STOCKHOLM/REYKJAVIK Oct 8 Iceland's
fast-moving financial crisis deepened on Wednesday as its
biggest bank was forced to take an emergency loan from Sweden
and the government seized control of a large bank it had
planned to prop up.
Shares in Kaupthing KAUP.IC, the island's top bank,
plunged on the Stockholm stock exchange by 34 percent before
trading was suspended and it put its Swedish unit up for sale.
Facing financial meltdown, Iceland has taken over two of
its largest banks -- first Landsbanki LAIS.IC on Tuesday and
now Glitnir GLB.IC -- and is seeking a 4 billion euros ($5.4
billion) loan from Russia.
The financial regulator said in a statement Glitnir's
operations in Iceland would be open for business as usual and
that domestic deposits were fully guaranteed.
The Icelandic crown, already battered in recent days, lost
a further 23 percent versus the euro, a day after the central
bank said it would peg the currency in an attempt to shore it
The central bank said it would intervene again at 131
crowns per euro having sold six million euros on Tuesday. The
currency was last trading at 260.
Home to just 300,000 people, Iceland has become central to
the global markets crisis as its entire banking system teeters.
Its government was due to send a delegation to Moscow to
negotiate terms of a lifeline from Russia, funds the country
desperately needs to bolster its foreign exchange reserves.
Russian Finance Minister Alexei Kudrin has said Moscow
viewed the request positively.
The Swedish central bank said it would grant liquidity
assistance to the Swedish arm of Kaupthing with a loan of up to
5 billion crowns ($702 million) and said the unit had been put
up for sale.
"The Riksbank has been informed that a process of selling
Kaupthing Bank Sverige AB has been started," the central bank
said in a document describing the details of its loan.
In a growing string of asset sales, Glitnir's Finnish arm
said it had been put up for sale while ING Group's ING.AS
British arm of its ING Direct online and phone bank said it had
bought retail deposits of internet banking operation Kaupthing
Edge worth 2.5 billion pounds.
The Riksbank said it was acting to safeguard Sweden's
financial stability -- an indication of how interconnected a
small country such as Iceland has become -- and ensure the
smooth functioning of financial markets.
Riksbank Governor Stefan Ingves told a news conference that
the central bank and Swedish financial regulator both believed
Kaupthing in Sweden and in Iceland were solvent.
GLITNIR'S FATE UNCERTAIN
Iceland's central bank chief said late on Tuesday the
island would emerge in strong shape but he also raised the
possibility that the once third-largest bank Glitnir would not
"As soon as the ratings firms and foreign lenders realise
that we will not indebt the nation, the standing of Iceland
will turn around, the currency will strengthen," Central Bank
Governor David Oddsson said in a television interview.
He raised the prospect that the government might not pump
money into Glitnir after all.
"The state will not inject new capital into the bank unless
there is actually a bank," Oddsson said, referring to a
shareholders' meeting which is slated for Saturday.
Kaupthing said it was talking to authorities in Iceland
about being involved in a reorganisation of Glitnir.
The government stunned markets last week when it announced
it would buy up to 75 percent in Glitnir, kicking off what has
been a tumultuous 10 days for the small island nation.
With asset values around the world plunging, markets fear
Iceland could suffer what its prime minister has called a
Iceland has rejected a call to use an International
Monetary Fund facility to help it tackle its crisis, according
to an official from one of the Group of Seven industrial
It adopted sweeping powers over banks via emergency
legislation late on Monday that gave the state the ability to
dictate banking operations and allow it to push through mergers
or even force a bank to declare bankruptcy.
The government swiftly used them to dismiss the board of
directors of Landsbanki and put the bank in receivership.
As nerves were stretched, savers were seen lining up
outside a Kaupthing office in Stockholm and Britain threatened
action over the deposits of more than 50,000 savers with
Landsbanki's Internet bank Icesave, which has frozen its
"We are taking legal action against the Icelandic
authorities to recover the money lost to people who deposited
in UK branches of its bank," UK Prime Minister Gordon Brown
told a news conference, as he announced the UK's own bank
(Writing by Mike Peacock; Editing by Ruth Pitchford)