Trading in the shares of Icelandic banks was suspended in Reykjavik ahead of an announcement and because of concerns over the pricing of their shares.
Icelandic Prime Minister Geir Haarde is facing a financial meltdown
The suspension covers trading in all financial instruments issued by Kaupthing, Landsbanki, Glitnir, the Icelandic lender bailed out by the government after its short-term funding dried up, Straumur-Burdaras, Exista and Spron.
Iceland’s Financial Services Authority requested the move, the OMX Nordic Exchange in Iceland said. The exchange said: “This decision is made in order to safeguard the equality of investors while awaiting an announcement.”
Iceland’s prime minister Geir Haarde has confirmed the country’s major banks have agreed to “sell their foreign assets and decrease their activity abroad”, as pressure mounted for the government to secure a rescue deal for its ailing financial system.
At a midnight press conference last night, he said no decisions about an economic bail-out had been made “at this time”. He then convened all Icelandic MPs at the parliament building to discuss more options into the early hours of the morning.
One plan under discussion was for the government to broker a deal between some of Iceland’s leading banks, including Kaupthing, Landsbanki and the recently nationalised Glitnir.
Local media are reporting a potential merger between Kaupthing and Landsbanki is on the cards, raising the possibility of an Icelandic super bank. It is also understood that the Icelandic government has asked the European Central Bank for a £400m loan.
Any mergers or takeovers could have a big impact back in the UK as thousands of British savers have deposited money with Icelandic banks.
The weekend’s frantic meetings between cabinet ministers, the banks, the pension funds and economists are continuing, but the prime minister could not say whether more updates would be announced before a nervous Icelandic stock market opens this morning.
Before the prime minister spoke last night, Bjorgolfur Thor Bjorgolfsson, who with his father – West Ham FC owner Bjorgolfur Gudmundsson – owns 40pc of Landsbanki, left with two top ranking Kaupthing officials. None was prepared to comment.
This weekend’s talks were triggered by worries about the financial health of Icelandic banks.
Insiders said the cabinet is also discussing whether Iceland’s pension funds, worth about £11bn, might be told to sell around 40pc of foreign assets to bring in currency from abroad to shore up the falling krona.
The currency, which has lost more than half its value since last summer, fell a further 14pc last week.
When asked how Icelandic banks might be forced to combine, education minister Thorgerdur Katrin Gunnarsdottir confirmed that all options were on the table.
The government is thought to be looking for a buyer for Glitnir, since last Monday buying 75pc of the country’s third largest bank as it reeled from liquidity problems.
Kaupthing chairman Sigurdur Einarsson refused to comment on whether the bank was part of any merger discussions, but he said representatives had been present at the government meeting to see how they could help the economy.
“We are willing to assist the government in any way we can,” he told The Daily Telegraph. “We are just waiting to see what the government will say.”
A Landsbanki spokesman refused to comment, but a source close to the bank said it was in the strongest position to lead any potential takeover.
Baugur chief executive Gunnar Sigurdsson admitted any merger could have an impact on its loans with the major banks, but he denied exposure to any wider problems in Iceland’s over-leveraged economy.
“We are worried for our family and friends living in Iceland, but not for Baugur,” he said. “It is true that we borrow from the Icelandic banks, but our UK operations are performing strongly.”
The retail investment company is already under pressure since wholesale insurer Euler Hermes stopped providing cover against the risk of Baugur defaulting on its credit arrangements with suppliers.
Mr Sigurdsson said the insurer’s decision was a “mistake” based on the erroneous belief Baugur had any exposure to the shaky Icelandic financial system.
Mr Haarde told The Daily Telegraph that the banks were already divesting foreign assets.
Sweden’s government joined European countries as it doubled the guarantee on bank deposits to 500,000 kronor (£39,000) from 250,000 kronor to ease concern about the stability of Swedish banks.
The state will also guarantee deposits at foreign banks with offices in Sweden if their respective governments are unable to do so, it said in a statement. The government also widened the types of deposit accounts included in the guarantee.
By Rowena Mason in Reykjavik
Last Updated: 6:08PM BST 06 Oct 2008
Source: The Telegraph