Iceland's banking crisis deepened today after the country's biggest bank was taken over by the Government.
Iceland's banking crisis deepened today after the country's biggest bank was taken over by the Government.
Kaupthing, whose UK investment banking arm was put into administration yesterday leaving around 800 staff in limbo, is now in the hands of the Icelandic Financial Supervisory Authority.
The country's government has already seized control of rivals Landsbanki and Glitnir after Prime Minister Geir Haarde warned that the country was at risk of "national bankruptcy."
Iceland's banks were heavily dependent on external borrowing and their positions weakened significantly in recent weeks as credit markets froze.
Kaupthing's executive chairman Sigurdur Einarsson maintained the bank's liquidity was solid, but said it had succumbed to an economic "landslide" unleashed by the rescues of its rivals.
The aim of the takeover was to "ensure adequate activities of the bank in Iceland and the stability of the Icelandic financial system," he said. Today's fresh turmoil saw trading on Iceland's Stock Market suspended until Monday.
Kaupthing earned nearly a third of its income from the UK.
An estimated 800 staff at the group's UK investment banking subsidiary Kaupthing Singer & Friedlander (KSF), which was put into administration by the UK Treasury, were facing an uncertain future today. The operation has offices in London, Dorking in Surrey, Birmingham and Glasgow.
KSF's Capital Markets division, which is 30% owned by staff, issued a statement today saying the business was continuing to operate and managers intended to "develop and grow the business".
The Treasury also arranged for ING Direct to take over the £2.5 billion of deposits of 160,000 UK customers of Kaupthing's online arm, Kaupthing Edge. ING is also acquiring £538 million of savings held by 22,200 people with Heritable Bank, which is part of Landsbanki.
"This is the right course of action to protect savers, ensure financial stability, and safeguard the interests of the taxpayer," the Treasury said.
Kaupthing's rapid withdrawal from the financial markets has forced customers to sell equity positions supported by the bank.
One major victim of the bank's demise appears to have been Iranian billionaire investor Robert Tchenguiz. He was reportedly bankrolled by KSF this year and as the firm went into administration was forced to sell a 10% stake in Sainsbury's and a 25.7% stake in pub group Mitchells & Butlers.
He reportedly lost a total of £1 billion from the sales - £600 billion from his Sainsbury's investment and the rest from the M&B firesale.
Mr Tchenguiz was said to be "philosophical" about the hit, according to the Financial Times.
A number of UK local authorities are also exposed to Iceland's banking system. Kent County Council has £50 million deposited in Icelandic banks, Barnet Council in north London is thought to have in the region of £27 million deposited and Westminster Council said it had £17 million with Icelandic institutions.
Transport for London said it has a £40 million deposit with Kaupthing Singer & Friedlander, which has been placed into administration.
Landsbanki's collapse has threatened the savings of around 300,000 UK customers of the bank's UK retail banking operation Icesave.
The UK Government has guaranteed the savers' deposits and vowed to recover the lost money with Icesave. Mr Haarde said that discussions had begun between the two countries to find a "mutually satisfactory solution."
