News

The financial crisis has made its entry in Europe, but nowhere as dramatically as in Iceland. Within one and a half week, the three major banks in Iceland have been declared bankrupt and/or taken over by the government.



In the mate of the takeovers, massive restructurings will be implemented implying the most comprehensive layoffs ever in the sector. As concerns Landsbanki, share trading and all foreign activities will be eliminated from the banks activities and thereby one third of the 1500 jobs.



In total, job cuts of around 25 per cent are expected in the finance sector in Iceland, but the consequences are not limited to Iceland. Icelandic banks have subsidiaries and branches in other Nordic countries and in UK and Luxembourg. In addition, Icelandic investment funds have made massive investments in foreign companies in recent years, and the serious crisis in Icelandic economy is likely to also impact these activities, with restructuring and job cuts as a consequence.



Icelandic banks have been hit particularly hard by the crisis because Icelandic banks have numerous, short loans in foreign currency that have to be continuously refinanced. The bankruptcy of Lehmann Brothers and other huge banks have made it impossible to refinance the loans because the usual sources – the Icelandic Central Bank, the European Central Bank and others – are no longer willing to lend the money.



Furthermore, the Icelandic Krona has lost significant value within recent time. Prices are rising steeply, not least because Iceland has a very high import of goods. But even worse, 30 per cent of mortgages are taken out in foreign currency, which means that within the past year, expenses to repay the mortgage have raised by 60 per cent.