The three commercial banks in Iceland, Glitnir Bank, Kaupthing Bank and Landsbanki Bank are facing certain difficulties with regards to debt financing since the loan capital available in international markets is very expensive.
Glitnir Bank CEO Lárus Welding announced last night that the bank has cancelled its planned bond offering due to difficult market conditions. The bank’s credit default swaps (CDS) are too high, currently at 335 points, Morgunbladid reports.
The situation is equally difficult at the other commercial banks. Kaupthing Bank’s CDS is at 415 points, and the CDS at Landsbanki Bank is 260 points. That means that the refinancing available for the banks in international debt financing markets costs more than some of the loans the banks are granting at the moment.
According to Morgunbladid, the situation at Landsbanki Bank is better than at the other banks in this regard, because it is not in as dire need for loans compared with Glitnir Bank and Kaupthing Bank. The liquid cash position of Landsbanki Bank is very strong, especially because of its success in Britain with the ICESAVE program.
The liquid cash positions of Glitnir Bank and Kaupthing Bank are also strong, but Kaupthing is currently in a difficult situation because of its planned takeover of the Dutch bank NIBC. International markets are still in turmoil and Kaupthing was not given permission to adopt the euro on January 1, 2008, as expected.
Kaupthing Bank CEO Hreidar Már Sigurdsson said rumors that Kaupthing is going to cancel the takeover are groundless. Fréttabladid speculates, however, whether instead of Kaupthing taking over NIBC, NIBC will take over Kaupthing and relocate its headquarters from Iceland to the Netherlands.
Click here to read more about the situation of the Icelandic economy.
Below is a statement from Glitnir Bank in response to this article:
Glitnir in a comfortable liquidity position
Decides not to raise funds in current markets
Glitnir has decided not to raise funds for the time being in light of the current unfavourable market conditions. The Bank is in a good position with more than EUR 6 billion of immediately available funds with maturing long term debt of EUR 2.5 billion in 2008 for parent company and EUR 1 billion for its Norwegian subsidiary.
The decision of the Central Bank of Iceland, earlier this week, to alter the rules on collaterals in regular transactions with the Central Bank, will improve Glitnir’s liquidity position even further.
Glitnir made the decision based on current market conditions:
• US market is difficult at the moment: Further news on writeoffs by banks were reported this week followed by a downgrade in the US market by S&P.
• The market has in general been tough: CDS have widened on all banks and debt markets have been unfavourable.
Glitnir has at all times several ongoing funding initiatives and will continue to monitor the markets to explore opportunities for future issues and other funding activities.