Iceland in Talks, Won't Comment on Reported $14 Billion Bailout

By Tasneem Brogger and Frances Schwartzkopff

Oct. 5 (Bloomberg) -- Iceland's central bank said it's in international talks to stem the financial crisis that forced the bailout of Glitnir Bank hf and a run on the currency.

``There is ongoing dialogue, as there has been for several months, with our colleagues abroad,'' Tryggvi Palsson, director of financial stability at the central bank in Reykjavik, said in a telephone interview today.

Britain's Sunday Telegraph reported today that Icelandic authorities may be about to announce a 10 billion-euro ($14 billion) package of liquidity lifelines from Nordic central banks and repatriated assets from local pension funds. Palsson declined to comment on the report.

The krona plunged 20 percent against the euro in the past month as investors sold the currency on concern the government may be forced to rescue more banks after spending 600 million euros on a 75 percent stake in Glitnir.

Central banks in Denmark, Norway and Sweden agreed in May to enter a swap arrangement with Iceland worth a total of 1.5 billion euros. Sweden has yet to receive an official approach from Iceland to activate that agreement, spokeswoman Britta von Schoultz of Sweden's Riksbank said.

``The swap facility from May is of course still available,'' Schoultz said yesterday. ``There is no addition to that. We are, of course, always in dialogue with the central bank of Iceland, as with other central banks, during these times of turmoil.''

Iceland's government stepped in after Glitnir failed to get short-term funding, triggering downgrades of the country's credit ratings that have exacerbated a slump in the currency.

``I would have thought it was urgent to do something three months ago,'' Beat Siegenthaler, a senior strategist at TD Securities in London, said in a phone interview on Oct. 1. ``It's getting more and more urgent every hour.''

The Telegraph said Iceland plans to announce a rescue package before markets open tomorrow, citing a person it didn't identify.

European Central Bank spokeswoman Regina Schueller and Norway's central bank spokeswoman Siv Meisingseth declined to comment. Danish central bank spokesman Karsten Biltoft was unavailable when contacted by Bloomberg.

To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;