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Icelandic Crisis

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by

Edu Ruiz

on 13 September 2014

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Transcript of Icelandic Crisis

Icelandic Crisis 2008-2011
Maria Alzu Urdiroz
Jorge Benitez Velazquez
Eduardo Ruiz Garcia de los Rios
And here is Iceland...
P/E ratio Decreased
The Three major banks witnessed a drop in ROE
Debt grew Enormously
Bond Rating agencies downgraded the ability of the three banks to repay bond obligations
3 major banks place to receivership by FME
Found that Glitnirhad short term debt of 750, so preced to receivership
Iceland was on the brink of collapse

Banking sector expanded internationally to:
Luxemburg
UK
Nordic Countries
Loans were not backed by either deposits or reserve currency
Time Frame
End of
Krona depreciated by 35% vs €
Response by the Government?
Held Interest Rates
at 15%
Diagnosis of the Crisis
National Currency depreciate sharply
The market capitalization fell by 90%
Severe economic recession for Iceland
Real GDP dropped by 5.5%
Development
Exports Increased during the first months of the crisis
Imports decreased on the last two months of the crisis
Main Indicators
Deregulations
Privazitations
CRISIS
On the 10th of October the Central Bank established restrictions to the purchase of foreign currency within Iceland
Also....
On the 10Th of October the Central Bank established restrictions to the purchase of foreign currency within Iceland
Until the 5th of November when it quoted a reference rate of 350 Krona/Euro
Consequences

Many Business and citizens suffered the financial breakdown
The unemployment rate rose by three times by the end of November 2008.
Government foreign currency restrictions to essential products such as food, medicines and oil damaged importers.
Icelandic pension funds diminished by 15% to 25%.
Iceland's GDP was expected to shrink by as much as 10%

What happened Outside Iceland?
"Icesave"
Plan to allow the Icelandic and Dutch governments to reach an agreement on the savings of about 120,000 Dutch citizens
Sri Lanka was hurt by this crisis because they received most of Iceland’s aid on geothermal power and fisheries.
Iceland’s helping habit decreased considerably
Iceland was forced to close the Stock Market
During October 2008 trading in shares of six financial companies on the OMX Nordic Iceland Exchange was suspended by order of the FME.
Share prices had been falling by 30% throughout the whole month.
Thus, trading on the Exchange was stopped by the government because of “unusual market conditions”.

Later on the 14Th of October...
The market opened again on the 14th of October.
73.2% of the value of the Index corresponded to the three big banks which had been shut down.
Thus, the OMX Iceland 15 at 678.4 points far below the 3004.6 points before the closing down
Denmark and Norway lended $200M
Agreements with other Nordic Countries for a total of €1.5 billion
Full transcript