Icelandic Bank Bonds Are Cheaper Than Enron, Parmalat

Oct. 20 (Bloomberg) -- Bonds of Iceland's three biggest banks are on sale for 3 cents on the dollar, less than the debt of Enron Corp. and Parmalat Finanziaria SpA after they failed.

Icelandic regulators have transferred mostly domestic assets and liabilities of Landsbanki Islands hf and Glitnir Banki hf to new government-owned entities, leaving the shells of the failed institutions. Kaupthing Bank hf, the largest bank, has also been seized by the government and is in receivership. Bonds of the banks have plunged, according to KNG Securities LLP, on concern investors may recoup almost nothing.

``This isn't a normal, orderly bankruptcy so you have to assume the worst,'' said Simon Adamson, an analyst at debt research firm CreditSights Inc. in London. ``They're selling off the overseas subsidiaries as quickly as possible at fire sale prices, rather than looking to preserve value for bondholders. It's all unpredictable and heavily politicized.''

Iceland's government seized the banks when they couldn't finance debt of about $61 billion. The banks borrowed to fund local investors' purchases of assets including stakes in Saks Fifth Avenue in New York and London-based jeweler Mappin & Webb, while the lenders snapped up financial firms abroad.

Glitnir and Kaupthing have failed to make bond payments and will be in default after grace periods expire. Reykjavik-based Kaupthing missed a coupon payment on a samurai bond scheduled for today, the first European lender to default in the Japanese bond market, according to investors.

Landsbanki, the second-largest lender in the country, has a 1.4 billion-yen ($13.7 million) note that comes due on Oct. 31 as part of a total $11.4 billion of bonds.

Parmalat, Enron

Bonds of Parmalat were valued at about 10 cents on the dollar after the Italian dairy company collapsed amid fraud at the end of 2003 in what was then Europe's biggest bankruptcy.

Enron's bonds could be obtained for as little as 10 cents on the dollar after the world's largest energy trader in 2001 asked for protection from creditors in what was then the biggest-ever such filing, involving $63.4 billion of assets.

``Recovery depends on fire sales of foreign assets,'' Bill Blain, a broker at KNG Securities in London, wrote in a note to investors where he stated the price. This ``so far, has been done with appalling ineptitude,'' he wrote.

Under the reorganization plan, the old banks and their foreign units have been left to fend for themselves. The new entities have no obligation to bondholders of the institutions they are replacing, according to the Web site of the Icelandic Financial Supervisory Authority.

Glitnir, Iceland's no. 3 bank, has about $19.4 billion of bonds outstanding, and Kaupthing's total is $27.6 billion, data compiled by Bloomberg show.

Rights and obligations attached to derivatives contracts also stay with the old banks, according to a note by Ivanka Stefanova, an analyst at UniCredit SpA in Munich.

``We do not expect a favorable outcome for bondholders,'' she wrote in the note.

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