Beware Icelandic Banks

[Dr House]

For all you folk like me tempted to look at Kaupthing's 6.5%AER ....think again. It goes back to Merryn's wise words - the banks offering crazy savings rates are DESPERATE to cover their credit liabilities......

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BP5FJX510NW0BQFIQMGSFFOAVCBQWIV0?xml=/money/2008/02/03/cniceland103.xml

Based on prices quoted in the credit markets, international investors reckon Kaupthing, Iceland's biggest bank, is about seven times more likely to default than the typical European bank. Moody's, the credit rating agency, last week placed the entire Icelandic banking sector on review for a possible downgrade. Standard & Poor's has warned that the major institutions - Kaupthing, Glitnir and Landsbanki - are facing tough times.

[bobthe~]

For all you folk like me tempted to look at Kaupthing's 6.5%AER ....think again. It goes back to Merryn's wise words - the banks offering crazy savings rates are DESPERATE to cover their credit liabilities......

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BP5FJX510NW0BQFIQMGSFFOAVCBQWIV0?xml=/money/2008/02/03/cniceland103.xml

Based on prices quoted in the credit markets, international investors reckon Kaupthing, Iceland's biggest bank, is about seven times more likely to default than the typical European bank. Moody's, the credit rating agency, last week placed the entire Icelandic banking sector on review for a possible downgrade. Standard & Poor's has warned that the major institutions - Kaupthing, Glitnir and Landsbanki - are facing tough times.

Hmm. Might be time to move out of icebank then. Thanks for that Greg, very timely. I was just about to sign up a few k on one of their fixed deals at 6.7%. No surpise they are a market leading product. If something looks too good to be true, it is.

[runforthehills]

For all you folk like me tempted to look at Kaupthing's 6.5%AER ....think again. It goes back to Merryn's wise words - the banks offering crazy savings rates are DESPERATE to cover their credit liabilities......

Well, seeing as I managed to lock my account with them yesterday, I had to phone them anyway and have just asked them if the money is guaranteed. Its the same deal, 100 per cent up to £35k.

Dont panic yet anyone.

[Methinkshe]

Golden rule for these times: if a bank is offering a savings rate far in excess of its competitors, it is because they need your money more than you need the interest they are offering. Caveat emptor.

[Bardon]

Sorry I thought this was a post about global warming

[Orsino]

Icesave (Landsbanki) have some of my money. Less than £35k - that's the important thing. If people are genuinely worrying about the safety of competitive internet savings accounts then perhaps they really should keep their money under the matress, but I'd argue that over-estimating risk is as bad for your finances as under-estimating it. Of course there's Northern Rock and BCCI but then I remember some people worrying about the safety of internet banking when Egg first started. That proved to be totally unfounded and Egg have paid the most consistent high (if not the highest) rates over the last 3 years.

[The Masked Tulip]

Isn't Egg owned by Abbey which is owned by Santander?

[thecrashingisles]

Isn't Egg owned by Abbey which is owned by Santander?

Egg was sold to Citigroup by Prudential.

[The Masked Tulip]

Egg was sold to Citigroup by Prudential.

Thanks. Anyone know what risk Egg are at then with regard to subprime? I don't know much about Egg - do they do mortgages or are they just a savings bank? Does being part of Citigroup make them more of a risk or a safer bet? Or is credit card debt the next subprime and are they perhaps at risk via that?

Edited February 3, 2008 by The Masked Tulip

[Oliver Sutton]

Icesave (Landsbanki) have some of my money. Less than £35k - that's the important thing.

Probably doesn't apply to a foreign bank - they'll have their own rules.

Even IOM and Channel Islands banks aren't covered by the £35,000 rule.

I checked on my IOM A&L account.

[mfp123]

Probably doesn't apply to a foreign bank - they'll have their own rules.

Even IOM and Channel Islands banks aren't covered by the £35,000 rule.

I checked on my IOM A&L account.

they need a banking license to operate in the uk. theyre regulated by the FSA so he'll be fully covered.

[The Colour]

Landsbanki's results last week revealed that it now has almost £5bn of UK savers' money - a substantially larger retail franchise than it has in Iceland. Landsbanki's deposit base made it a comparative darling of the sector. But it still posted a 66 per cent fall in fourth-quarter net income.

Five billion of GBP peoples savings.

[topliner]

http://www.telegraph.co.uk/money/main.jhtm...niceland103.xml

Yes indeed interesting, a NRK crisis in Iceland, whatever next!

IFA's appear to be now telling clients not to have more than say £35,000 in one place, how many actually know who owns what nowadays? Take Halifax and Bank of Scotland, if you shove say £35K in both doesn't the investor guarantee only cover £31,700 of the total, not two lots of £31,700?

[The Masked Tulip]

Moneyweek has an article this week warning against having money in the Icelandic and Irish banks. Suggests opting for safe UK banks offering lower IRs on savings but safer such as Lloyds.

Then, there are the foreign banks who are offering us internet savings accounts. The basic rule of thumb here is: if they’re ING, they’re no worse a risk than a UK high Street bank. If they’re Irish, they’re likely to be over leveraged and a bit more of a worry (especially Anglo Irish Bank). But if they’re Icelandic, then be afraid; these banks are starting to be priced for bankruptcy risk and it’s not clear what protection UK savers might have with these foreign accounts.

Kaupthing is now having to pay almost 6% more than 5-year government bond yields (i.e. 10.2%) to raise funds. Kaupthing’s savings account pays just 6.5% AER, which doesn’t even come close to compensating us for the risk I’d say. The markets seem to be telling us that there is a very real default risk here. Glitnir Bank is not much better and even Landsbanki (owner of the popular Icesave internet banking business) has to pay the credit markets 3.2% more than risk-free rates and 2.45% more than ING does, for funds.

Given that Icesave pays 6.3% on their easy access internet savings account and ING pays 5.15%, perhaps shopping around for the highest savings rate right now is not actually the best thing to do. Perhaps, just perhaps, we should pay more attention to the risk side of the equation too.

http://www.moneyweek.com/file/mwu/1/41437/...iest-banks.html

[huw]

I'd argue that over-estimating risk is as bad for your finances as under-estimating it.

Over-estimating risk is much less likely to wipe you out.

[bobthe~]

http://www.telegraph.co.uk/money/main.jhtm...niceland103.xml

Yes indeed interesting, a NRK crisis in Iceland, whatever next!

IFA's appear to be now telling clients not to have more than say £35,000 in one place, how many actually know who owns what nowadays? Take Halifax and Bank of Scotland, if you shove say £35K in both doesn't the investor guarantee only cover £31,700 of the total, not two lots of £31,700?

Yes and no.

Yes because they are part of the same institution, no because the 35k is now fully 100% covered.

[Swipe]

they need a banking license to operate in the uk. theyre regulated by the FSA so he'll be fully covered.

They are also covered by the Icelandic version of the FSA:

Deposits made with Icesave are protected under the Icelandic Deposit Guarantees and Investor-Compensation Scheme (details of this scheme may be obtained from www.landsbanki.com/legislation). Payments under this scheme are limited to the first €20,887 (or the sterling equivalent) of your total deposits held with us. You have further protection from the UK Financial Services Compensation Scheme (www.fscs.org.uk). Payments under this scheme are limited to 100% of the first £35,000 of all your deposits with us, less any payments made under the Icelandic scheme. This means that the maximum claim amount as at October 2007 is £35,000. The total financial protection given to you under both schemes is no less than you would receive if your deposit was only protected by the UK scheme. Further details about both schemes can be obtained from our web site or by post, on request.

[Guest Skint Academic]

If an icelandic bank has a financial melt down, will it have problems with its liquidity?

[AteMoose]

Probably doesn't apply to a foreign bank - they'll have their own rules.

Even IOM and Channel Islands banks aren't covered by the £35,000 rule.

I checked on my IOM A&L account.

icesave.co.uk are covered by the FSA even though thee based in iceland... if you want to be protected by the britsh government check the bank is covered by the FSA.

Interest rates in iceland are 13% as they fight inflation, so giving uk investors 6% isnt too much of a risk they get 'cheap' money, its all part of an icelandic carry trade. Iceland doesnt need as much oil or gas, most of the power is geothermal, and they intend to move away from oil completely in 10-15 years!

http://www.sedlabanki.is/?PageID=224

It could be a warm place to live if global warming kicks in..

Edited February 3, 2008 by moosetea

[OnlyMe]

Dont worry ;p anyway interest rates in iceland are 13% as they fight inflation, so giving uk investors 6% isnt too much of a risk, its all part of an icelandic carry trade

http://www.sedlabanki.is/?PageID=224

That for me is a big difference, not as if their local central bank have been bilking interest rates to get their locals in hock - good margins there to be made. Their PE and foreign investments, well that is another matter, but then that goes for all banks.

Just think if all that money came back to the UK then UK lenders will be able to gar it up what 20 fold to lending back out as mortgages? I can see some fun and games being played regarding the assessment of who really is solvent and isn't solvent.

[DEATH]

If a biggish bank went belly up by time the FSA paid you out the pound would probably have lost 10% to 20% of it's worth on the forex markets, maybe more.

I'd sacrifice a small % not to worry about it and be free to switch to gold or euros if the stuff hits the fan.

[Swipe]

I guess they have hedged themselves from a run on the bank by British savers with their fixed rate accounts.

[Guest happy?]

For all you folk like me tempted to look at Kaupthing's 6.5%AER ....think again. It goes back to Merryn's wise words - the banks offering crazy savings rates are DESPERATE to cover their credit liabilities......

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BP5FJX510NW0BQFIQMGSFFOAVCBQWIV0?xml=/money/2008/02/03/cniceland103.xml

Based on prices quoted in the credit markets, international investors reckon Kaupthing, Iceland's biggest bank, is about seven times more likely to default than the typical European bank. Moody's, the credit rating agency, last week placed the entire Icelandic banking sector on review for a possible downgrade. Standard & Poor's has warned that the major institutions - Kaupthing, Glitnir and Landsbanki - are facing tough times.

Northern Rock are offering same rates and are underwritten by my taxes.

[Guest absolutezero]

Wasn't there a thread on here a month or two ago saying Landsbanki (icesave) are pretty much rock solid and less of a risk than most British banks?

[OnlyMe]

The same ratings agencies that have the monoliners at AAA.

Hmmm.

ICICI's rating is in the BBB's, it is India's second largest bank, now which bank on the face of it is more likely to go tits up next? - ICICI or one of the UK's BTL tastic lenders?

Edited February 3, 2008 by OnlyMe