The Icelandic króna, ISK, fell 1.7% yesterday, and the index of the top 15 companies in the Icelandic stock exchange, ICEX-15, fell 3.8%.
The króna is back at levels not seen since September 2004, reports Morgunbladid. The ICEX-15 is down 15% from peak in mid-February but, nevertheless up 7.6% this year.
Shares of financial companies led the decline on the Icelandic stock exchange yesterday. FL-Group closed down 6.7% on news that its subsidiary, Sterling, had lost its largest customer. Kaupthing, Landsbanki and Glitnir (formerly Íslandsbanki) also finished substantially lower.
The three major banks, Glitnir (formerly Íslandsbanki), Kaupthing (KB-Bank) and Landsbanki have lost 12.9%, 15.6% and 12.4% over the last 30 days, respectively. Investment bank Straumur-Burdaras has shed 17.8% of market value during the same period.
Morgunbladid also reports that bonds issued by the Icelandic banks fell in aftermarket trading in Europe yesterday. According to Morgunbladid, the interest rate spread of the Icelandic banks is now 6-7 times higher than that of comparable banks.
Minister of finance Árni Mathisen was interviewed mid-day by Icelandic National Broadcasting Service, RÚV, on RÚV’s 12:20 daily news program. He claimed the Icelandic financial system was “not facing any particular threats at the moment” and there was “no reason to fear the bankruptcy of the Icelandic banks.”
Eiríkur Gudnason, one of three directors of the Central Bank of Iceland, said Icelandic depositors had no reason to fear for their holdings with the Icelandic banks because the bank’s equity position was strong and they were prepared for “a number of contingencies.” Eiríkur said the negative coverage of the Icelandic banks abroad would primarily have the effect of slowing their foreign investments.
The prime minister Halldór Ásgrímsson said on RÚV that the banks and Icelandic financial system were “sound”. He said the Icelandic financial system followed “international regulations” but did not elaborate. He also said “the situation has been closely monitored”. RÚV further reported that the government has decided to speed up preparation for turning the state sponsored Housing Financing Fund into an investment bank.
Mid-day yesterday news broke that Morgan Stanley had issued a report on the Icelandic banks. Morgan Stanley said, “We find that the fixed income markets have overreacted to the risks the Icelandic banks face – and should start distinguishing them.” It went on to say “We recommend Islandsbanki (Glitnir) and Landsbanki,” but added “we just can’t get comfortable with Kaupthing.”
In today’s paper, Morgunbladid interviews the CEO’s of the three largest banks and the Eiríkur Gudnason of the Central Bank. According to Morgunbladid, Eiríkur claims it is “quite alright for the banks to slow down a bit”.
In Morgunbladid today, Bjarni Ármansson of Glitnir cites the Morgan Stanley report and claims the markets have “overreacted”. Halldór Kristjánsson of Landsbanki says “the coverage is negative and based on false claims.” Hreidar Már Sigurdsson of Kaupthing says the “tone of the discussion is changing.”
Today, Fréttabladid reports on its front page that Kaupthing has already completed a third of its financing for the year through a syndicated loan.
As of 10 am this morning, the Icelandic króna had recovered just over 1%, and the ICEX-15 was up by approximately 2%.