global geothermal news: october, page-33

Brits try to retrieve assets frozen in Icelandic banks
The country's banks expanded greatly during boom years and now can't roll over the debt.

By Mark Rice-Oxley | from the October 24, 2008 edition

It's a country with a population smaller than Cincinnati and a climate that can only be described as frigid. But for a couple of boom-time years, Iceland was the hottest investment idea around: high returns, a rock-solid credit rating, and a dab of the exotic to go with it.

But now, as the North Sea island goes into financial meltdown – the first sovereign victim of the global financial crisis – hundreds of thousands of people are ruing their decision to park money in Icelandic banks - and many of them are British.

In a striking example of the intertwined nature of global finance, capital, risk, and liability, entire classes of British savers – housewives, expatriates, city halls, police forces, universities, even charities – are scrambling to get billions of pounds' worth of savings back.

Private investors are no different. Andree Frieze had parked "a couple of thousand" in Icesave, the British arm of Icelandic bank Landsbanki, which attracted investors with juicy rates of interest. As Landsbanki followed Glitnir Bank and Kaupthing Bank into nationalization earlier this month, Ms. Frieze dashed to retrieve her money. To no avail. Infuriatingly (and ironically, given its name), Icesave's deposits were frozen.

Frieze says she'll probably put whatever money she can get back into a British bank account. But even that doesn't fill her with confidence, given the way her own country's financial sector is still shuddering under the tremors unleashed by the credit quake of the past month.

Iceland has been referred to as the "canary in the gold mine" of the financial crisis. The first warning chirps were sounded in 2006, but the volume really ratcheted up as the credit crisis hit this year.

Its three largest banks had expanded aggressively, acquiring assets in Scandinavia, Britain, and as far away as China and Canada, worth around 10 times Iceland's gross domestic product ($14 billion). When global credit markets froze, however, they found themselves unable to roll over debt. The collapsing kronur, Iceland's currency, made their foreign liabilities even harder to honor, and earlier this month the government had to step in.

Transport for London, the capital's transit authority, which has £40 million frozen in Iceland, says that despite following a "prudent treasury strategy" it wants to get the best returns it can, given its need to hold large amounts of cash. Oxford University, which had invested £30 million in Icelandic accounts, says it still wanted to maintain a "diversified portfolio" and would "keep all investments under regular review," according to spokeswoman Ruth Collier.

As for Iceland, it's clearly down but not yet out. Analysts point to bountiful natural resources – fish, geothermal and hydroelectric energy, and a well-educated workforce – and say recovery might not be as remote as it seems.

"Iceland may be the first victim of the financial crisis but may be one of the first nations to get back on its feet again," says Hannes Holmstein Gissurarson, professor of political science, reached by phone at the University of Iceland.