Fears are growing over the safety of the Icelandic banking system after Glitnir, had to be bailed out by the government 2 days ago. The Government was force to take control of Glitnir as depositors fled the country’s third-largest bank.
This has be of particular concern for savers in the UK since the remaining Iceland’s big banks, Icesave and Kaupthing Edge, are also two of Britain’s most popular online savings providers and are showing signs of weakness.
Over the past 10 days, the CDS rate for both Kaupthing Edge and Icesave have rocketed when compared with their competitors such as Barclays and Alliance & Leicester. Shares of Kaupthing fell four per cent at one stage while those of Landsbanki (Icesave) were down five per cent.
Iceland is particularly sensitive to global volatility in the banking sector due to the rapid growth of its finance sector with its reliance on the international money-markets for funding instead of High Street savers’ cash. Glitnir failed partly due to the scarcity of money on these markets following the recent collapse of Lehman Brothers.
Kaupthing said in a statement it has enough cash to pay all of its obligations for ‘at least 360 days’ and increased the level of savers’ money in its coffers relative to its loan book by 8% to 44% between April and June. A statement released on Icesave’s website yesterday said it has a deposit to loans ratio of 63% and €8bn sitting in its coffers.
Savers in both banks shouldn’t worry since both banks are covered in the UK by the Financial Services Compensation Scheme up to the maximum limit of £35,000.
Source: http://www.thisislondon.co.uk
According to a recent article in the Iceland Review, says Icelandic Banks in the UK are benefiting from recent banking crisis in the UK and US. Icesave and Kaupthing Edge have seen surge in business after UK customers lost faith in their own banks.
Kaupthing said that Monday was in fact the fourth best day of business since it launched its Edge savings account in February this year.
If this article is true, you will expect in the months more UK and US banks facing credit crisis and since depositors are taking out their money, the Central Bank will have to bail them out.
Banking giant Barclays bank has agreed to buy some of the core assets of stricken US investment bank Lehman Brothers for 1.75 billion dollars. $1.5 billion for its New York headquarters and two data centers and $250 million for the trading unit following negotiations in New York, the bank said on Wednesday, Sept. 17. The deal still requires backing from a bankruptcy court.
Lehman Brothers’ US parent filed for bankruptcy protection a couple of days ago, with the UK main trading operation also going into administration.
The US arrangement allowed the group to pursue to sale of its broker-dealer operations, as well as its investment management division. Another subsidiary, Lehman Brothers Asset Management, was also not subject to the bankruptcy petition.
It was a similar story in the UK, where a number of business areas were not part of the administration process, including Lehman Brothers’ asset management and corporate finance business.
It is understood that Barclays has steered clear of becoming involved with so-called “toxic investments” made by Lehman Brothers in volatile residential and commercial property markets.
Approximately 10,000 Lehman employees work for the fixed income and equity sales, trading and research and investment banking businesses that Barclays is set to acquire, Barclays said.
But there has been criticism in London that none of the 5,000 Lehman Brothers’ employees in Britain will benefit from the Barclays move.
