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Bank Liquidity: Icelandics scramble for funds

Icelandic bank spreads, which had been drifting wider late last year, moved out sharply in early March.

In 2005, they were among the busiest issuers of Eurobonds, selling €13 billion of new bonds between the three of them. In 2006, the big Icelandic banks will be sitting it out. “We won’t issue in Europe at all this year,” says Gudni Adalsteinsson, group treasurer at Kaupthing. Icelandic bank spreads, which had been drifting wider late last year, moved out sharply in early March. “The current levels are not attractive to us. We have other, cheaper means of funding and want the technicals in the European market to stabilize.”

It’s the same at Landsbanki. “We could be absent from the market for a long while,” says Matthias Einarsson, senior funding manager at Landsbanki. “We have the ability to stay out for the next 12 months at least.”

That doesn’t mean that either man is idle. They have probably never been busier. In the year to mid-March, Kaupthing raised €400 million through various structured private placements with an average maturity of 4.3 years; it had signed a two-tranche syndicated loan with its core relationship banks for €500 million at a spread of 23.5 basis points over Libor on the five-year portion, and worked up shelf documentation to allow it to issue samurai bonds in Japan and 144a public bonds and private placements in the US.

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