Bondholders lose on Glitnir bonds

While the UK was moving to deal with the problems of its banking system, the Belgian, French and Dutch governments were dealing with the collapse of the pan-European financial services group, Fortis N.V. BNP Paribas acquired 80 per cent of the group, the Belgian government 20 per cent and the Netherlands nationalised the group's Dutch operations.  

Meanwhile, Germany, Denmark and Iceland all moved to be the next European nations to guarantee their banks' deposits. But in Iceland's case, it was dealing with the outright collapse of its banking system with its three largest banks going into receivership.

This has led to more outright losses for Australian bondholders as Glitnir banki (formerly Islandsbanki) has A$300 million of November 2010 bonds on issue in the domestic market. Fortunately for many bondholders another A$300 million of Glitnir bonds matured in May this year. Also fortunate is that the latest Icelandic bank to fall, Kaupthing Bank, only ever roadshowed here.

By the end of the week, Spain had announced the creation of a €30-50 billion emergency fund to provide liquidity to its financial system by buying "healthy" assets from banks and a fivefold increase in the guarantee by the Deposit Guarantee Fund (Fondo de Garantía de Depósitos) for bank deposits up to €100,000. And the US government announced that it too would make equity injections into eligible US banks within a few weeks. This also appears to have aggravated the collapse in its equity markets on Thursday.

Earlier in the week, the Federal Reserve said it would establish a special purpose entity to buy high quality corporate commercial paper. This is aimed at unfreezing the CP market in the US.