Kaupthing Edge

Icelandic banking feels the crunch

06-October-2008, By Becca Talbot becca.talbot@consumerchoices.co.uk

British savers worry for their money as Iceland’s biggest bank, Kaupthing, is in crisis talks following fears that the country’s entire economy is on the brink of collapse.

The Icelandic government was desperately trying to establish a strategy over the weekend that would restore confidence in the bank and boost the country’s ailing economy which is on the edge of collapse after years of over-expansion by all of its banks.

Icelandic bank Kaupthing (www.kaupthingedge.co.uk/) has a huge influence on the British economy.

It owns Kaupthing Edge, a very popular internet savings bank, which along with Icesave (www.icesave.com) – owned by the Icelandic bank Landsbanki – has attracted about 150,000 British savers thanks to its high savings rates.

As well as its savings accounts, Kaupthing lends to some of Britain’s biggest entrepreneurs, including the top chef and restaurateur, Gordon Ramsay and the property tycoon, Robert Tchenguiz. It also funds major retail chains including House of Fraser, Debenhams, Woolworths, Hamleys, and Karen Millen.

Despite overseas investment, the Icelandic population, of just 320,000 people, fears an economic crisis, and panic has driven them to stockpiling provisions and checking their finances very carefully; and with inflation running at 12% and the Icelandic krona at its lowest level against major currencies since 1992, small businesses are also suffering.

The governments move to calm savers worried about the safety of their money led to a weekend of meetings between politicians, bankers and economists; and the government is said to be ‘looking for money to help it survive the global financial crisis.’ The drying up of credit globally and the fall in Iceland’s currency have led to worries the banks may not be able to refinance its debts.

While Iceland’s media are being urged by the government not to sensationalise the situation, Bjorgvin Gudmundsson, business editor of Iceland’s daily newspaper Morgunbladid, said in the Sunday Telegraph, the worst case scenario would be the collapse of Kaupthing, the country’s biggest bank: “The situation is critical. Kaupthing says it has enough funding to last it through the year, but the main problem is getting the trust and confidence of the market.”

“The government’s move to strengthen the central bank by getting reserves of foreign currency is an attempt to have enough money to back up the banks if they need it,” he added.

Chris Eagle, commercial manager at CreditChoices.co.uk said: “The country has witnessed an incredible boom in recent years, as its banks have borrowed cheaply to invest in large variety of businesses around Europe, particularly the UK. Most British savings with Kaupthing are safe - money in the bank of up to £50,000 is now guaranteed by the UK Government, under new FSA protection.”