Moody's Puts Iceland's Baa3 Rating On Outlook Negative, Next Stop - Junk, As Island Nation Continues Giving Banks the Finger

Tyler Durden's picture

Just because the unpronounceable volcano did not do quite enough damage, and both Hekla and Katla are taking their sweet time, the Iceland Supreme Court recently ruled on the illegality of foreign FX-linked loans, and "Icesave" is still DOA, here is Moody's with a stern warning for the country to change its anti-Keynesian ways promptly or else. "Today's rating action was triggered by the recent Supreme Court ruling on the illegality of foreign-exchange-linked loans and government's continuing difficulties in achieving a resolution to its "Icesave" dispute with the UK and Dutch governments. Specifically, the Supreme Court ruling has the potential to cause substantial bank losses on foreign currency-denominated loans to domestic borrowers and may therefore require additional government support to the banking system. Moreover, a failure to resolve the "Icesave" dispute could lead the Nordic countries and the IMF to withhold future disbursements to the Icelandic government." Zero Hedge is certainly rooting for the tiny island country, even if it is triple hook rated, as it continues to give the middle finger to all the developed world kleptocrats.

From Moody's

Moody's Investors Service has today changed to negative from stable the rating outlook for Iceland's Baa3 local and foreign currency government bond ratings.

Today's rating action was triggered by the recent Supreme Court ruling on the illegality of foreign-exchange-linked loans and government's continuing difficulties in achieving a resolution to its "Icesave" dispute with the UK and Dutch governments. Specifically, the Supreme Court ruling has the potential to cause substantial bank losses on foreign currency-denominated loans to domestic borrowers and may therefore require additional government support to the banking system. Moreover, a failure to resolve the "Icesave" dispute could lead the Nordic countries and the IMF to withhold future disbursements to the Icelandic government.

These two sources of macroeconomic uncertainty are indicative of the generally asymmetric risks facing Iceland and explains the rationale for the negative outlook on its ratings.

Moody's has today also changed the outlook on Iceland's country ceiling for foreign-currency bonds of Baa2 from stable to negative. The outlook on the foreign-currency deposit ceiling of Baa3 has also been changed to negative from stable.


"The magnitude of the banking system losses that will result from the recent court ruling is not known at this time but it is clear that Iceland still faces significant risks to its economic and financial recovery," says Kathrin Muehlbronner, a Moody's Vice President -- Senior Analyst and lead analyst for Iceland. On 16th June, the Supreme Court declared that foreign-exchange-linked loans are unlawful and non-binding.

A further ruling of the Supreme Court related to the applicable interest rate in case of loan conversion from foreign to domestic currency is expected in the autumn. It is also unclear at this juncture whether the ruling will apply to all foreign-exchange linked loans (around 50% of outstanding loans) or only a subset (e.g. only household loans). "Although banks have some buffer to absorb losses due to their currently high capitalization levels, Moody's does not rule out that Iceland's banks will be faced with further losses following the Supreme Court decision", says Ms Muehlbronner. "Moreover, this could in turn require the government to inject further capital into the banks as the only realistic provider of additional capital."

This is not the only uncertainty clouding the outlook for the Icelandic economy: A solution to the "Icesave" dispute with the UK and Dutch governments is also still outstanding. In Moody's opinion, this could potentially exert renewed pressure on the funding provided by the IMF and the Nordic governments and the timeframe for the lifting of capital controls. While acknowledging that recent economic data have largely been positive, Moody's believes that these significant and persistent uncertainties have the potential to undermine Iceland's recovery.

Moody's currently projects that real growth will turn positive in 2011, but this projection is subject to significant downside risks. Moody's notes that the Icelandic government's debt is already elevated for the country's current rating level. General government debt is projected to reach 150% of GDP this year in gross terms and 86% in net terms. Net debt is forecast to increase to almost 100% of GDP next year.


Moody's says that downward rating pressure on Iceland's sovereign rating could result from (1) indications that the ongoing uncertainties will negatively impact the real economy, (2) renewed stress in the banking system and a resultant need for further capital injections by the government, which would further increase the already elevated levels of government debt, and (3) pressure on Iceland's external liquidity, which could be related to an inability to resolve the "Icesave" dispute.

Conversely, the rating agency says that positive pressure on Iceland's rating could develop if there are signs of a sustained economic recovery and successful solution to the current uncertainties.


Moody's last rating action affecting Iceland was implemented on 23 April 2010, when the rating agency changed the outlook on the Baa3 rating to stable from negative.

The principal methodology used in rating the government of Iceland is "Moody's Sovereign Bond Methodology", published in 2008. This methodology can be found at in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Rating Methodologies sub-directory on Moody's website.

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trav7777's picture

finger, bitchez

russki standart's picture

NEWS FLASH: Bin Laden was spotted in Iceland, US to send in troops to rescue Iceland from the potential Terrorist Threat....Also to help collect banksters loans.

Ray1968's picture

Does Iceland have a military? I hope so.

Chunkton's picture

Ouch, this one is too close for comfort.

Kiss My Icelandic Ass's picture

Couldn't have said it better myself.


Kiss My Icelandic Ass

chet's picture

If you're going down, you might as well light the building on fire and take some pot shots at the cops circling outside.

doomandbloom's picture

Ejjjlkjeuroayuddbhi, bitchez 

unwashedmass's picture


good for them. stand strong, Iceland.

Hansel's picture

+1, who cares what Moodys thinks

Kali's picture

precisely, who the f**k cares what they think.  They should all be in jail.

breezer1's picture

the imf cares. they authorized the downgrade.

Kali's picture

who cares what the IMF thinks.  Same sea monsters, I should hope that Iceland knows how to deal with sea monsters.  These assholes will show how craven they are if they ever attempt to militarily take "payment" on a small, white, island nation.  It will expose to the world what fascists they are.

cossack55's picture

I now alternate flying the Iceland flag on even days and my Bennington flag on odd days.  Iceland.....what America used to be.

Oracle of Kypseli's picture

With 99% literacy, abundant fish and huge supplies of aqvavit, they will eventually be better off.


Yes I forgot the sheep, Icelandic wool sweaters anyone?

russki standart's picture

Yeah, F@ck you Moodies, IMF and the rest of the criminal clan.

NOTW777's picture

someone still on the EUR gaspedal with no let up

Oh regional Indian's picture

NotW, I think the calls for it's general demise a few weeks ago were far too premature.

Parity will happen together, in one fell swoop.

North Atlantic Tea-tree Organization (NATTO)!

And anyone who'se ever been to Japan knows NATTO is just bad news.

Till then, the manipulators have it. And we'll just be guessing fools. Gamblers.


NOTW777's picture

1.3267 looks like resistance.

Max Hunter's picture

Why?.. Trend line or Fibo?

thislittlepiggy's picture

Errr.. I would say Iceland should stop pissing about and get into the EU double-quick; they may well need a bailout soon...

Martel's picture

They don't need a bailout. They need a good, honest, old-fashioned default.

masterinchancery's picture

Yes, traditional remedies are best, and may keep the foreign banks away for 4-5 years.

pan-the-ist's picture

The real question: how did Iceland prevent the International Jews from currupting their government?

Running on Empty's picture

It never has Florida like weather to complain about.

Max Hunter's picture

Because of their size.. Plain and simple.. No divisions to speak of. IMO it's more difficult for them to spin their lies when a government as small as theirs can be controlled by watchdogs..

lynnybee's picture

why do people "junk" the truth ?    you should be applauded for saying it !   duh ..... Rubin, Greenspan, Barney Frank, Bernanke, Dimon, Summers, Geitner, Blankfein, Clinton's new son-in-law, COME ON PEOPLE !  WISE UP ! 

Max Hunter's picture

I read an article in the Haaretz last year. The  state of Israel made a call to arms for people to volunteer as bloggers to comb the internet and oppose anti-israeli positions with comments in forums. Some 14,000 people signed up within hours. They probably have tens of thousands by now. Then add in the Zionist Christians and Neo-cons.. You have an army of fools spewing hatred for Muslims and alliance with the terrorist state of Israhell.. Makes me sick to my stomach.. I can see them from a mile away.. They think they are sly.. but they're not..

Max Hunter's picture

Junked already.. LMAO .. Like cockroaches.. Their numbers are many..

Doctor sahab's picture

Their agenda has gotten so bad that I ignore any news report where the report has

a jewish name. One State Solution... cut all money for Israel, Palestinians and let

them live or die together.

THE DORK OF CORK's picture

Its a terrible feeling when you feel ashamed for your country.

Even so , Iceland is a beacon of light for a country under complete domination of the money masters.

Ireland needs to change its name to debtserviceland as Iceland/Ireland can easily be confused by people with limited geographical knowledge.


hedgeless_horseman's picture

When will Iceland finally throw out the fucking Brits?

THE DORK OF CORK's picture

The average Brit is a honourable sort of fellow - its the deviants that lurk around the streets of the square mile that are the problem.

Oh regional Indian's picture

Very true Dork. And you can take that to each and every country in the world.

Good normal folk.

And ALL the rotten apples in positions of power.



DoChenRollingBearing's picture

ORI, my experience as well, everywhere I have been.

Max Hunter's picture

I agree 100%... but they really need to stand up to the City...

trav7777's picture

The average USian is also a decent person.  The Money Tribe that runs the financial systems in both nations is the problem.  Both of these States saw the largest exodus from Europe during the War of clan members, consequently it is no accident that since then, both have had increasingly aggressive and militaristic foreign policies.

The tribe has had a banking stranglehold on Britain since 1700, and has lent the sovereign balls-deep into debt.  That type of financial posture makes the sovereign increasingly beholden and presents a tremendous amount of policy-shaping clout to the debtholders.

Roy Bush's picture

Good question.  Hopefully, Iceland defaults and takes their country back.  They should stand up against the debt-slave system!

Trundle's picture

Money backed by seashells.

Go Vikings!

vote_libertarian_party's picture

So who has their bonds/loans on their books and for how much?

Oh...I forgot...nobody ever needs to worry about large losses anymore.

Never mind.

Walt Whitman's picture

Throw all the Icelandic banksters in the Jcelandikjaggaolnik.

RockyRacoon's picture

Consumers are less and less concerned with FICO scores.  A country should become less and less enamored with "credit rating agency" scores as well.  Those who have NO credit have terrible FICO scores even though they could probably buy and sell most of us.  A country gets more solid in my opinion the more it repudiates its debt.   Just my narrow view.

Dr. No's picture

Reminds me of a generation past.  A bunch of years back, I overheard my grandmother (depression generation) on the phone with a banker.  The banker was pushing a new fangled visa debit card for her checking account for which has been open for longer than I have been alive.  The banker stated the debit card would help her credit rating, to which she replied "Credit rating?  I dont care about that..." and she hung up.

old_turk's picture

Mo..o..o..o..o..o..o..o..dy's can stuff it their pie hole.

Icelandic folk, excluding the pols and banksters rock!

Steaming_Wookie_Doo's picture

*ring ring* 

Hello? China? Russia? 

Hey, the EU won't trade with us anymore. You guys interested in buying lots of fish? We also have some airfields and sub bases ready for lease. We also have tasty fermented shark. A real aphrodisiac, that one is.

P.S. we also have some really hot babes here. Good after you have some fermented shark.

aheady's picture

And Bjork. Don't forget Bjork!