Lisez - "Pourquoi l'Angleterre est LE responsable de notre problème?"

Source : FORBES.com



Commentary
Gordon Brown Killed Iceland
Arsaell Valfells 10.16.08, 11:09 AM ET
REYKJAVIK, ICELAND -
There is plenty of blame to be spread around here in Iceland for why we saw our financial system collapse: the incompetence of the Central Bank for not providing the banks with adequate liquidity as funding dried up; the inability of the government to act decisively as trouble appeared on the horizon; the flawed investments and risk addiction of the greedy bankers in the years before; that the Icelandic Financial Supervisory Authority (IFSA) authorized the overextension of our banking system.
However, on Monday, Oct. 6, Kaupthing was the last of the three big Icelandic banks standing. It had received 500 million euros funding from the Swedish Riksbank and also 500 million euros from the Icelandic Central Bank. Kaupthing was battered by the prior events but still solvent. The other two banks in Iceland, Glitnir and Landsbanki, were at this point in administration of the IFSA.

What is important to note here is that both Landsbanki and Kaupthing operated popular online deposit programs in the U.K., and offered rates well above the local retail banks. A significant difference between the two operations existed: Landsbanki's IceSave operation was run as a branch of the Icelandic mother bank; Kaupthing's Edge was run by a U.K.-registered bank, Kaupthing Singer & Friedlander Ltd. (KS&F), a U.K. Financial Services Authority (FSA)-regulated subsidiary.

On Oct. 8, the U.K. government took action to freeze the assets of Icelandic companies, citing the U.K. Anti-Terror Law. Among them was Kaupthing, and its online banking operation, which was taken over in what looks like an act of revenge in the confusion created in the wake of the collapse of Landsbanki.
What lead to this event is not totally clear. As Landsbanki was taken into administration, discussions started between Icelandic and U.K. authorities on the guarantee of deposits. The problem seemed to be that under Icelandic law, bank deposits were only guaranteed by the Icelandic government up to 15,000 pounds sterling per person. The underlying assets at this point in time were unclear, and discussions had commenced between the two governments on how to guarantee the remaining deposits.

As of this writing, there is still confusion as to what transpired between officials of the two governments, since transcripts of conversations have not been made public. What is known is that on Tuesday, Oct. 7, the governor of the Central Bank of Iceland appeared on local TV and made unfortunate comments aimed at local audiences that "We will not pay for irresponsible debtors and…not for banks who have behaved irresponsibly." That same day, a telephone conversation took place between Arni Mathiesen, the Icelandic minister of finance, and Alistair Darling, the chancellor of the Exchequer. Mathiesen claims that nothing in this telephone conversation can support the conclusion that Iceland would not honor its obligation to insure its part in the deposits of IceSave, as stated in Icelandic law.

On Wednesday, Oct. 8, Darling said, "The Icelandic government, believe it or not, have told me yesterday they have no intention of honoring their obligations here." Darling has not yet disclosed what official communication underlies his statement. On the Oct. 10, Gordon Brown, the U.K. prime minister, stated in an interview with the BBC, that "We are freezing the assets of Icelandic companies in the United Kingdom where we can. We will take further action against the Icelandic authorities wherever that is necessary to recover money."

What is difficult to understand is on what grounds the FSA in the U.K. had the authority to forcefully sell the Edge online deposit operation from KS&F to ING bank. A direct result of that action is that KS&F was subsequently placed into administration, and Kaupthing's creditors pointed out that this situation represented an event of default, according to the parent company's loan agreements and was therefore a technical default. In Kaupthing's statement on the events, the bank points out that it did not matter to the FSA that the parent company and its subsidiary KS&F had sufficient liquidity, and that its position was solid.

Many Icelandic companies operating in the U.K., in totally unrelated industries, experienced their assets being frozen by the U.K. government--as well as other acts of seeming vengeance by U.K. businesses and media.

The immediate effect of the collapse of Kaupthing is that Iceland's financial system is ruined and the foreign exchange market shut down. Retailers are scrambling to secure currency for food imports and medicine. The IMF is being called in for assistance.

As the Icelandic government is now investigating a lawsuit against the U.K., one wonders what lessons can be drawn from this dramatic and possibly avoidable unfolding of events. Maybe the biggest lesson is that the unfounded seizure of Kaupthing--and the harassment of Icelandic companies--may make other financial institutions question the future reliability of the City of London as an international financial center.

Gordon Brown's short-term ploy of attacking Iceland to direct the focus away from his own mess at home may only bring a short-lived satisfaction.
Arsaell Valfells is a business and economics professor at the University of Iceland.