Nationalization of Glitnir Bank Burden to the State? Skip to content

Nationalization of Glitnir Bank Burden to the State?

Foreign financial research companies have expressed concern that Iceland’s nationalization of its third largest bank, Glitnir, will cause difficulties for the state and hinder other economic operations.

The Icelandic króna depreciated by around five percent yesterday and has never been weaker—the ISK has lost 60 percent of its value compared to this time last year; EUR 1 is currently ISK 149.99 and USD 1 ISK 106.13—and it seems unlikely that the state will be able to sell its 75 percent stake in Glitnir in the near future, according to Fitch Ratings.

The Icelandic government has announced that its acquisition of majority of shares in Glitnir is only a short-term measure, Fréttabladid reports.

“It appears that research companies believe that the Icelandic state is biting off more than it can chew in regards to the financing of the new state-owned bank in the next few months,” a statement from Kaupthing Bank reads in response to the evaluations of foreign research companies of the situation.

Yesterday’s news revealed that Standard & Poor’s had downgraded the credit rating of the Icelandic state. After that, Moody’s lowered the credit rating for Glitnir Bank and is considering doing the same for Iceland’s other largest commercial banks, Landsbanki and Kaupthing.

The Kaupthing research department also states that the nationalization of Glitnir Bank is believed to limit the state’s flexibility to react to other credit crunch problems in the Icelandic economic system.

The value of the state’s stake in Glitnir increased by ISK 116 billion (USD 1.1 billion, EUR 770 million) yesterday when trade with shares in the bank resumed. At the same time, the loss of other shareholders in the bank amounted to almost ISK 170 billion (USD 1.6 billion, EUR 1.1 billion).

Chairman of the board of Glitnir Bank, Thorsteinn Már Baldvinsson, said in an interview with RÚV’s news magazine Kastljós last night that the biggest mistake that he had undertaken in a long time was to seek help from the Central Bank because of Glitnir’s troubles.

Baldvinsson claimed that chairman of the Central Bank board of directors, Davíd Oddsson, and Prime Minister Geir H. Haarde had faced Glitnir representatives with hard conditions without estimating the securities of the mortgage Glitnir presented in request for an emergency loan.

Baldvinsson also said that Oddsson had summoned representatives of the media to a press conference before the main shareholders in Glitnir had signed an agreement to accept the state’s offer, despite the Central Bank having promised not to.

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