Iceland's Krona Currency Trading Halts as Kaupthing Taken Over

By Bo Nielsen
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Oct. 9 (Bloomberg) -- Trading in the Icelandic krona came to a halt after the government seized control of Kaupthing Bank hf, the nation's biggest lender, as the financial crisis deepens.

There haven't been any so-called krona spot trades today, or transactions in which currency must be exchanged immediately, according to Stockholm-based Nordea Bank AB and TD Securities Ltd. in London. The last spot trade was at 340 krona per euro, Nordea said. Regulators earlier this week took over Iceland's second- and third-largest lenders, Glitnir Bank hf and Landsbanki Islands hf, which acted as krona clearing houses.

``Effectively the krona can't be traded at the moment because there are no more banks to clear the trade,'' said Mick Ankjaer, a foreign-exchange dealer in Copenhagen at Nordea, Scandinavia's biggest lender.


The bid/ask spread for the krona against the euro, or the price at which traders are willing to buy or sell, was 225 per euro to 400 per euro as of 11:52 a.m. in Reykjavik, according to Antje Praefcke, a currency analyst in Frankfurt at Commerzbank AG, Germany's second-largest lender.

The krona plummeted to 350 per euro this week in trading between banks outside of Iceland, Praefcke said. Icelandic banks may still be trading with each other, she said.

``Foreign banks have cut credit lines with Icelandic banks so they can't settle trades,'' Praefcke said.

The Reykjavik-based central bank, Sedlabanki, yesterday abandoned a peg to the euro after just a day when it became unable to defend the rate of 131 krona per euro. Fitch Ratings yesterday downgraded Iceland's foreign and local-currency debt ratings to BBB- and A-, respectively.

No Confidence

``Nobody wants to hold the currency unless they have to,'' said Beat Siegenthaler, the London-based chief strategist for emerging markets at TD Securities Ltd. ``Something has to be done to restore a minimum level of confidence in the currency.''

Iceland will start talks with Russia on Oct. 14 to secure a loan of as much as 4 billion euros ($5.48 billion), Prime Minister Geir Haarde said yesterday. The government hasn't asked the International Monetary Fund for a standby loan or an economic program, he said.

Moody's Investors Service yesterday lowered the government's credit rating three steps to A1.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net