Tourists steaming in the Blue Lagoon
When Iceland’s banks failed in 2008 under $85 billion of debt, dozens of hedge funds flocked to the island betting they could make money buying up creditor claims. Five years later, they’re still waiting.
The firms, including Davidson Kempner Capital Management LLC and Taconic Capital Advisors LP, snapped up the claims on the lenders’ assets at prices far below face value. They were wagering, as they did when Lehman Brothers Holdings Inc. went bust, that they’d profit as markets recovered, bank assets were sold off and creditors repaid. Over the years, about 80 firms joined, including Paulson & Co., which had made more than $1 billion betting on Lehman claims…
What the investors, some of them managing more money than Iceland’s $14 billion economy, may not have factored in was the backlash in the country of 320,000 people against the speculative Wall Street culture that, in their view, helped cause the failures of Glitnir Bank hf, Kaupthing Bank hf and Landsbanki Islands hf. While Lehman has paid out more than $40 billion to claim holders in the past five years, the hedge funds have yet to get any distributions from the Icelandic banks’ estates. The government, elected in April on a platform that included providing mortgage debt relief to Icelanders, has proposed paying the funds only part of their claims and using the difference to finance its campaign promise…
Attacks on the country’s banks “give off an unpleasant odor of unscrupulous dealers who have decided to make a last stab at breaking down the Icelandic financial system,” Morgunbladid newspaper editor David Oddsson said at the central bank’s annual meeting. “They will not get away with it.”
Keep on rocking in the Free World. Especially when the center of that world apparently is Reykjavik.