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.
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.Skip to next paragraph
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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.
And in a telling sign of a more conservative era ahead, many are indicating that they will not be so adventurous in the future. The upshot of the effective bankruptcy of Iceland Inc. is that a lot of money will revert to safer shores in Britain and Europe.
"People will return to brands they know," says Neil Freemantle, a an independent financial adviser in Britain. "Advice will change. People have had their fingers burned and are going to go back to choosing the things they know and trust."
In fact, they already are. Authorities contacted for this article indicated that they were reviewing their "treasury strategy" and were consulting credit-ratings agencies to reassess the spread of risk.
David Lloyd, deputy leader of Hertfordshire County Council which has £28 million frozen in Icelandic accounts, says a cabinet meeting this week agreed to increase fivefold the cash held overnight with the British government's debt management office – a sort of low-interest safety deposit box that helps local governments manage their money.
"We chose to increase the amount we put with the government – it will allow us to take a more cautious view," he says, adding that the council commissioned PriceWaterhouseCoopers, an international accounting firm, to review how it was handling the public money. "Until we've got some answers to that, we are being slightly more cautious generally."
Kent County Council, which has £50 million tied up in Icelandic banks, is also reviewing its portfolio and will place any new deposits with the debt management office. Its leader, Paul Carter, has suggested that if all councils and charities move their money back onshore it would provide a timely boost for Britain's own beleaguered banking sector.
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.