Posted on 10/07/2008 7:05:56 AM PDT by Schnucki
Iceland said it will borrow €4bn (£3.1bn) from the Russian Treasury, after announcing this morning that it would nationalise its second biggest bank, Landsbanki, and give a £400m loan to its largest lender, Kaupthing.
The decision to borrow a large sum of money from another country comes just hours after Prime Minister Geir Haarde told the country that borrowing billions of krona could "make the whole Icelandic society bankrupt".
The threat to Iceland's financial sovereignty is seen as the greatest faced by any country since the credit crisis started 14 months ago.
The Russian ambassador to Iceland, Victor Tatarintsev, informed central bank governor David Oddsson early this morning that Russia would provide Iceland with the loan for three to five years at rates 30 to 50 points above Libor.
However, Russia's deputy finance minister Dmitry Pankin said the country has not yet decided whether to make the loan.
Iceland's Financial Supervisory Authority announced on its website that the nation's second biggest bank, Landsbanki, was now in national hands, dismissing the board of directors and putting the company into receivership.
The country's largest bank, Kaupthing, will be given a £400m loan from the Icelandic Central Bank, which yesterday guaranteed all savings for Icelandic customers.
News of the bank nationalisations sent the Icelandic krona plummeting to a new 35pc low against the euro, but the currency recovered the loss after reports of Russia's loan.
Iceland's FSA has replaced the board with its own executives.
Around 150,000 people in the UK have savings with Landsbanki's Icesave and Kaupthing Edge, the UK retail arm of the Icelandic bank. Icesave said overnight that it had stopped processing requests to remove money and taking on new customers.
(Excerpt) Read more at telegraph.co.uk ...
The Spectator
Near-bankrupt Iceland's €4bn ($5.43bn) loan from Russia is still not a done deal. Iceland's central bank Governor David Oddsson says that talks are still "ongoing" but that any aid from Russia would be "very much welcomed."
You can understand why Iceland is desperate for a massive euro-injection in the current bank crisis: the Sedlabanki, the central bank in Reykjavik, urgently needs euros because it has only €4.5bn in its current reserves and the country’s banking system needs to refinance about €10bn before year end -- not easy when the Icelandic krona has fallen 40 per cent against the Euro currency so far this year.
But what price will the Russians demand for their bailout? A highly-placed source in Reykjavik tells Coffee House that Iceland might look kindly on requests from Russia's military to use America's former military base in Iceland. America closed its Naval Air Station at Keflavik Airport two years ago, handing back the Nato facility to the Icelandic government.
Now the word in Reykjavik is that the Russians could have use of it in return for the loan. Not that Keflavik would become a Russian air base -- Iceland is a member of Nato, so that is out of the question -- but it would suit the Kremlin to be able to use it for, say, refuelling and maintenance. Having use of such a facility only a few hours flying time from North America would be a major Russian propaganda coup and cause consternation in Washington.
Iceland is in two minds. It wants to remain a loyal Nato member. But it is also in financially desperate straits and there is some resentment about the abrupt manner in which the Americans left, leaving the massive facility to deteriorate. So Iceland might look more kindly on any Russian request than the rest of Nato thinks.
I thought it would be a cold day in hell before a European country borrowed from the Russians!
Hillarious! With the Russian stock market closing early most days this month, where are they going to get the money! LMAO!
Russian stock market is very small and does not reflect the real situation in economics.
Russian economics growth is about 6% and there is no problem while oil price is more than $60/barrel.
Thanks the information. Do you think that Russia's recent flexing of muscle is about keeping the price of oil above $60?
Well, speaking of oil producers the price mainly depends on OPEC countries, not Russia.
But what really sets oil price is a condition of world (and US) economics. Predicting the state of economics you can predict oil price. Can you? :)))
Interesting. The Russians are rapidly trying to stake a claim that the arctic circle and it’s resources are basically theirs. My first reaction to this loan was to say “how does this help them advance their claim on the polar region?” A base would help.
Of course, you are correct. The law of demand and supply work in the long run. Short term fluctuations can be caused by perceptions.
If you are looking at me to tell you which way the price of oil is heading, you have tapped the wrong guy. If I could, I would own this site. (smile).
Remember that Russia’s main goal right now is to prevent NATO expansion. It takes a unanimous vote of alliance members to expand. I think the Russians think this price for preventing NATO expansion is a bargain.
The credit crisis started 14 months ago???? In Iceland????
Whazzup wit dat?
Plus this:
Landsbanki takeover casts pall over West Ham (Reuters)
London soccer club West Ham United's finances were again in the spotlight on Tuesday after the Icelandic bank chaired by the club's billionaire owner was put in receivership, the latest victim of global financial turmoil.
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