Russian talks to bail out Iceland as UK may fund RBS, Barclays

The UK government may invest at least 45 billion pounds ($79 billion) in banks including Royal Bank of Scotland (RBS) Group and Barclays to bolster capital depleted by mortgage-related losses, Bloomberg reported. Iceland's banks also face a battle for survival.

 

Chancellor of the Exchequer Alistair Darling and Bank of England Governor Mervyn King met with banking chief executive officers including RBS's Fred Goodwin and Barclays's John Varley late yesterday to discuss the investment, Bloomberg reported citing unnamed sources.

 

RBS fell as much as 39 percent after Standard & Poor's cut the company's credit rating for the first time in almost a decade, as the Edinburgh-based bank's financial condition deteriorates.

 

The government has already bailed out Bradford & Bingley and brokered the takeover of HBOS in the past month on concern about the banks' ability to fund themselves.

 

"Whatever it takes" will be done Darling said on Monday to keep the financial system stable as capital markets remain frozen.

 

"The equity markets are saying RBS has the biggest problem but something needs to be done across the board, otherwise because after RBS concern will simply move onto Barclays,'' Simon Maughan, a London-based analyst at MF Global Securities Ltd told Bloomberg. "Bond investor confidence in the banks is completely shot."

 

RBS, Barclays, Lloyds TSB Group and the UK's three other biggest banks need to repay as much as 54 billion pounds ($93.8 billion) of debt by the end of March 2009, just as borrowing costs reach record highs. The total, which includes bonds, loans and commercial paper, is triple the debt repaid in the same period a year earlier.

 

ICELAND WARNS OF BANKRUPTCY
Iceland's banks faced a battle for survival Tuesday, after the country's government introduced emergency legislation to give the government sweeping new powers over its collapsing financial sector.

 

Iceland's attempt to wrest control of the increasingly dire situation and restore some confidence in the country's hard-hit banking sector followed a day of panic on Monday that saw trading in shares of major banks suspended and the Icelandic krona fall a quarter against the euro.

 

The British arm of Iceland’s Landsbanki stopped British customers withdrawing or depositing money Tuesday. A notice on the website of Internet bank Icesave offered no explanation for the move, but it came as Iceland’s Financial Supervisory Authority said it would take control of the country’s second largest bank.

 

Prime Minister Geir H. Haarde warned late Monday that the heavy exposure of the tiny country's banking sector to the global financial turmoil was raising the specter of "national bankruptcy", AP reported.

 

Iceland agreed to adopt sweeping powers over banks on Monday as its financial system tottered, its currency plunged 30 percent and a leading agency cut its credit ratings.

 

The country's financial stature had swelled in recent years as its banks expanded overseas, investors took large positions in its high-yielding currency and foreign firms poured money into local projects.

 

 

RUSSIA POSITIVE FOR BAIL-OUT

Russia takes a "positive view" of a request for credit from Iceland and is to hold talks on the issue, Russian Finance Minister Alexei Kudrin said on Tuesday, quoted by Russian news agencies.

 

Iceland's central bank had earlier said the country secured a 4 billion euro emergency loan from Russia, and that the loan had been personally approved by Russian Prime Minister Vladimir Putin, however media reported a top Russian official had later denied that Moscow had granted the loan.

 

 "Four billion euros would be more or less what Iceland needs to cover the whole banking system assets with their reserves," Elisabeth Gruie, currency strategist at BNP Paribas told Reuters.

 

"It's also a surprising move for Russia that reflects its desire to reaffirm itself as a world power."

 

The government took control of the second largest bank, Landsbanki and the central bank gave the biggest bank Kaupthing a 500-million-euro ($678 million) loan. The third largest bank, Glitnir, was nationalized last week.

 

 

EXTRA FUND FOR RUSSIAN BANKS
Russian President Dmitry Medvedev announced an extra 950 billion roubles ($36.4 billion) of new credit for banks at an emergency Kremlin meeting after Russian stocks suffered their worst pounding ever on Monday.

Medvedev said that most of the money, which is offered over five years, would be channeled through the biggest two state- controlled banks, Sberbank and VTB.