ICELAND’S three biggest banks had their finances called into question last night, after US institutions refused to extend some of their loans to the banks.
A group of US insurers and mutual funds yesterday decided not to roll over $600 million of so-called short-term extendable notes they had made to Kaupthing, the icelandic bank.
The lenders also decided not to extend $200 million of the notes — which were issued a few months ago and would typically have been renewed every month for five years — made to Landesbanki, a rival to Kaupthing.
Landesbanki provided the £162.8 million of debt used to finance yesterday’s acquisition of Wyndeham Press Group, the British printing and marketing firm, by Dagsbrun, the Icelandic telecoms firm.
Richard Thomas, an analyst at Merrill Lynch, said: “We are seeing the classic signs of an overleveraged banking system and this has flashed a red alarm signal. The banks are extremely vulnerable and it is clear that the sentiment is shifting against them.”
Iceland’s biggest banks have grown so fast in the past three years that the loans they have made are now three times as great as their deposits, Mr Thomas said. A solid European bank would typically have a loan value of between one and 1½ times its deposits, he said.
Alex Birry, an analyst at Fitch, the ratings agency, said: “The funding costs of the banks will start to go up and this will restrict scope for further growth.”
Gudni Adalsteinsson, of Kaupthing, said: “The US lenders in question have limited investment criteria. I can’t see that this will have an impact on the situation in Europe.”
Glitnir, another of Iceland’s biggest banks, also failed to roll over some of its short-term extendable notes.
BIG BACKERS OF DEALS
· Landesbanki: backed leveraged buyouts of Mappin & Webb and Whittard of Chelsea
· Kaupthing: last year acquired Singer & Friedlander, the merchant bank, and has financed many deals for Baugur, the Icelandic investment firm