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Context of 'October 20, 2008: New Banks Formed in Iceland'

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The British financial website “This is Money” warns about the stability of the Kaupthing Edge banking product. Kaupthing Edge is a brand used to attract depositors by the Icelandic Kaupthing Bank. In response to a reader’s question about the brand’s soundness, correspondent Alan O’Sullivan points out that the rating agency Moody’s has recently described Icelandic banks as “fragile” and that its borrowing costs have increased 400% in the last year. For this reason, analysts think it is far more likely to default than any other European bank. As a result, O’Sullivan recommends that savers do not maintain balances on accounts with the bank in excess of the maximum limit on deposit insurance. (O?Sullivan 2/22/2008) Kaupthing Bank will collapse seven and a half months later. (Young 10/9/2008)

Mohammed bin Khalifa al-Thani, a member of the royal family of Qatar, pays $280.4 million for a 5% stake in the Icelandic Kaupthing Bank (see February 22, 2008). The bank’s shares have been falling on Iceland’s stock exchange, down 57% in the last twelve months, and the bank has been buying them back itself in an attempt to boost its stock price. The purchase makes al-Thani the third largest shareholder in the bank. (Laurent 9/22/2008) Seventeen days later, the bank will be on the verge of collapse and will be seized by the government of Iceland. (Young 10/9/2008)

The government of Iceland takes a 75 percent stake in the country’s third-largest bank, Glitnir, after the bank runs into short-term funding problems. (BBC 2/2/2009)

The government of Iceland takes control of the country’s second and third largest banks, Landsbanki and Glitnir; it already had a majority in Glitnir (see September 29, 2008). The financial crisis hit Icelandic banks so severely because they owe relatively more money than banks in other countries. When the crisis starts in earnest, they owe around six times the country’s total gross domestic product. Therefore, when the world’s credit markets dry up, they are unable to refinance their loans. (BBC 2/2/2009)

Following the seizure of two Icelandic banks by that country’s government (see October 7, 2008), the British government invokes anti-terrorism legislation to seize Icelandic assets in Britain. Iceland’s Prime Minister Geir Haarde criticizes Britain, saying he is upset and shocked that it has used “hostile” anti-terrorism legislation to freeze Icelandic banks’ assets. However, British Prime Minister Gordon Brown condemns Iceland’s handling of the collapse of its banks and its failure to guarantee British savers’ deposits. He says Iceland’s policies are “effectively illegal” and “completely unacceptable.” Iceland will later threaten legal action against Britain. (BBC 2/2/2009)

Iceland’s government takes control of the country’s biggest bank, Kaupthing. This follows a decision by the British government to invoke anti-terrorism legislation to freeze Icelandic assets in Britain (see October 8, 2008). (BBC 2/2/2009)

Iceland’s financial authorities formally announce the establishment of new Glitnir, Landsbanki, and Kaupthing banks. The old banks were taken over by the government two weeks previously as their condition had deteriorated due to the global credit crisis (see October 7, 2008 and October 8, 2008). (BBC 2/2/2009)


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