Kaupthing Edge
Discussion
Anyone dealt or know much about this bank?? They have a pretty attractive 6.5% Savings account going at the moment, with easy access to your cash and no penalties for taking some out if the need be. Their interest rate is guaranteed to be at least 0.30% above the Bank of England base rate until 1st February 2012.
Im thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
Im thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
stimmers said:
Anyone dealt or know much about this bank?? They have a pretty attractive 6.5% Savings account going at the moment, with easy access to your cash and no penalties for taking some out if the need be. Their interest rate is guaranteed to be at least 0.30% above the Bank of England base rate until 1st February 2012.
Im thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
The credit market deem them to be riskier than averageIm thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
NoelWatson said:
stimmers said:
Anyone dealt or know much about this bank?? They have a pretty attractive 6.5% Savings account going at the moment, with easy access to your cash and no penalties for taking some out if the need be. Their interest rate is guaranteed to be at least 0.30% above the Bank of England base rate until 1st February 2012.
Im thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
The credit market deem them to be riskier than averageIm thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
Kaupthing Edge* account pays 6.5% AER as long as you have over £1,000 in the account. It also has the best rate guarantee, promising to be at least 0.30% higher than the Bank of England base rate
Kaupthing is the UK offshoot of a big Icelandic bank, but is new to the UK market so there’s no feedback on its smoothness or customer service yet. However, it is signed up to the Banking Code and crucially your first £35,000 is protected (see the Safe Savings? article) the same as all other UK banks. If you're saving any more than that, you may want to spread savings between more than one account, just to ensure full protection for every penny, so have a look at the accounts listed below
Edited by stimmers on Monday 7th April 13:08
stimmers said:
NoelWatson said:
stimmers said:
Anyone dealt or know much about this bank?? They have a pretty attractive 6.5% Savings account going at the moment, with easy access to your cash and no penalties for taking some out if the need be. Their interest rate is guaranteed to be at least 0.30% above the Bank of England base rate until 1st February 2012.
Im thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
The credit market deem them to be riskier than averageIm thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
Kaupthing Edge* account pays 6.5% AER as long as you have over £1,000 in the account. It also has the best rate guarantee, promising to be at least 0.30% higher than the Bank of England base rate
Kaupthing is the UK offshoot of a big Icelandic bank, but is new to the UK market so there’s no feedback on its smoothness or customer service yet. However, it is signed up to the Banking Code and crucially your first £35,000 is protected (see the Safe Savings? article) the same as all other UK banks. If you're saving any more than that, you may want to spread savings between more than one account, just to ensure full protection for every penny, so have a look at the accounts listed below
Edited by stimmers on Monday 7th April 13:08
davy9449 said:
stimmers said:
NoelWatson said:
stimmers said:
Anyone dealt or know much about this bank?? They have a pretty attractive 6.5% Savings account going at the moment, with easy access to your cash and no penalties for taking some out if the need be. Their interest rate is guaranteed to be at least 0.30% above the Bank of England base rate until 1st February 2012.
Im thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
The credit market deem them to be riskier than averageIm thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
Kaupthing Edge* account pays 6.5% AER as long as you have over £1,000 in the account. It also has the best rate guarantee, promising to be at least 0.30% higher than the Bank of England base rate
Kaupthing is the UK offshoot of a big Icelandic bank, but is new to the UK market so there’s no feedback on its smoothness or customer service yet. However, it is signed up to the Banking Code and crucially your first £35,000 is protected (see the Safe Savings? article) the same as all other UK banks. If you're saving any more than that, you may want to spread savings between more than one account, just to ensure full protection for every penny, so have a look at the accounts listed below
Edited by stimmers on Monday 7th April 13:08
stimmers said:
NoelWatson said:
stimmers said:
Anyone dealt or know much about this bank?? They have a pretty attractive 6.5% Savings account going at the moment, with easy access to your cash and no penalties for taking some out if the need be. Their interest rate is guaranteed to be at least 0.30% above the Bank of England base rate until 1st February 2012.
Im thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
The credit market deem them to be riskier than averageIm thinking of opening an account and wacking in the max amount that is guaranteed by the Bank of England if everything went tits up.
Seems much more attractive than my bank's (HSBC) money market offerings currently;
Current rates;
2 weeks 4.05%
4 weeks 4.15%
8 weeks 4.72%
Dont understand why such a big jump for 2 months, especially with a hint of a drop in base rate this week
Kaupthing Edge* account pays 6.5% AER as long as you have over £1,000 in the account. It also has the best rate guarantee, promising to be at least 0.30% higher than the Bank of England base rate
Kaupthing is the UK offshoot of a big Icelandic bank, but is new to the UK market so there’s no feedback on its smoothness or customer service yet. However, it is signed up to the Banking Code and crucially your first £35,000 is protected (see the Safe Savings? article) the same as all other UK banks. If you're saving any more than that, you may want to spread savings between more than one account, just to ensure full protection for every penny, so have a look at the accounts listed below
Edited by stimmers on Monday 7th April 13:08
That's an interesting one, Kaupthing CDS's are trading at 800 bps or so in the 5 year (apparently they can raise funding for less though - it's not my field, so please correct me if I am wrong).
It's probably still a lot cheaper to get funding by paying UK retail punters 6.5% and taking advantage of the 35k deposit guarantee to help entice them. Every little helps ...
Also they might need GBP and I am guessing the EUR/ISK fx market isn't exactly liquid at this point in time!
sebo said:
Kaupthing Singer & Friedlander are a client of ours. As others have said, your money should be safe there.
Alliance and Leicester have a 10% ISA if you pay your salary into a premier savings account with them
Linky
Kaupthing 5 year senior mid closed closed at 778bps. There are not many banks that are riskier. For reference Lloyds 5Y mid was 57 bps. If it were my money I would be very tempted to go with the safe option.Alliance and Leicester have a 10% ISA if you pay your salary into a premier savings account with them
Linky
As someone else said on the thread, if it goes pop, how long will it take for you to get your money back.
NoelWatson said:
sebo said:
Kaupthing Singer & Friedlander are a client of ours. As others have said, your money should be safe there.
Alliance and Leicester have a 10% ISA if you pay your salary into a premier savings account with them
Linky
Kaupthing 5 year senior mid closed closed at 778bps. There are not many banks that are riskier. For reference Lloyds 5Y mid was 57 bps. If it were my money I would be very tempted to go with the safe option.Alliance and Leicester have a 10% ISA if you pay your salary into a premier savings account with them
Linky
As someone else said on the thread, if it goes pop, how long will it take for you to get your money back.
Higher funding always equals higher risk.
Also the way that the 35K deposit is guaranteed depends upon whether they are FSA regulated or just a member of the EU passport system. If its the latter then Icelandic banks have a compensation ceiling of £16,300 and the FSA make up the rest to £35k.
See http://www.telegraph.co.uk/money/main.jhtml?xml=/m... for a few more details.
See http://www.telegraph.co.uk/money/main.jhtml?xml=/m... for a few more details.
http://ftalphaville.ft.com/blog/2008/03/05/11367/k...
Kaupthing: We’re not — repeat NOT — desperate
In what the FT (worryingly) suggests could become a trend among struggling banks, Icelandic bank Kaupthing raised €1.1bn ($1.7bn) through privately placed bonds on Tuesday- mainly, it claimed, because it could.
The bank has had a very rough ride in the credit markets of late. Kaupthing (which has the deal plastered all over its website) said it wanted to prove it could still raise funds, despite being locked out of public bond markets by its skyrocketing credit derivative spreads.
CDS for Kaupthing were trading at around 706bp on Monday.
As Lex noted on January 31, just after Kaupthing pulled its bid for NIBC, the Dutch brokerage, most European banks with similar credit ratings had credit default swap prices of around 60bp. Indeed, in July 2007, before the credit crisis broke, spreads on Kaupthing CDS were around just 30bp.
Tapping the public bond markets has become prohibitively expensive for Kaupthing because, by convention, new bonds are issued at a level above CDS.
Two German banks, a UK asset manager and a US asset manager bought Kaupthing’s privately placed bonds after a month of negotiations, said Gudni Adalsteinsson, chief treasurer at Kaupthing, noting that the bank also received a €195m loan from a “European bank”, without saying which one. “We don’t usually announce transactions like this but … this is an important message to go out to the market, that the CDS markets are not the beginning and the end of all,” he said.
Kaupthing’s CDS spreads receded by about 70bp on Tuesday amid news of the placement.
The question, however, is what kind of interest Kaupthing is paying on the bonds - something the bank remains coy about, although it insists the rate is “significantly below” its CDS levels, and below the level at which it normally lends to its corporate clients.
“It remains very expensive funding, and this situation can’t go on for ever,” Olivia Frieser, credit analyst at BNP Paribas, told the FT.
Adalsteinsson, meanwhile, denied that Kaupthing raised the funds through desperation, stressing that the bank already had enough liquidity to last 360 days: “We thought if you can get money now, you should … because you never know when the market’s going to be open; when this long winter’s going to end,” he said, adding that the shift to privately negotiated deals is bound to continue - and not just at Kaupthing.
Lex, however, said at the end of January that Iceland’s systemic frailties “should not be exaggerated”.
All the main banks run a surplus of foreign-currency assets over liabilities, and the size of this relative to their capital is governed by central bank restrictions. Fourth-quarter results at the big three banks showed healthy net interest income, while capital ratios look solid. Meanwhile, the oft-cited comparison of Iceland’s population — a lowly 300,000 — with the combined €118bn balance sheet of its three biggest banks is a distraction. No one draws a similar parallel between, say, Edinburgh and Royal Bank of Scotland.
The question is whether markets will revert to normality before the banks run out of cash; Kaupthing and Landsbanki say they have liquidity on hand to last at least another year. Until then, hunkering down while chasing deposits — as they did after the last liquidity wobble in late 2005 — looks the smartest option.
http://www.thisismoney.co.uk/ask-an-expert/savings...
Could Kaupthing Edge be the next Rock?
This is Money
22 February 2008
Reader comments (6) | Chat | Vote | Guide | Calculate
I've been hearing suggestions that the Icelandic banking system is on the verge of collapse. Is this true? And does this mean I should pull my savings out of Icelandic-owned Kaupthing Edge? - A.S. Bennett, Walsall
A safe bet? Kaupthing UK office
Alan O'Sullivan, savings and banking correspondent with This is Money, says: In this case, you may think there is no smoke without fire. Moody's, the international credit-rating agency, recently described Iceland's banks as 'fragile', and said recently it was continuing its on-going review of their credit-worthiness.
Furthermore, research from investment bank Morgan Stanley reveals Kaupthing Edge's borrowing costs have increased 400% in the past year, leading analysts to conclude that the bank is 7.5 times more likely to default than any other European bank.
That said, Kaupthing, which made an impressive debut into the UK savings market earlier this month, is fully covered by the UK's Financial Services Compensation Scheme. Under this, all your savings are guaranteed up to £35,000. If you have more than this with the bank, perhaps now is the time to pare your savings down and redistribute them among its high-interest paying rivals such as ICICI or Bradford & Bingley.
Of course, one of Kaupthing's main rivals is its Icelandic colleague Landsbanki, the origins of the popular Icesave account.
You may also have concerns over Icesave at the moment, given the amount of print expressing concern over Iceland's banking system since the Moody's report three weeks ago.
Unlike Kaupthing, Icesave's borrowing costs have only increased by 200% over the past year, the same as Bradford & Bingley's. But like some foreign-owned banks in the UK, Landsbanki operates under a less attractive 'passport' system to the FSCS, where they run the equivalent of a UK branch from their home country.
This gives them European Economic Area authority rather than FSCS authority. The result: in the event a bank goes bust, you would still be covered up to £35,000, but you would have to claim a substantial chunk of the money from the foreign bank's home country.
Ireland, one of the countries with subsidiaries in the UK, pays a maximum of £14,000 in compensation, Holland pays £15,600 and, finally, Iceland pays £16,300. Any sum over this must then be claimed from the FSCS.
In the event of a banking crisis in Iceland - Moody's may have its concerns but Iceland's public finances remain healthy - you would first have to wait to receive your £16,300 from the Icelandic system, which could take months if the whole system collapses.
It is true that there is no precidence for any such delays - such a crisis has not happened before - but it is reasonable to say that you may have to wait longer for compensation than if all your assets were with an FSCS-protected UK bank. If everything is business as ususal however - and crisis does not hit the Icelandic banking system - there is nothing to suggest you would have to wait longer for compensation from a foreign bank.
And that could mean a considerable amount of lost interest for savers.
To be fair, Kaupthing has responded to all of this with a rigorous defence. A spokesman has said that, unlike Northern Rock, the bank can rely on the large liquid assets of its corporate banking arm. It also says the method of calculating its debt - which takes into account complex lending instruments - is unfair.
To boot, Landsbanki points to its large liquid assets - reputed to be €9bn, in comparison to debts maturing this year of approximately €900m.
In the end, this all depends on who you want to believe. Perhaps the best course of action is to keep no more than £35,000 with each bank - which is best practice in these times with any banking institution. And make sure you don't accidentally deposit twice with the same bank: How to avoid double deposits
http://ftalphaville.ft.com/blog/2008/03/27/11857/m...
NH: Lemmy, we might pass on Bjork
NH: she has a track record of attacking journos and camera men
PM: Just on UK deposits in Icelandic banks for those below….
PM: As i understand it they fall under the UK compensation scheme
NH: so if Kaupthing goes under
NH: desposits in Kaupthing direct
NH: are underwritten by the UK govt
PM: Well yes, although financial fims fund the pot in the first instance
PM: Worryingly, one icelandic bank executive recently “assured” me that they didn’t have any savers above the 28k threshold
PM: or is it a 24k threshold??
PM: Anyway….
CitiBank, the world's largest bank had to offer over 8% and equity to raise cash and they still had aan allright credit rating at the time. 6.5% is cheap for something which actually has a measured ability to default.
Kaupthing: We’re not — repeat NOT — desperate
In what the FT (worryingly) suggests could become a trend among struggling banks, Icelandic bank Kaupthing raised €1.1bn ($1.7bn) through privately placed bonds on Tuesday- mainly, it claimed, because it could.
The bank has had a very rough ride in the credit markets of late. Kaupthing (which has the deal plastered all over its website) said it wanted to prove it could still raise funds, despite being locked out of public bond markets by its skyrocketing credit derivative spreads.
CDS for Kaupthing were trading at around 706bp on Monday.
As Lex noted on January 31, just after Kaupthing pulled its bid for NIBC, the Dutch brokerage, most European banks with similar credit ratings had credit default swap prices of around 60bp. Indeed, in July 2007, before the credit crisis broke, spreads on Kaupthing CDS were around just 30bp.
Tapping the public bond markets has become prohibitively expensive for Kaupthing because, by convention, new bonds are issued at a level above CDS.
Two German banks, a UK asset manager and a US asset manager bought Kaupthing’s privately placed bonds after a month of negotiations, said Gudni Adalsteinsson, chief treasurer at Kaupthing, noting that the bank also received a €195m loan from a “European bank”, without saying which one. “We don’t usually announce transactions like this but … this is an important message to go out to the market, that the CDS markets are not the beginning and the end of all,” he said.
Kaupthing’s CDS spreads receded by about 70bp on Tuesday amid news of the placement.
The question, however, is what kind of interest Kaupthing is paying on the bonds - something the bank remains coy about, although it insists the rate is “significantly below” its CDS levels, and below the level at which it normally lends to its corporate clients.
“It remains very expensive funding, and this situation can’t go on for ever,” Olivia Frieser, credit analyst at BNP Paribas, told the FT.
Adalsteinsson, meanwhile, denied that Kaupthing raised the funds through desperation, stressing that the bank already had enough liquidity to last 360 days: “We thought if you can get money now, you should … because you never know when the market’s going to be open; when this long winter’s going to end,” he said, adding that the shift to privately negotiated deals is bound to continue - and not just at Kaupthing.
Lex, however, said at the end of January that Iceland’s systemic frailties “should not be exaggerated”.
All the main banks run a surplus of foreign-currency assets over liabilities, and the size of this relative to their capital is governed by central bank restrictions. Fourth-quarter results at the big three banks showed healthy net interest income, while capital ratios look solid. Meanwhile, the oft-cited comparison of Iceland’s population — a lowly 300,000 — with the combined €118bn balance sheet of its three biggest banks is a distraction. No one draws a similar parallel between, say, Edinburgh and Royal Bank of Scotland.
The question is whether markets will revert to normality before the banks run out of cash; Kaupthing and Landsbanki say they have liquidity on hand to last at least another year. Until then, hunkering down while chasing deposits — as they did after the last liquidity wobble in late 2005 — looks the smartest option.
http://www.thisismoney.co.uk/ask-an-expert/savings...
Could Kaupthing Edge be the next Rock?
This is Money
22 February 2008
Reader comments (6) | Chat | Vote | Guide | Calculate
I've been hearing suggestions that the Icelandic banking system is on the verge of collapse. Is this true? And does this mean I should pull my savings out of Icelandic-owned Kaupthing Edge? - A.S. Bennett, Walsall
A safe bet? Kaupthing UK office
Alan O'Sullivan, savings and banking correspondent with This is Money, says: In this case, you may think there is no smoke without fire. Moody's, the international credit-rating agency, recently described Iceland's banks as 'fragile', and said recently it was continuing its on-going review of their credit-worthiness.
Furthermore, research from investment bank Morgan Stanley reveals Kaupthing Edge's borrowing costs have increased 400% in the past year, leading analysts to conclude that the bank is 7.5 times more likely to default than any other European bank.
That said, Kaupthing, which made an impressive debut into the UK savings market earlier this month, is fully covered by the UK's Financial Services Compensation Scheme. Under this, all your savings are guaranteed up to £35,000. If you have more than this with the bank, perhaps now is the time to pare your savings down and redistribute them among its high-interest paying rivals such as ICICI or Bradford & Bingley.
Of course, one of Kaupthing's main rivals is its Icelandic colleague Landsbanki, the origins of the popular Icesave account.
You may also have concerns over Icesave at the moment, given the amount of print expressing concern over Iceland's banking system since the Moody's report three weeks ago.
Unlike Kaupthing, Icesave's borrowing costs have only increased by 200% over the past year, the same as Bradford & Bingley's. But like some foreign-owned banks in the UK, Landsbanki operates under a less attractive 'passport' system to the FSCS, where they run the equivalent of a UK branch from their home country.
This gives them European Economic Area authority rather than FSCS authority. The result: in the event a bank goes bust, you would still be covered up to £35,000, but you would have to claim a substantial chunk of the money from the foreign bank's home country.
Ireland, one of the countries with subsidiaries in the UK, pays a maximum of £14,000 in compensation, Holland pays £15,600 and, finally, Iceland pays £16,300. Any sum over this must then be claimed from the FSCS.
In the event of a banking crisis in Iceland - Moody's may have its concerns but Iceland's public finances remain healthy - you would first have to wait to receive your £16,300 from the Icelandic system, which could take months if the whole system collapses.
It is true that there is no precidence for any such delays - such a crisis has not happened before - but it is reasonable to say that you may have to wait longer for compensation than if all your assets were with an FSCS-protected UK bank. If everything is business as ususal however - and crisis does not hit the Icelandic banking system - there is nothing to suggest you would have to wait longer for compensation from a foreign bank.
And that could mean a considerable amount of lost interest for savers.
To be fair, Kaupthing has responded to all of this with a rigorous defence. A spokesman has said that, unlike Northern Rock, the bank can rely on the large liquid assets of its corporate banking arm. It also says the method of calculating its debt - which takes into account complex lending instruments - is unfair.
To boot, Landsbanki points to its large liquid assets - reputed to be €9bn, in comparison to debts maturing this year of approximately €900m.
In the end, this all depends on who you want to believe. Perhaps the best course of action is to keep no more than £35,000 with each bank - which is best practice in these times with any banking institution. And make sure you don't accidentally deposit twice with the same bank: How to avoid double deposits
http://ftalphaville.ft.com/blog/2008/03/27/11857/m...
NH: Lemmy, we might pass on Bjork
NH: she has a track record of attacking journos and camera men
PM: Just on UK deposits in Icelandic banks for those below….
PM: As i understand it they fall under the UK compensation scheme
NH: so if Kaupthing goes under
NH: desposits in Kaupthing direct
NH: are underwritten by the UK govt
PM: Well yes, although financial fims fund the pot in the first instance
PM: Worryingly, one icelandic bank executive recently “assured” me that they didn’t have any savers above the 28k threshold
PM: or is it a 24k threshold??
PM: Anyway….
CitiBank, the world's largest bank had to offer over 8% and equity to raise cash and they still had aan allright credit rating at the time. 6.5% is cheap for something which actually has a measured ability to default.
NoelWatson said:
LeoSayer said:
Sorry for my ignorance, 778bps on what?
The credit default swap spread. The 1 year spread was around 950 bps yesterday, so the market are pricing in >10% chance of default in the next year. Is it worth the risk?You may find this interesting - it's a lot more recent than the 'news' links posted above.
http://www.ft.com/cms/s/0/20b359f4-058b-11dd-a9e0-...
Edited by munky on Wednesday 9th April 17:34
Horse_Apple said:
CitiBank, the world's largest bank had to offer over 8% and equity to raise cash and they still had aan allright credit rating at the time. 6.5% is cheap for something which actually has a measured ability to default.
Interesting you mention Citibank, which has the worst Tier 1 ratio among US banks, i.e. the thinnest cushion against losses, of 7.1% vs the minimum of 6%. Kaupthing for instance has a Tier 1 ratio of 9.6% and Landsbanki 10.1% compared to Bradford & Bingley's 8.6%.munky said:
NoelWatson said:
LeoSayer said:
Sorry for my ignorance, 778bps on what?
The credit default swap spread. The 1 year spread was around 950 bps yesterday, so the market are pricing in >10% chance of default in the next year. Is it worth the risk?You may find this interesting - it's a lot more recent than the 'news' links posted above.
http://www.ft.com/cms/s/0/20b359f4-058b-11dd-a9e0-...
Edited by munky on Wednesday 9th April 17:34
I appreciate that Kaupthing's CDS spread may not be justified by the fundamentals, similar to ITRAXX Europe recently, but you must admit that Iceland as a whole is not looking too clever at the moment. If Kaupthing or other Icelandic banks start to suffer, is Iceland going to be able to bail them out (5Y spread @ 288 vs 12bps (appreciate again may be technical factors))? While the ongoing situation might be speculation by hedge funds etc, we saw what that almost did to HBOS.
My point was that for an extra ~0.4% of interest, is it really worth the risk/worry?
NoelWatson said:
Munky,
I appreciate that Kaupthing's CDS spread may not be justified by the fundamentals, similar to ITRAXX Europe recently, but you must admit that Iceland as a whole is not looking too clever at the moment. If Kaupthing or other Icelandic banks start to suffer, is Iceland going to be able to bail them out (5Y spread @ 288 vs 12bps (appreciate again may be technical factors))? While the ongoing situation might be speculation by hedge funds etc, we saw what that almost did to HBOS.
My point was that for an extra ~0.4% of interest, is it really worth the risk/worry?
Well the economy is still in a massive growth stage, with complete full employment meaning a lack of workers and hence pushing up wages and hence inflation massively, which (combined with the now falling krona) is what prompted them to raise rates to 15% recently. So by most definitions that is overheating, which does raise risk of a downturn - but on the other hand the government is cash rich and has almost no debt so it's a bid odd that the CDS price - the cost of insuring debt against default - got so high is bizarre.I appreciate that Kaupthing's CDS spread may not be justified by the fundamentals, similar to ITRAXX Europe recently, but you must admit that Iceland as a whole is not looking too clever at the moment. If Kaupthing or other Icelandic banks start to suffer, is Iceland going to be able to bail them out (5Y spread @ 288 vs 12bps (appreciate again may be technical factors))? While the ongoing situation might be speculation by hedge funds etc, we saw what that almost did to HBOS.
My point was that for an extra ~0.4% of interest, is it really worth the risk/worry?
Anyway my point is, the banks' liquidity positions are so good that I think whether the Icelandic govt can bail them out or not is hardly relvant. I think the govt is cash rich but the issue is foreign currency reserves, which according to Bloomberg today they're now starting to address. Also there was talk of a story coming out tomorrow about a new co-operation between Nordic central banks (inc. Iceland) in the event of a banking crisis.
Onto your (reasonable) point about the extra 0.4% being worth the risk - who is the comparison against? Is there a UK bank offering 6.1% instant access? (if so I might put some cash there too!). If it's vs HSBC or Lloyds or Barclays, well probably not. If it's 0.4% more than Alliance or B&B, probably yes because I believe the Icelandics are safer.
Interesting report from Moody's I've just seen:
Moody's said:
Moody's issues annual report on Iceland
2008-04-08
Moody's issues annual report on Iceland
New York, April 08, 2008 -- In its annual report on Iceland, Moody's
Investors Service says the government compares very favorably against its
Aaa- and Aa-rated peers on many important credit rating metrics, both
quantitative and qualitative.
"Iceland looks better on many measures including low government debt,
high per capita income, economic flexibility, a relatively young
demographic profile, and its pension system dynamics," said Moody's
Analyst Joan Feldbaum-Vidra, author of the report, which describes the
difficult macroeconomic and financial conditions the country is currently
facing after years of overheating. "The economy is heading for a
difficult landing that could lead to negative GDP growth for a few
quarters," she said.
These and other concerns have led to unprecedented risk premia on
Icelandic debt. "Because conditions have objectively worsened and risk
has heightened, the authorities in Iceland may have to find ways, like
in other countries, to support the financial system," notes
Feldbaum-Vidra. "It is our view that current spreads exaggerate credit
risk by a large measure."
Noting that the economy has been extremely flexible in response to shocks,
she said Moody's does not see a crisis that would disrupt the payments
ability of the government.
The report references the large buildup in external debt by the banks
over this recent period of overheating. "Most of this has financed
investments abroad or Icelandic corporates with natural hedges in foreign
currency," said Feldbaum-Vidra. "Our concern is that these foreign
currency contingent liabilities are stretching the sovereign authorities'
lender of last resort capacity in a way that is not compatible with a Aaa
standing."
This concern prompted the change in outlook on Iceland's Aaa government
ratings to negative from stable in March. Feldbaum-Vidra authored a
special comment entitled "Iceland's Aaa Rating at a Crossroads" in
January 2008, describing Moody's views on Iceland's ratings dynamics.
She said the "Crossroads" report, and a subsequent special comment on
bank bail-outs by Aaa-rated countries entitled "Anchors in the Storm,"
outline Moody's Sovereign Risk Unit's current examination of the
stringent requirements to maintain a Aaa sovereign rating. She said that
a series of analytical papers on this and related rating topics will be
published in coming months.
Referring to the rapid buildup in external debt and strong credit growth,
the analyst said, "Perhaps it reflects the banks' overly optimistic
profitability forecasts and of course it exposes the country to greater
financial volatility. As an advanced economy and a member of the Nordic
community, the sovereign is well-equipped to handle problems that could
crystallize from this or any other sector in the economy."
She said that recent Central Bank of Iceland measures are helping ease
the difficult funding conditions currently prevailing for the banks.
Also, a more relaxed fiscal policy will soften the blow of the economy's
hard landing. Feldbaum-Vidra pointed out that public investment projects
previously delayed because of the overheating conditions in the economy
are now getting underway.
Moody's report, "Iceland: 2008 Credit Analysis" is a yearly update to the
markets and is not a rating action.
gah why isn't my [b] tag working? I had to use [big] instead - sorry2008-04-08
Moody's issues annual report on Iceland
New York, April 08, 2008 -- In its annual report on Iceland, Moody's
Investors Service says the government compares very favorably against its
Aaa- and Aa-rated peers on many important credit rating metrics, both
quantitative and qualitative.
"Iceland looks better on many measures including low government debt,
high per capita income, economic flexibility, a relatively young
demographic profile, and its pension system dynamics," said Moody's
Analyst Joan Feldbaum-Vidra, author of the report, which describes the
difficult macroeconomic and financial conditions the country is currently
facing after years of overheating. "The economy is heading for a
difficult landing that could lead to negative GDP growth for a few
quarters," she said.
These and other concerns have led to unprecedented risk premia on
Icelandic debt. "Because conditions have objectively worsened and risk
has heightened, the authorities in Iceland may have to find ways, like
in other countries, to support the financial system," notes
Feldbaum-Vidra. "It is our view that current spreads exaggerate credit
risk by a large measure."
Noting that the economy has been extremely flexible in response to shocks,
she said Moody's does not see a crisis that would disrupt the payments
ability of the government.
The report references the large buildup in external debt by the banks
over this recent period of overheating. "Most of this has financed
investments abroad or Icelandic corporates with natural hedges in foreign
currency," said Feldbaum-Vidra. "Our concern is that these foreign
currency contingent liabilities are stretching the sovereign authorities'
lender of last resort capacity in a way that is not compatible with a Aaa
standing."
This concern prompted the change in outlook on Iceland's Aaa government
ratings to negative from stable in March. Feldbaum-Vidra authored a
special comment entitled "Iceland's Aaa Rating at a Crossroads" in
January 2008, describing Moody's views on Iceland's ratings dynamics.
She said the "Crossroads" report, and a subsequent special comment on
bank bail-outs by Aaa-rated countries entitled "Anchors in the Storm,"
outline Moody's Sovereign Risk Unit's current examination of the
stringent requirements to maintain a Aaa sovereign rating. She said that
a series of analytical papers on this and related rating topics will be
published in coming months.
Referring to the rapid buildup in external debt and strong credit growth,
the analyst said, "Perhaps it reflects the banks' overly optimistic
profitability forecasts and of course it exposes the country to greater
financial volatility. As an advanced economy and a member of the Nordic
community, the sovereign is well-equipped to handle problems that could
crystallize from this or any other sector in the economy."
She said that recent Central Bank of Iceland measures are helping ease
the difficult funding conditions currently prevailing for the banks.
Also, a more relaxed fiscal policy will soften the blow of the economy's
hard landing. Feldbaum-Vidra pointed out that public investment projects
previously delayed because of the overheating conditions in the economy
are now getting underway.
Moody's report, "Iceland: 2008 Credit Analysis" is a yearly update to the
markets and is not a rating action.
Edited by munky on Wednesday 9th April 18:39
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