Iceland's central bank chief, recently estimated that foreign creditors would "unfortunately only get 5, 10, 15% of their claims"

German Banks Now Face Big Losses From Their Misadventures in Iceland WSJ
German banks have bled billions of euros in the U.S. subprime-mortgage debacle. Now they face another potentially big bill from a costly misadventure in Iceland.
The Icelandic bet is the latest illustration of how German banks -- including once-sleepy regional lenders -- ranged far and wide in recent years in search of yield to escape stiff competition and low profit margins on their home soil.By June of this year, before Iceland's spectacular financial meltdown, German financial institutions had lent $21.3 billion to Icelandic borrowers, according to the Bank for International Settlements. That was well over a quarter of all foreign lending in Iceland, and roughly five times as much as Britain, the next-largest creditor country.Iceland's three largest banks -- and the country's main debtors -- collapsed this month, plunging the country into crisis. Kaupthing Bank, Iceland's biggest, missed a coupon payment this week on 50 billion yen ($512 million) of bonds in Japan, heightening default concerns.Blaming fallout from the U.S. financial crisis, lawmakers in Berlin approved a €500 billion ($642 billion) rescue package for German banks on Oct. 17. Bayerische Landesbank, a state-owned regional lender, became the first German bank to raise its hand for help this week, requesting a €5.4 billion capital injection from the federal government.BayernLB, as the bank also is known, wrote down €2.6 billion in investments during the first half of the year, much of them tied to soured American subprime debt. But it also disclosed this week that it has €1.5 billion in credit exposure to Iceland, a large chunk of which it might also have to write down. ( more from Bloomberg BayernLB to Seek EU5.4 Billion From German Government )That lack of clarity highlights the lack of transparency in today's global financial markets -- and why it may take a long time for banks to fully resume lending to each other, even as authorities in Germany and other countries take aggressive steps to restore confidence. Germany's financial-services regulator said Thursday new accounting rules aimed at giving banks and insurers more leeway in valuing certain assets should boost earnings at the country's biggest banks by up to €1 billion in the third quarter.Now foreign bets that boosted profits are coming back to haunt many banks. Germany's five largest private-sector banks had €12.9 billion in markdowns on securities during the last half of 2007 and first half of 2008, according to Standard & Poor's. Many of the losses are tied to U.S. investments.But some of the country's state-owned regional lenders, or landesbanken, also have bloodied their noses after venturing abroad in search of juicier yields. Originally created to channel credit to their home states, some became aggressive players in international capital markets in recent years. They also had a lot of money to spend after raising money on the cheap before 2005, when government guarantees on their new debt issuance expired."There's not enough low-risk business that can feed all these banks," said Johannes Wassenberg, a European bank credit analyst in London with the ratings agency Moody's.Two small and relatively unknown German banks, SachsenLB and IKB Deutsche Industriebank AG, became the country's first two victims of the U.S. subprime crisis last year after stocking up on asset-backed securities and then failing to secure enough liquidity to stay afloat.
Deutsche Bank AG and Commerzbank AG, Germany's two largest banks by assets, declined to say how much exposure they have to Iceland. Landesbank Baden-Württemberg, or LBBW, the country's largest landesbank, also declined to say how much Iceland exposure it holds.HSH Nordbank, a smaller landesbank, said Thursday it had exposure of "low three-digit-million" euros to Iceland. Another landesbank, WestLB, said its exposure to Iceland was "less than €100 million." A third landesbank, Helaba, said its Iceland exposure was below €10 million.David Oddsson, Iceland's central bank chief, recently estimated that foreign creditors would "unfortunately only get 5, 10, 15% of their claims" on the country's three largest banks.German Banks Are On The Hook For $ 21.Billion Or 30% Percent Of Icelands Debt