandic FX (foreign-exchange) reserve is less than US$3 billion, the peg does not look very credible, and we do not expect it to be maintained," said Lars Christensen, chief analyst at Danske Bank, in a research report.
Around 300,000 Britons (an amount funnily enough similar to the entire population of Iceland), wooed by sexy interest rates, are said to have deposits in Icelandic banks. Alistair Darling has today said that the government would guarantee deposits of British savers with online bank Icesave which yesterday stopped customers, including thousands in Britain, from withdrawing money from their accounts. Although reports suggest that punters may have to wait three months or so to get their money back.
Still that gives them plenty of time to decide where to put it next. Meanwhile....
Its not all doom & gloom for our Icelandic readers, take heart that there IS ONE (and one alone) world currency that has performed even worse than yours versus the dollar in the last thirty days. The bad news is its Zimbabwe's!
Iceland Bust By The End Of The Week?
The incredibly rapid pace of the demise of world financial markets doesn't make it beyond belief. The Icelandic government announced Tuesday it had sought an emergency loan from Russia to stave off the threat of "national bankruptcy."
Prime Minister Geir Haarde's announced he had decided to ask Russia for a loan of €4 billion, or $5.5 billion, to help the government and the central bank keep the economy afloat.
Clearly Mr Haarde is a man we'd all like to play poker against.
Though the government initially said it had secured backing for the loan from Moscow, the Russian deputy finance minister, Dmitry Pankin, told the Interfax news agency that no decision had been made. Iceland later acknowledged that it had been premature, saying it had contacted the Russians but had not yet reached an agreement.
"We are faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy," Haarde said late Monday.
Icesave Deposits Frozen
The global financial crisis continued today as 300,000 British savers were blocked from accessing their money in the Icelandic bank Icesave after it collapsed.
Icesave's British savers now face a difficult struggle to extract their cash, after withdrawals were blocked this morning from the internet portal which gave them access to their money.
Landsbanki, which runs Icesave, is one of a handful of European banks operating in Britain which has the so-called passport exemption - meaning that when the bank fails, the first €20,000 (around £16,000) needs to be reclaimed from the Icelandic compensation system, not the UK system.
Who's Going To Be The First Country To Go Bust?
4/7 fav Iceland...not so much a country as one giant hedge fund gone wrong. The value of its economic output, its GDP, is about $20bn, but its big banks have borrowed some $120bn in foreign currencies. Now that's what I call leverage - and remember that's just the overseas liabilities of its commercial banks.
If the Icelandic Government were to formally underwrite all these liabilities - which it might just have to do, given that other banks and financial institutions no longer want to touch Iceland with the longest barge-pole ever constructed - well its national-debt-to-GDP ratio would be at a level that makes the UK in the 1970s look like a model of prudence.
Reports are now circulating Monday that Iceland has suspended share trade in its hard-hit banks as the government scrambles to avert a full-fledged market meltdown sparked by the global crisis.
The island-nation's top financial regulator has called for trade to be halted in all of the main banks and financial firms.
The Icelandic crown's freefall showed no sign of abating as the currency lost another 7 percent after steep declines last week. The currency slide exacerbates an already precarious situation for local banks as it makes their large foreign debts more expensive to finance.
The country's prime minster told state television late Sunday night the country's authorities had not agreed any specific crisis measures "at this time".
I think that must be what you call burying your head in the ice.
Lidl and Aldi see sales soar amid economic downturn
(The Independent) -- The credit crunch is persuading an increasing number of British people, including the middle classes, to shop at the discounters Aldi and Lidl, the latest TNS Worldpanel data has revealed.
The market research company found that, along with the frozen-food specialist Iceland, the two discounters are powering ahead of their rivals in the UK grocery sector.
Aldi was the top dog, growing its sales by a whopping 20.7 per cent, based on the value of till-roll sales, for the 12 weeks to 15 June. The increase gave Aldi its record share of the UK grocery market at 2.9 per cent.
While Lidl's sales increase of 12.8 per cent is below Aldi's, it is still well ahead of Tesco, Asda, Sainsbury's and Morrisons.
Steve Gotham, project director at Allegra Strategies, said: "Clearly the economic circumstances in the UK are playing into the hands of the discounters. They are appealing to new customers and those new customers are coming from more middle-class back grounds."
Mr Gotham said that both Lidl and Aldi have moved away from their "first-generation hard-discounter proposition" by opening in better locations and sprucing up their stores, making them lighter and more appealing. They have also enhanced the quality and breadth of their ranges.
In particular, he said that Aldi has ramped up its advertising around its enhanced premium product range to attract a wider variety of customers into its stores.
In other areas of the grocery market, the frozen-food specialist Iceland continues to grow its sales and market share. Mr Garner said: "There is also a bit of a rebirth in frozen food." TNS Worldpanel reported that Iceland grew its sales by 12.4 per cent, giving it a 1.7 per cent share of the total grocery market, for the 12 weeks ending 15 June.
Among the big four, Sainsbury's delivered the weakest sales growth at 4.3 per cent for the 12 weeks to 15 June, which was behind Tesco's 5.1 per cent, Asda's 7.5 per cent and Morrisons' 8.1 per cent. Greg Lawless, an analyst at Blue Oar, said: "We have concerns that Sainsbury is starting to find life a lot tougher in the sector, given the inflationary headwind and consumer outlook. In a polarised market, Sainsbury is stuck in the middle ground without a strong price message."
