Word: iceland
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...Iceland gets some support for its conspiracy theory from Richard Portes, an economist at the London Business School. In March, after he published a favorable report on Iceland's economy, Portes says a senior figure at a major hedge fund phoned him. "He spent half an hour trying to tell me the Icelandic banks were in terrible shape and that the country was a disaster area," he recalls. "Apparently I was risking my reputation by saying anything different." But not everyone responds to Iceland's plight with sympathy. Eileen Zhang, an Iceland expert at ratings agency Standard and Poor...
...point. Prior to the 2006 crisis, analysts warned that Iceland - where Land Rovers and private jets seem to outnumber the nation's 308,000 people - was growing too quickly, and that excessive consumption would cause the economy to overheat. Yet the nation's three largest commercial banks - Kaupthing, Landsbanki and Glitnir - continued to exploit their then strong currency and cheap credit to buy banks in Denmark, Norway and the U.K., as well as British retailers like House of Fraser and Moss Bros. They amassed foreign assets equivalent to 800% of the nation's GDP, the highest ratio of any country...
...restore investor confidence, Icelandic banks and government officials have emphasized their economy's unflagging strengths in a charm offensive directed at ratings agencies and investors. Iceland is the fifth richest country in the oecd; the prices of its largest exports, aluminum and fish, are at record highs. "The Icelanders are richer than us," says British economist Portes. "They're not exactly going to starve." (Iceland's gross national income per capita is $39,400, compared to the U.K.'s $35,300.) What's more, the banks remain fundamentally sound: they have strong deposit ratios and are more profitable than their...
Edda Rós Karlsdóttir, a senior director at Landsbanki, says Iceland's peculiar macroeconomic conditions pose the biggest challenge to maintaining investor confidence. With so few potential depositors at home, the nation's banks have little choice but to raise capital abroad. Furthermore, the size of Iceland's economy - the U.S. economy is roughly a thousand times larger - has always made it volatile, partially explaining its much-discussed $2.7 billion current-account deficit. "If my father decides to build a garage onto his house, it will almost show up in national accounts," she quips. So imagine...
...banks flatly dismiss the notion that the central bank will need to bail out the system. "That's just unthinkable," says Ásgeir Jónsson, chief economist at Kaupthing, Iceland's largest bank. Following the 2006 crisis, banks greatly strengthened their liquidity positions and shifted their liabilities further into the future: on average, newly issued bonds now mature in 2010 or after, rather than within a year. Although Iceland's major banks had hoped to grow quite quickly this year, they will use their liquidity conservatively as a buffer instead. Meanwhile, to their relief, Iceland's banks have negligible...