Iceland's Collapse
| Sun Oct. 5, 2008 10:06 AM PDT
ICELAND'S COLLAPSE....You think there's a banking crisis in the United States? Just be glad you don't live in Scandinavia's smallest country:
Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan.
....On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.
I have to say, though, that the citizens of Iceland seem to be taking their travails remarkably cheerfully. "We will have to eat haddock and Icelandic lamb and forget these imports of goose livers and Japanese soy sauce," says Iceland's most famous chef. And drink more liquor. Lots more liquor.
Continues Below
Continued From Above
Comments
Submitted by Nils Gilman (not verified) on Mon Oct. 6, 2008 6:54 AM PDT.
Remember back when Icelandic banks were considered the most "innovative" and "ambitious" in Europe?
http://www.economist.com/business/displaystory.cfm?story_id=E1_PGSNRGV
Small country, big ambitions
Feb 17th 2005
From The Economist print edition
Icelandic businesses are making big acquisitions across Europe
THEY are well-heeled, these Icelanders. Brave, too. Last year's flow of Icelandic takeovers in Europe looks ready to become a flood?not all of it into companies much fancied by other investors.
Bravest of Iceland's brave is the Baugur Group, run by Jon Asgeir Johannesson. Born as a supermarket but now an investment house in retailing of many sorts, last autumn it bought Magasin du Nord, a Danish department-store group which, after three years of losses, expects to lose $30m more in 2004-05, on turnover of about $350m. Last week, a Baugur-led consortium completed the $1.25 billion takeover of Britain's Big Food Group, which had begun losing money on sales of some $9 billion. On February 9th, another struggling British supermarket chain, Somerfield, revealed it was a target. A bid is only a possibility, but could exceed $1.9 billion. Baugur had already bought British real estate, besides clothing and jewellery stores, and London's famous toy-shop, Hamleys.
Among other Icelandic buys, in December SIF, a seafood group, bought Labeyrie, a French food firm, for $675m (debt included); Bakkavor, a supplier of chilled meals, has bought 20% of Geest, a large British firm in that line, and is now studying a full bid; Icelandair holds 10% of Britain's low-cost airline easyJet. Actavis, a maker of generic drugs chaired by Thor Bjorgolfsson, who made his first pile in Russian brewing, has bought drugmakers in Bulgaria, Serbia and Turkey, and is now buying into India, as a road into the American market. Only 4% of its $500m-or-so turnover today comes from Iceland.
The Icelandic banks helping to finance these acquisitions are themselves buyers. The biggest purchase so far came last year from Kaupthing Bank, Iceland's largest. After earlier lesser but sizeable buys in Finland, Norway, Sweden and Switzerland, it paid $1.25 billion for FI-Holding, a Danish bank strong in corporate lending. In Britain, by early 2004 it held 19.5% of Singer & Friedlander, an investment bank. Burdaras, an Icelandic investment company, later bought a 9.5% stake, and many expect a full Icelandic bid for the London bank, now valued in the market at $950m.
Burdaras itself is 50.2%-owned by three arms of Landsbanki, Iceland's number two, which has overseas ambitions of its own. Formerly state-owned, Landsbanki was privatised in 1998-2003. In 2000 it bought Heritable Bank, a small British housing-finance bank, and in 2003 a private-banking operation in Luxembourg. It has just agreed to buy one of Britain's few surviving independent stockbrokers.
All this from an island of only 300,000 people. Not all the money is Icelandic: SIF, for instance, paid for Labeyrie partly via a syndicated loan in London. Yet it raised $300m, mainly from local sources, in a later share issue; and this soon after a Kaupthing issue had raised $550m. What is the source of Iceland's financial muscle?
A broad answer is almost 14 years of deregulating and privatising government. Specifically, Iceland, like Luxembourg or Ireland, has become a friendly place for financiers and, like Switzerland, is not subject to EU tax-prying: Burdaras's biggest shareholder is Landsbanki's Luxembourg private bank. And corporate profits, taxed at 50% in 1991, and, after cuts, still at 30% in 2001, now pay 18%, the lowest tax-rate in the OECD after Ireland and Hungary.
Few as they are, Icelanders are also feeling richer. After a slide in 2001-02, the economy is back to 4-6% growth. And, with inflation and interest rates mostly low, house prices, bonds and equities have soared in recent years, encouraging a sharp rise in household borrowing. Some of this has gone, indirectly, into investment overseas. Local banks meanwhile have borrowed heavily abroad; an OECD estimate out this week suggests that the country's external debt may have risen by some $6 billion in 2004. A chunk of this has flowed out again into the overseas-investment spree. After all, there are not a lot of attractive opportunities for Iceland's ambitious businessmen at home.
Submitted by Nils Gilman (not verified) on Mon Oct. 6, 2008 6:56 AM PDT.
Remember when Icelandic banks were considered the most "innovative" and "ambitious" in Europe?
http://www.economist.com/business/displaystory.cfm?story_id=E1_PGSNRGV
Small country, big ambitions
Feb 17th 2005
From The Economist print edition
Icelandic businesses are making big acquisitions across Europe
THEY are well-heeled, these Icelanders. Brave, too. Last year's flow of Icelandic takeovers in Europe looks ready to become a flood?not all of it into companies much fancied by other investors.
Bravest of Iceland's brave is the Baugur Group, run by Jon Asgeir Johannesson. Born as a supermarket but now an investment house in retailing of many sorts, last autumn it bought Magasin du Nord, a Danish department-store group which, after three years of losses, expects to lose $30m more in 2004-05, on turnover of about $350m. Last week, a Baugur-led consortium completed the $1.25 billion takeover of Britain's Big Food Group, which had begun losing money on sales of some $9 billion. On February 9th, another struggling British supermarket chain, Somerfield, revealed it was a target. A bid is only a possibility, but could exceed $1.9 billion. Baugur had already bought British real estate, besides clothing and jewellery stores, and London's famous toy-shop, Hamleys.
Among other Icelandic buys, in December SIF, a seafood group, bought Labeyrie, a French food firm, for $675m (debt included); Bakkavor, a supplier of chilled meals, has bought 20% of Geest, a large British firm in that line, and is now studying a full bid; Icelandair holds 10% of Britain's low-cost airline easyJet. Actavis, a maker of generic drugs chaired by Thor Bjorgolfsson, who made his first pile in Russian brewing, has bought drugmakers in Bulgaria, Serbia and Turkey, and is now buying into India, as a road into the American market. Only 4% of its $500m-or-so turnover today comes from Iceland.
The Icelandic banks helping to finance these acquisitions are themselves buyers. The biggest purchase so far came last year from Kaupthing Bank, Iceland's largest. After earlier lesser but sizeable buys in Finland, Norway, Sweden and Switzerland, it paid $1.25 billion for FI-Holding, a Danish bank strong in corporate lending. In Britain, by early 2004 it held 19.5% of Singer & Friedlander, an investment bank. Burdaras, an Icelandic investment company, later bought a 9.5% stake, and many expect a full Icelandic bid for the London bank, now valued in the market at $950m.
Burdaras itself is 50.2%-owned by three arms of Landsbanki, Iceland's number two, which has overseas ambitions of its own. Formerly state-owned, Landsbanki was privatised in 1998-2003. In 2000 it bought Heritable Bank, a small British housing-finance bank, and in 2003 a private-banking operation in Luxembourg. It has just agreed to buy one of Britain's few surviving independent stockbrokers.
All this from an island of only 300,000 people. Not all the money is Icelandic: SIF, for instance, paid for Labeyrie partly via a syndicated loan in London. Yet it raised $300m, mainly from local sources, in a later share issue; and this soon after a Kaupthing issue had raised $550m. What is the source of Iceland's financial muscle?
A broad answer is almost 14 years of deregulating and privatising government. Specifically, Iceland, like Luxembourg or Ireland, has become a friendly place for financiers and, like Switzerland, is not subject to EU tax-prying: Burdaras's biggest shareholder is Landsbanki's Luxembourg private bank. And corporate profits, taxed at 50% in 1991, and, after cuts, still at 30% in 2001, now pay 18%, the lowest tax-rate in the OECD after Ireland and Hungary.
Few as they are, Icelanders are also feeling richer. After a slide in 2001-02, the economy is back to 4-6% growth. And, with inflation and interest rates mostly low, house prices, bonds and equities have soared in recent years, encouraging a sharp rise in household borrowing. Some of this has gone, indirectly, into investment overseas. Local banks meanwhile have borrowed heavily abroad; an OECD estimate out this week suggests that the country's external debt may have risen by some $6 billion in 2004. A chunk of this has flowed out again into the overseas-investment spree. After all, there are not a lot of attractive opportunities for Iceland's ambitious businessmen at home.
Submitted by Nils Gilman (not verified) on Mon Oct. 6, 2008 6:54 AM PDT.
Remember back when Icelandic banks were considered the most "innovative" and "ambitious" in Europe?
http://www.economist.com/business/displaystory.cfm?story_id=E1_PGSNRGV
Small country, big ambitions
Feb 17th 2005
From The Economist print edition
Icelandic businesses are making big acquisitions across Europe
THEY are well-heeled, these Icelanders. Brave, too. Last year's flow of Icelandic takeovers in Europe looks ready to become a flood?not all of it into companies much fancied by other investors.
Bravest of Iceland's brave is the Baugur Group, run by Jon Asgeir Johannesson. Born as a supermarket but now an investment house in retailing of many sorts, last autumn it bought Magasin du Nord, a Danish department-store group which, after three years of losses, expects to lose $30m more in 2004-05, on turnover of about $350m. Last week, a Baugur-led consortium completed the $1.25 billion takeover of Britain's Big Food Group, which had begun losing money on sales of some $9 billion. On February 9th, another struggling British supermarket chain, Somerfield, revealed it was a target. A bid is only a possibility, but could exceed $1.9 billion. Baugur had already bought British real estate, besides clothing and jewellery stores, and London's famous toy-shop, Hamleys.
Among other Icelandic buys, in December SIF, a seafood group, bought Labeyrie, a French food firm, for $675m (debt included); Bakkavor, a supplier of chilled meals, has bought 20% of Geest, a large British firm in that line, and is now studying a full bid; Icelandair holds 10% of Britain's low-cost airline easyJet. Actavis, a maker of generic drugs chaired by Thor Bjorgolfsson, who made his first pile in Russian brewing, has bought drugmakers in Bulgaria, Serbia and Turkey, and is now buying into India, as a road into the American market. Only 4% of its $500m-or-so turnover today comes from Iceland.
The Icelandic banks helping to finance these acquisitions are themselves buyers. The biggest purchase so far came last year from Kaupthing Bank, Iceland's largest. After earlier lesser but sizeable buys in Finland, Norway, Sweden and Switzerland, it paid $1.25 billion for FI-Holding, a Danish bank strong in corporate lending. In Britain, by early 2004 it held 19.5% of Singer & Friedlander, an investment bank. Burdaras, an Icelandic investment company, later bought a 9.5% stake, and many expect a full Icelandic bid for the London bank, now valued in the market at $950m.
Burdaras itself is 50.2%-owned by three arms of Landsbanki, Iceland's number two, which has overseas ambitions of its own. Formerly state-owned, Landsbanki was privatised in 1998-2003. In 2000 it bought Heritable Bank, a small British housing-finance bank, and in 2003 a private-banking operation in Luxembourg. It has just agreed to buy one of Britain's few surviving independent stockbrokers.
All this from an island of only 300,000 people. Not all the money is Icelandic: SIF, for instance, paid for Labeyrie partly via a syndicated loan in London. Yet it raised $300m, mainly from local sources, in a later share issue; and this soon after a Kaupthing issue had raised $550m. What is the source of Iceland's financial muscle?
A broad answer is almost 14 years of deregulating and privatising government. Specifically, Iceland, like Luxembourg or Ireland, has become a friendly place for financiers and, like Switzerland, is not subject to EU tax-prying: Burdaras's biggest shareholder is Landsbanki's Luxembourg private bank. And corporate profits, taxed at 50% in 1991, and, after cuts, still at 30% in 2001, now pay 18%, the lowest tax-rate in the OECD after Ireland and Hungary.
Few as they are, Icelanders are also feeling richer. After a slide in 2001-02, the economy is back to 4-6% growth. And, with inflation and interest rates mostly low, house prices, bonds and equities have soared in recent years, encouraging a sharp rise in household borrowing. Some of this has gone, indirectly, into investment overseas. Local banks meanwhile have borrowed heavily abroad; an OECD estimate out this week suggests that the country's external debt may have risen by some $6 billion in 2004. A chunk of this has flowed out again into the overseas-investment spree. After all, there are not a lot of attractive opportunities for Iceland's ambitious businessmen at home.
Submitted by Nils Gilman (not verified) on Mon Oct. 6, 2008 6:56 AM PDT.
Remember when Icelandic banks were considered the most "innovative" and "ambitious" in Europe?
http://www.economist.com/business/displaystory.cfm?story_id=E1_PGSNRGV
Small country, big ambitions
Feb 17th 2005
From The Economist print edition
Icelandic businesses are making big acquisitions across Europe
THEY are well-heeled, these Icelanders. Brave, too. Last year's flow of Icelandic takeovers in Europe looks ready to become a flood?not all of it into companies much fancied by other investors.
Bravest of Iceland's brave is the Baugur Group, run by Jon Asgeir Johannesson. Born as a supermarket but now an investment house in retailing of many sorts, last autumn it bought Magasin du Nord, a Danish department-store group which, after three years of losses, expects to lose $30m more in 2004-05, on turnover of about $350m. Last week, a Baugur-led consortium completed the $1.25 billion takeover of Britain's Big Food Group, which had begun losing money on sales of some $9 billion. On February 9th, another struggling British supermarket chain, Somerfield, revealed it was a target. A bid is only a possibility, but could exceed $1.9 billion. Baugur had already bought British real estate, besides clothing and jewellery stores, and London's famous toy-shop, Hamleys.
Among other Icelandic buys, in December SIF, a seafood group, bought Labeyrie, a French food firm, for $675m (debt included); Bakkavor, a supplier of chilled meals, has bought 20% of Geest, a large British firm in that line, and is now studying a full bid; Icelandair holds 10% of Britain's low-cost airline easyJet. Actavis, a maker of generic drugs chaired by Thor Bjorgolfsson, who made his first pile in Russian brewing, has bought drugmakers in Bulgaria, Serbia and Turkey, and is now buying into India, as a road into the American market. Only 4% of its $500m-or-so turnover today comes from Iceland.
The Icelandic banks helping to finance these acquisitions are themselves buyers. The biggest purchase so far came last year from Kaupthing Bank, Iceland's largest. After earlier lesser but sizeable buys in Finland, Norway, Sweden and Switzerland, it paid $1.25 billion for FI-Holding, a Danish bank strong in corporate lending. In Britain, by early 2004 it held 19.5% of Singer & Friedlander, an investment bank. Burdaras, an Icelandic investment company, later bought a 9.5% stake, and many expect a full Icelandic bid for the London bank, now valued in the market at $950m.
Burdaras itself is 50.2%-owned by three arms of Landsbanki, Iceland's number two, which has overseas ambitions of its own. Formerly state-owned, Landsbanki was privatised in 1998-2003. In 2000 it bought Heritable Bank, a small British housing-finance bank, and in 2003 a private-banking operation in Luxembourg. It has just agreed to buy one of Britain's few surviving independent stockbrokers.
All this from an island of only 300,000 people. Not all the money is Icelandic: SIF, for instance, paid for Labeyrie partly via a syndicated loan in London. Yet it raised $300m, mainly from local sources, in a later share issue; and this soon after a Kaupthing issue had raised $550m. What is the source of Iceland's financial muscle?
A broad answer is almost 14 years of deregulating and privatising government. Specifically, Iceland, like Luxembourg or Ireland, has become a friendly place for financiers and, like Switzerland, is not subject to EU tax-prying: Burdaras's biggest shareholder is Landsbanki's Luxembourg private bank. And corporate profits, taxed at 50% in 1991, and, after cuts, still at 30% in 2001, now pay 18%, the lowest tax-rate in the OECD after Ireland and Hungary.
Few as they are, Icelanders are also feeling richer. After a slide in 2001-02, the economy is back to 4-6% growth. And, with inflation and interest rates mostly low, house prices, bonds and equities have soared in recent years, encouraging a sharp rise in household borrowing. Some of this has gone, indirectly, into investment overseas. Local banks meanwhile have borrowed heavily abroad; an OECD estimate out this week suggests that the country's external debt may have risen by some $6 billion in 2004. A chunk of this has flowed out again into the overseas-investment spree. After all, there are not a lot of attractive opportunities for Iceland's ambitious businessmen at home.
Submitted by Petey (not verified) on Sun Oct. 5, 2008 10:20 AM PDT.
"Just be glad you don't live in Scandinavia's smallest country"
Damn, Kevin. I gave you too much credit.
This got cut off in my RSS reader as "Just be glad you don't live in Scandinavia's.."
I was sure that your line was going to end "...Scandinavia's Alaska", and I was ready to call you an authentic wit.
and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan.
It's a good start. Locking the doors and flooding the building would be an example we could learn from.
No, Iceland is not in Scandinavia. But we are a Nordic nation and the rest of the Nordics are in Scandinavia so Nordic and Scandinavian is often used as synonyms.Anyway I have witness no panic; we are survivors and have made it through worse. We do have lots of clean renewable energy that is not utilised at the moment, lots of very clean water and well educated and young workforce. About 10 percent of the Icelandic workforce is foreign with Poles being by far the most numerous. With the króna nerly worthless they are leaving in droves so we probably escape mss unemployment. Anyway Iceland has a strong social security net that nobody is suggesting dismantin, especially because the Goverment has no net debt.(There are five parties in the Icelandic Parliment, each and evey well to the left of the Democratic Party). Last but not the lest we can console us with the thoght that George W Bush is not President of Iceland
eirikur:
Is Iceland willing to import American intellectuals? I might be willing to come? How well can a new immigrant, who speaks English but not Icelandic (which I've heard is incredibly hard to learn) get by? Seriously, a lot of us are fed off US anti-intellectualism.
"Iceland is in Scandinavia?"
While not a part of the "Scandinavian Peninsula" here in the US the "Scandinavian countries" have usually referred to Finland, Sweden, Norway, Denmark *and* Iceland. Calling them "Nordic" is rare -- typically "Nordic" is exclusively used to refer only to Norway.
I have a hunch that Swedes don't tend to think of themselves as "Nordic"!
Submitted by jon (not verified) on Sun Oct. 5, 2008 2:00 PM PDT.
MNPundit: what racial/ethnic tension are you tallking about, we dont have any such thing in iceland.
bigTOM.
As far as I know there is no violent prejudice against American intellectuals is Iceland. In fact Americans make up one of the biggest foreign community here. And many of them are maybe not inntellectuals in frnch sense, most of them are some sort of knowlwgde workers. If you would move you would have to hassle with bureaucrats about visas and work permits etc, which is nowhwre any fun.
People can very easily get by with English, in fact I speak English at worh with some collegues, and the same happen often in shops and restaurants. As for Icelandic, it is a heavily inflected language and seems to present grat trouble to people whose native tongues are miminally inflected as English. The Slavs seem to have much easier time of it.
The situation is not quite as bad as the article suggests. Noone I know is actually storing up food and the government has guaranteed all bank deposits.
As for the banks, they are in big trouble. Their Icelandic operations will probably be nationalized and their foreign holdings sold off. Still to quote a presidential candidate I can honestly say that the fundamentals are very strong like Eiríkur stipulated. The Icelandic government is debt free unlike the American government and we don't have to worry about Sarah Palin becoming our leader in the near future!
Submitted by Legacy on Sun Oct. 5, 2008 5:17 PM PDT.
"and we don't have to worry about Sarah Palin becoming our leader in the near future!"
Touche, Icelander.
I was just in Iceland this summer. They were facing a pretty big housing collapse, after a crazy boom. On the other hand, everywhere you go (ok, everywhere you go in the wilderness) there are signs posted about what to do in the event of a volcanic eruption (run!). A little banking collapse seems kinda quaint. (Oh, and most homes are heated geothermically, and there are greenhouses everywhere growing fruits and vegetables of all kinds, including oranges!
I have never heard the word nordic restricted to meaning just Norwegians. I just means northern, from the french word "nord". You must be thinking of the word "norse", which is sometimes used that way, but basically is synonymous with nordic.
Nordic (nôr'dĭk)
adj.
Of, relating to, or characteristic of Scandinavia or its peoples, languages, or cultures.
Of or relating to a human physical type exemplified by the tall, narrow-headed, light-skinned, blond-haired peoples of Scandinavia. Not in scientific use.
Sports. Of or relating to ski competition featuring ski jumping and cross-country racing.
n.
A person of the Nordic physical type.
"MNPundit: what racial/ethnic tension are you tallking about, we dont have any such thing in iceland."
Posted by: jon on 10/05/08
from the movie Casablanca
Renault: Why did you come to Casablanca?
Rick: For the waters.
Renault: What waters?
Rick: I was misinformed.
Icelandic guy: What the heck are you guys talking about?
Submitted by Nils Gilman (not verified) on Mon Oct. 6, 2008 6:54 AM PDT.
Remember back when Icelandic banks were considered the most "innovative" and "ambitious" in Europe?
http://www.economist.com/business/displaystory.cfm?story_id=E1_PGSNRGV
Small country, big ambitions
Feb 17th 2005
From The Economist print edition
Icelandic businesses are making big acquisitions across Europe
THEY are well-heeled, these Icelanders. Brave, too. Last year's flow of Icelandic takeovers in Europe looks ready to become a floodnot all of it into companies much fancied by other investors.
Bravest of Iceland's brave is the Baugur Group, run by Jon Asgeir Johannesson. Born as a supermarket but now an investment house in retailing of many sorts, last autumn it bought Magasin du Nord, a Danish department-store group which, after three years of losses, expects to lose $30m more in 2004-05, on turnover of about $350m. Last week, a Baugur-led consortium completed the $1.25 billion takeover of Britain's Big Food Group, which had begun losing money on sales of some $9 billion. On February 9th, another struggling British supermarket chain, Somerfield, revealed it was a target. A bid is only a possibility, but could exceed $1.9 billion. Baugur had already bought British real estate, besides clothing and jewellery stores, and London's famous toy-shop, Hamleys.
Among other Icelandic buys, in December SIF, a seafood group, bought Labeyrie, a French food firm, for $675m (debt included); Bakkavor, a supplier of chilled meals, has bought 20% of Geest, a large British firm in that line, and is now studying a full bid; Icelandair holds 10% of Britain's low-cost airline easyJet. Actavis, a maker of generic drugs chaired by Thor Bjorgolfsson, who made his first pile in Russian brewing, has bought drugmakers in Bulgaria, Serbia and Turkey, and is now buying into India, as a road into the American market. Only 4% of its $500m-or-so turnover today comes from Iceland.
The Icelandic banks helping to finance these acquisitions are themselves buyers. The biggest purchase so far came last year from Kaupthing Bank, Iceland's largest. After earlier lesser but sizeable buys in Finland, Norway, Sweden and Switzerland, it paid $1.25 billion for FI-Holding, a Danish bank strong in corporate lending. In Britain, by early 2004 it held 19.5% of Singer & Friedlander, an investment bank. Burdaras, an Icelandic investment company, later bought a 9.5% stake, and many expect a full Icelandic bid for the London bank, now valued in the market at $950m.
Burdaras itself is 50.2%-owned by three arms of Landsbanki, Iceland's number two, which has overseas ambitions of its own. Formerly state-owned, Landsbanki was privatised in 1998-2003. In 2000 it bought Heritable Bank, a small British housing-finance bank, and in 2003 a private-banking operation in Luxembourg. It has just agreed to buy one of Britain's few surviving independent stockbrokers.
All this from an island of only 300,000 people. Not all the money is Icelandic: SIF, for instance, paid for Labeyrie partly via a syndicated loan in London. Yet it raised $300m, mainly from local sources, in a later share issue; and this soon after a Kaupthing issue had raised $550m. What is the source of Iceland's financial muscle?
A broad answer is almost 14 years of deregulating and privatising government. Specifically, Iceland, like Luxembourg or Ireland, has become a friendly place for financiers and, like Switzerland, is not subject to EU tax-prying: Burdaras's biggest shareholder is Landsbanki's Luxembourg private bank. And corporate profits, taxed at 50% in 1991, and, after cuts, still at 30% in 2001, now pay 18%, the lowest tax-rate in the OECD after Ireland and Hungary.
Few as they are, Icelanders are also feeling richer. After a slide in 2001-02, the economy is back to 4-6% growth. And, with inflation and interest rates mostly low, house prices, bonds and equities have soared in recent years, encouraging a sharp rise in household borrowing. Some of this has gone, indirectly, into investment overseas. Local banks meanwhile have borrowed heavily abroad; an OECD estimate out this week suggests that the country's external debt may have risen by some $6 billion in 2004. A chunk of this has flowed out again into the overseas-investment spree. After all, there are not a lot of attractive opportunities for Iceland's ambitious businessmen at home.
Submitted by Nils Gilman (not verified) on Mon Oct. 6, 2008 6:56 AM PDT.
Remember when Icelandic banks were considered the most "innovative" and "ambitious" in Europe?
http://www.economist.com/business/displaystory.cfm?story_id=E1_PGSNRGV
Small country, big ambitions
Feb 17th 2005
From The Economist print edition
Icelandic businesses are making big acquisitions across Europe
THEY are well-heeled, these Icelanders. Brave, too. Last year's flow of Icelandic takeovers in Europe looks ready to become a floodnot all of it into companies much fancied by other investors.
Bravest of Iceland's brave is the Baugur Group, run by Jon Asgeir Johannesson. Born as a supermarket but now an investment house in retailing of many sorts, last autumn it bought Magasin du Nord, a Danish department-store group which, after three years of losses, expects to lose $30m more in 2004-05, on turnover of about $350m. Last week, a Baugur-led consortium completed the $1.25 billion takeover of Britain's Big Food Group, which had begun losing money on sales of some $9 billion. On February 9th, another struggling British supermarket chain, Somerfield, revealed it was a target. A bid is only a possibility, but could exceed $1.9 billion. Baugur had already bought British real estate, besides clothing and jewellery stores, and London's famous toy-shop, Hamleys.
Among other Icelandic buys, in December SIF, a seafood group, bought Labeyrie, a French food firm, for $675m (debt included); Bakkavor, a supplier of chilled meals, has bought 20% of Geest, a large British firm in that line, and is now studying a full bid; Icelandair holds 10% of Britain's low-cost airline easyJet. Actavis, a maker of generic drugs chaired by Thor Bjorgolfsson, who made his first pile in Russian brewing, has bought drugmakers in Bulgaria, Serbia and Turkey, and is now buying into India, as a road into the American market. Only 4% of its $500m-or-so turnover today comes from Iceland.
The Icelandic banks helping to finance these acquisitions are themselves buyers. The biggest purchase so far came last year from Kaupthing Bank, Iceland's largest. After earlier lesser but sizeable buys in Finland, Norway, Sweden and Switzerland, it paid $1.25 billion for FI-Holding, a Danish bank strong in corporate lending. In Britain, by early 2004 it held 19.5% of Singer & Friedlander, an investment bank. Burdaras, an Icelandic investment company, later bought a 9.5% stake, and many expect a full Icelandic bid for the London bank, now valued in the market at $950m.
Burdaras itself is 50.2%-owned by three arms of Landsbanki, Iceland's number two, which has overseas ambitions of its own. Formerly state-owned, Landsbanki was privatised in 1998-2003. In 2000 it bought Heritable Bank, a small British housing-finance bank, and in 2003 a private-banking operation in Luxembourg. It has just agreed to buy one of Britain's few surviving independent stockbrokers.
All this from an island of only 300,000 people. Not all the money is Icelandic: SIF, for instance, paid for Labeyrie partly via a syndicated loan in London. Yet it raised $300m, mainly from local sources, in a later share issue; and this soon after a Kaupthing issue had raised $550m. What is the source of Iceland's financial muscle?
A broad answer is almost 14 years of deregulating and privatising government. Specifically, Iceland, like Luxembourg or Ireland, has become a friendly place for financiers and, like Switzerland, is not subject to EU tax-prying: Burdaras's biggest shareholder is Landsbanki's Luxembourg private bank. And corporate profits, taxed at 50% in 1991, and, after cuts, still at 30% in 2001, now pay 18%, the lowest tax-rate in the OECD after Ireland and Hungary.
Few as they are, Icelanders are also feeling richer. After a slide in 2001-02, the economy is back to 4-6% growth. And, with inflation and interest rates mostly low, house prices, bonds and equities have soared in recent years, encouraging a sharp rise in household borrowing. Some of this has gone, indirectly, into investment overseas. Local banks meanwhile have borrowed heavily abroad; an OECD estimate out this week suggests that the country's external debt may have risen by some $6 billion in 2004. A chunk of this has flowed out again into the overseas-investment spree. After all, there are not a lot of attractive opportunities for Iceland's ambitious businessmen at home.
The story of Iceland's banking collapse and it's causes and effects will be quite incredible. The main thrust will undoubtedly be the fact that about 20 people (bank managers and owners) almost managed to bankrupt the entire nation. Imagine that!
Nils, in 35 years The Economist has changed very much. Even back then they over-called the rise of South America. Yesterday they were over-optimistic about todays economy. Today I don't see them calling the future. In 1973-4 they did call how the oil crisis would play out. But then they were a left of centre cynical magazine. Now they fold with the right and have no ability of self criticism.
After many years as a subscriber, as of now I no longer am. Today I went to their web page to see if there was anything prophetic at all. Nothing. No recognition of the reality here today. The Economist is a shadow of what it has been. Very sad.
