Posts Tagged ‘Financial Sector’

Danish opposition calls for bank resizing scheme

Wednesday, April 28th, 2010

danish-kronerAn opposition majority in Denmark is pursuing legislation which would reduce the size of the country’s largest banks.

The Danish Social Democratic Party has recommended that Nordea Danmark, FIH Erhvervsbank, Nykredit Bank, Sydbank, Jyske Bank and Danske Bank should all be split up into smaller, independent institutions. The proposal has been applauded by the majority of the opposition.

“The banks have reached a size which means that if one of them folds it would have serious consequences. It is therefore necessary to split them up into smaller, independent units,” said Moretn Bodskov, the Social Democratic Finance Spokesman.

Ole Sohn, The Socialist People’s Party’s Finance Spokesman, has also advocated a less risky overhaul of the country’s banking system, while Kristian Thulsesen Dahl, the Danish People’s Party’s Parliamentary Group Chairman, said that his group’s priority was to ensure that normal customers are not held accountable for risks taken by the financial sector. “I would be prepared to regulate the size of banks, but provided that conditions allow equal competition with foreign competitors,” said Dahl.

The Danish banks have so far rejected the initiative. Peter Schultze, CEO for Nordea Danmark, said the proposal was built upon a misconception that, when it comes to banks, greater size leads to greater risk. Klaus Willerslev-Olsen, the Danish Bankers Association Deputy Director, added that the scheme would not reduce any potential problems.

Brian Mikkelsen, The Minister for Economy and Trade, said the proposals reflect the scepticism of the Social Democrats towards big business and that such a move would destroy Danish banking in international competition, reports Politiken.

“I am quite prepared to work for a reasonable regulation of the banks. But this has to take place in an international context and I do not see a limit on bank sizes,” said Mikkelsen.

Iceland bank meltdown under microscope

Monday, April 12th, 2010

A report into Iceland's devastating 2008 banking collapse charges that the Nordic nation's former prime minister and central bank chief acted with "gross negligence" in allowing the financial sector to overheat without adequate oversight.

The Finance Minister Who Doesn’t Get It

Tuesday, March 9th, 2010

“I think what is happening in Iceland proves that our own currency is very beneficial to our needs. You don’t have to go far back to see that the currency developments have increased the competitiveness of Icelandic businesses and industries”.

- Steingrimur J. Sigfusson, Finance Minister of Iceland two years after an economic collapse all but wiped out the Icelandic financial sector after years of “hot money” flowing into the country because of exorbitant interest rates imposed to battle inflation.

He is crediting the arsonist for bringing a bucket of water to the fire.

What he is really celebrating is Iceland moving one step closer to the developing world and  improving our “competitiveness” through a worthless currency. Never mind the comparative loss of wealth to citizens in the developed world.

A classic argument for not joining the EU and improving the livelyhood of Iceland’s citizens.

Related posts:

  1. Thanks A Bucket – But Stiglitz Wants IMF Out Of Iceland
  2. Finance minister wants to abolish price-indexation
  3. UK Crackpot: McDonald’s flight shows Iceland’s policy works

Danske Bank predicts troubled 2010

Friday, February 12th, 2010

danish-kronerDespite the prospect of some light appearing at the end of what has been a very dark tunnel; Danish banks are preparing themselves for another difficult year ahead. The country’s largest operator, Danske Bank, has recently released its accounts for last year and has predicted that 2010 will continue to be an uphill battle for the nation’s financial institutions.

While numbers for 2009 improved slightly on the disastrous performances of 2008 they still fall well behind the peak period prior to the global economic crisis. Danske Bank reported an after tax result of DKK 1.7 billion (USD 310 million) in 2009, a mild rise from the 2008 figure of DKK 1 billion (USD 180 million) but still a long way short of the DKK 15 billion (USD 2.75 billion) recorded in 2007.

“2010 is expected to be yet another challenging year for the financial sector, for Danske Bank and for the group’s customers. The latest macroeconomic development does, however, give hope for a gradual improvement in the business foundation,” the bank claimed in a press statement reported in Politiken.

Danske Bank though still anticipates ongoing major losses from bad loans. “Write-downs on loans are expected again this year to be at a high level, though lower than 2009,” the bank said. These cost Danske Bank an estimated DKK 25.7 billion (USD 4.7 billion) in 2009.

Danske Bank is expecting positive growth for Denmark’s GDP at around 1.7 percent this year tempered by a 0.5 percentage point interest rate rise. Together with anticipated ongoing unemployment, the bank predicts continued difficulties for those wishing to borrow money.

“Norway should be Iceland’s aid”

Tuesday, January 19th, 2010

dagsavisenProfessor Oystein Noreng of the Norwegian School of Management argued in his column for Dagsavisen this weekend that Norway should support Iceland financially, and potentially even enter into monetary union with Iceland and jointly co-manage fish stocks.

In his column, Professor Noreng begins by stating his opinion that Iceland is not responsible for paying for the failure of Icesave in the UK and Netherlands due to the fact that it never offered a state guarantee. He added that when Lehman Brothers went under, US funds were insured but not those held by foreigners, including Norwegian local governments – but the American government was not pressured to pay the money back.

The Icesave affair has become so overblown, he believes, because Gordon Brown wanted a crisis to make him look strong before this May’s elections.

Whether right or wrong with the above controversial claims, Professor Noreng then goes on to say he believes there are three main ways for Iceland to recover from its current dire financial situation.

The first is through the IMF route with possible EU membership as well. The second is with help and co-operation from Norway. And the third is with help and co-operation from Russia.

“The IMF has for decades been responsible for a tight market-liberal line, inspired by the United States, and has been a scourge for many developing countries,” he argues.

Russia has the money to help Iceland and would in turn strengthen its position in the North Atlantic as well as becoming a close trading partner. This could be good for both Russia and Iceland, but should be avoided from a Norwegian point-of-view.

Norway is one of the world’s leading creditors and also has the money to help Iceland back to its feet. Iceland would have to clean up its entire financial sector in exchange, including possible prosecutions.

In the long run, Professor Noreng would like to see Iceland adopt the Norwegian krone as a means of stabilising its economy and increasing the size of Norway’s ‘domestic’ market. Deeper union between the countries could become a sort of mini-EU potentially including Greenland and the Faroe Islands as well, which would benefit all when dealing with the EU, Russia, the USA and other international players.

The full article can be read here in Norwegian.

Zingales: Why The Government Does Not Offer A Debt Forgiveness

Friday, December 4th, 2009
If debt forgiveness benefits both equity and debt holders, why do debt holders not voluntarily agree to it?
·     First of all, there is a coordination problem.
Even if each individual debtholder benefits from a reduction in the face value of debt, she will benefit even more if everybody else cuts the face value of their debt and she does not. Hence, everybody waits for the other to move first, creating obvious delay.
·     Second, from a debt holder point of view, a government bail-out is better.
Thus, any talk of a government bail-out reduces the debt-holders’ incentives to act, making the government bail-out more necessary.
As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture.
But if it is so simple, why has no expert mentioned it?
Taxing the many to benefits the few
The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt-forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition. The appeal of the Paulson solution is that it taxes the many and benefits the few. Since the many (we, the taxpayers) are dispersed, we cannot put up a good fight in Capitol Hill. The financial industry is well represented at all the levels. It is enough to say that for 6 of the last 13 years, the Secretary of Treasury was a Goldman Sachs alumnus. But, as financial experts, this silence is also our responsibility. Just as it is difficult to find a doctor willing to testify against another doctor in a malpractice suit, no matter how egregious the case, finance experts in both political parties are too friendly to the industry they study and work in.
Profits are private but losses are socialised?
The decisions that will be made this weekend matter not just to the prospects of the US economy in the year to come. They will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialised? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalised and prudent behavior rewarded?

This article by Luigi Zingales explains  very clearly why the financial sector is preventing the government from debt forgiveness (I removed some of the US connotations so that the Icelandic situation could be more easily understood) :

If debt forgiveness benefits both equity and debt holders, why do debt holders not voluntarily agree to it?

·     First of all, there is a coordination problem.

Even if each individual debtholder benefits from a reduction in the face value of debt, she will benefit even more if everybody else cuts the face value of their debt and she does not. Hence, everybody waits for the other to move first, creating obvious delay.

·     Second, from a debt holder point of view, a government bail-out is better.

Thus, any talk of a government bail-out reduces the debt-holders’ incentives to act, making the government bail-out more necessary.

As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture.

But if it is so simple, why has no expert mentioned it?

Taxing the many to benefits the few

The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt-forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition.  But, as financial experts, this silence is also our responsibility. Just as it is difficult to find a doctor willing to testify against another doctor in a malpractice suit, no matter how egregious the case, finance experts in both political parties are too friendly to the industry they study and work in.

Profits are private but losses are socialised?

The decisions that will be made matter not just to the prospects of the economy in the year to come. They will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialised? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalised and prudent behavior rewarded?

Related posts:

  1. The Zingales Plan’s Advantage
  2. Niall Ferguson on debt cancellation
  3. The Zingales Plan

A Puzzling Column In The Guardian: Dubai The New Iceland?

Saturday, November 28th, 2009

It is a strange feeling to witness your country falling apart before your eyes. You first start to panic when you realise that there is nothing you can do to stop the crash. When the crisis hit Iceland’s shores last year the rock of the Viking economy proved to be nothing more than clear water. Now we shall have to wait and see whether Dubai’s economy is built only on sand, or if a more solid base can be found to underpin its economy.

From the Guardian

Note: Will the legacy of the political and business elite which ruled Iceland in the past two decades be that the word Iceland becomes synonymous with economic disaster?

Note II: Eirikur Bergmann thinks that life is returning to normal. If normalcy is  a dead housing market, price indexation, higher food prices, higher taxes, less government service, currency depletion, unemployment, corrupt banks, inept government and an almighty rift in society then he is right.

His column though seems to prove the lack of understanding within Icelandic academia on what was really going on in the financial sector before the economic collapse and a lack of understanding in economics in particular. To send the message abroad that everything is returning to normal is insulting to the people of Iceland.

Former Straumur boss wants his money…for charity

Tuesday, November 24th, 2009

william-fallThe former head of Straumur investment bank, William Fall told Icelandic television last night that if his claim for withheld wages to the bank’s resolution committee is paid out, the money will be given to charities in Iceland. Fall has claimed ISK 640 million in backdated wages. The matter has been sent to the Reykjavik District Court.

Asked if it is fair to claim wages from the bankrupt estate of a bank he was in charge of when it collapsed, Fall said there are two ways of looking at it. He believes that from a purely legal point of view, the money should be paid out. But he admits the situation looks more complicated from a moral standpoint.

Fall continued that he does not wish to personally benefit from the current situation, which is why he has decided to donate the money to charity, should the court rule in his favour.

Asked if he agreed with the decision to nationalise Straumur, Fall said that the bank had clearly fallen into arrears. Representatives of the bank had therefore asked for Central Bank support, which later took the decision to fully nationalise the bank.

He said the decision had been particularly upsetting for him personally, but that it is over and done with now.

Straumur was Iceland’s biggest investment-only bank and outlived the three full-service banks by nearly half a year.

In closing, Fall said that he hopes Icelanders do not judge members of the Icelandic financial sector too harshly based on what is going on now. He said that there are some very talented people in the sector and that these same people can push Iceland back out into international trade.

He told RUV that the banking sector in Iceland used to be too large and too risk hungry; but that it is obvious the new system will be much smaller and safer that it once was.

The Drunk In The Pond

Saturday, November 21st, 2009

For people from outside Iceland it is probably hard to understand the world Bjarni Benediktsson seems to live in.

The chairman of the Independence Party who is normally afraid of speaking his mind under the watchful gaze of his predecessors says in an interview with Frettabladid today that he is pro-European. He claims that it is ridiculous to maintain that the EU is somehow an enemy to Iceland. He thinks that the possibility of a good outcome of negotiations with the EU is false hope at best.

But, he thinks it is “incomprehensible stubbornness on the behalf of the EU not to open the possibility for the EEA countries to enter the common currency, to adopt the Euro.” He thinks the EU’s stance on this matter is the equivalent to an attack on the EEA agreement. The same can be said about its attitude towards IceSave. He thinks this means that the EU states would nothing rather than destroy the EEA agreement, that they don’t want exceptions or differences. “It is just politics.”

Well, duh! After a decade in which one of the smallest states in Europe wreaked havoc in its financial sector, by utilizing the “exceptions” and “differences” granted to it by the EEA agreement, and allowed to do so by the Independence Party, why would Europe want to grant Iceland a safe haven without further participation? With great power comes great responsibility and all that. With save currency havens come responsibilities as well.

According to my information, Bjarni Benediktsson and other members of the Independence Party and other parties in Althingi should take a long hard look at themselves before accusing European nations of a malicious attitude towards Iceland in the IceSave dispute. From the Netherlands we hear surprised voices who wonder why Iceland has not sent delegations, ministers or MP’s to speak on the country’s behalf to politicians, savers and the public. If it had been handled by a real European country then the discussions might have been much more successful and agreeable.

Instead Althingi sought the foxholes it knew too well. A partisan argument which lasted for months, when the best solution would have been a bi-partisan agreement to go forth and speak united on the country’s behalf against the much more powerful nations which had been wronged by Icelandic banks and Icelandic bankers. Don’t forget that due to Landsbankinn’s reckless management of IceSave and the government’s inaction a large number of ordinary citizens, charities and communities in the Netherlands and the UK have lost huge amounts of money.

What the EU member states for all their faults do much better than Icelandic politicians is that they talk, discuss and find a common ground to agree on. Icelandic foreign policy mirrors its internal politics, where statements fly between trenches and parties looks for their own maximum gain instead of a common agreement. But as Bjarni would maybe say, “it’s just politics”.

Not that you’d expect much from the chairman who scolded the Nordic countries a month ago for not coming to a “family members” aid in a time of need. Completely unaware that the Nordic countries believe themselves to be a part of a larger, more agreeable family called the EU. Regarding the EEA agreement, it seems ridiculous to think that the EU should want to spend its efforts on maintaining it were it not for Norway’s oil. Iceland has so far just tagged along. If Norway’s oil were to disappear, they’d be in the EU faster than an Independence Party member could say “bloody foreigners”.

Bjarni Benediktsson is an icon of the Icelandic drunks who stumbled into freezing pond in the middle of winter and don’t understand why others are hesitant coming to their aid unless they promise to make amends.

The rest of us would like to try something different from the whine being served from his backyard.

Strauss-Kahn’s Letter

Sunday, November 15th, 2009

Third, regarding the origins of Iceland’s crisis. I agree that they lie in the financial sector. Banks took outsized risks, and supervision and regulation failed to rise to the challenge. Privatization did set the stage for this, but this was not a matter of following IMF policy: we did not then and do not now have any policy which requires countries to privatize banks. I want to assure you that the IMF-supported program recognizes that this tragedy cannot be allowed to repeat itself. This is the key reason why there is a focus on reforms to strengthen banking regulation and supervision.

Dominique Strauss-Kahn’s letter to Gunnar Sigurdsson.pdf

Iceland down on global competitiveness ranking

Wednesday, September 9th, 2009

WEFIceland’s global competitiveness has fallen six places according to new figures from the World Economic Forum on the economic competitiveness of nations in 2009-2010. Iceland was ranked the 20th most competitive country in 2008, but 26th this year, according to information from the Icelandic Innovation Centre.

Switzerland is now considered the most competitive economy, beating the USA down into second place. Next come Singapore and the Nordic countries Sweden, Denmark and Finland. Norway comes in 14th place.

The World Economic Forum rankings on national competitiveness are a yardstick on the performance of 133 national economies around the world. The survey is very broad and reflects aspects of national productivity and opportunities for growth. The figures are mostly built on publicly available information and surveys conducted among business leaders.

The Icelandic Innovation Centre is the World Economic Forum’s partner in Iceland and put together its results between March and May this year.

The Global Competitiveness Report 2009-2010, released this week, states that Iceland’s fall in the rankings can largely be attributed to lower economic stability than before, with the country slipping from 56th to 119th on that particular measure. Iceland also fell on the sophistication of its financial sector – from 20th to 85th.

“Nevertheless, the sound competitiveness fundamentals displayed by the country in key areas will, it is hoped, ease the recovery and allow the Icelandic economy to bounce back more rapidly. Toward that end, Iceland can count on a top-notch educational system at all levels (2nd and 4th in the health and primary education and higher education and training pillars, respectively) coupled with a rather sophisticated business sector (23rd) displaying high levels of technological readiness (14th) and innovation (16th). An extremely flexible labour market (6th), efficient infrastructure (11th), and well-functioning institutions (13th) complete the picture,” the report concludes.

Burnt children avoid fire

Sunday, August 16th, 2009

recessionNinety percent of foreign investment companies which have formerly invested in Iceland say it is unlikely they would invest in Iceland again in the short to medium term, according to a new survey.

The British law firm Norton Rose carried out the survey of 60 large financial companies and asked about their likely future relationship with Iceland. The survey results were published in The Financial Times.

Visir.is reports that 90 percent of those surveyed said it was unlikely or very unlikely they would invest again in Iceland in the coming years and a large majority of respondents said an extended period of turbulence in the Icelandic financial sector is very likely.

An even larger majority, or 98 percent, said the Icelandic government has treated foreign investors and stakeholders badly.


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