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Landsbanki Islands first started to function as the national bank of Iceland in 1886. In the period between 1927 and 1961 is served as the central bank of the state. The bank’s privatization bean in 1998, and in 2003 forty-five percent of its shares were acquired by a successful businessman called Björgólfur Gudmundsson. He occupied the position of the chairman of the board. The two CEOs of Landsbanki, since that time, were the representatives of the two major political parties of the country. The main competitors of this financial institution are other privatized banks of Iceland, such as Glitnir and Kaupthing Bank.
One more organization that is recognized as the bank’s competitor is the public Housing Financing Fund that provides housing loans to the citizens. After becoming fully privatized, Landsbanki started to concentrate on building its domestic market and developing its operations of an international character. In 2003 and 2004 the bank experienced the record growth of its home mutual funds and residential mortgages.
During this time, many organizations based in Iceland started to focus on international expansion. They mainly targeted such countries as the United States and the United Kingdom. Landsbanki also began its participation in a number of international projects which facilitated its expansion to the United Kingdom and Luxembourg. The expansion resulted in lending growth due to the lending to foreign customers via the loan team syndicated in London. As the bank grew, it began to offer new and more complex services. By the end of 2005 the bank’s expansion covered over 12 different countries, and its assets compared to those of 2000 tripled.
The reported after-tax revenue of Landsbanki in 2005 constituted ISK 25 billion. In 2006, Landsbanki together with other major banks of Iceland faced a funding squeeze which occurred because of the negative comment given by of the credit rating agencies. According to the comment there was a risk for the banking system. The credit rating agencies expressed their concerns about the Icelandic banks’ cross-holdings, their exposure to high equity and property prices, the lack of transparency in their accounts and their reliance on international capital markets for funding. The economical crisis that hit the United States and Europe in 2007 was surprisingly mild on Landsbanki.
The organization managed to continue its growth even under the unfavorable circumstances. The major downfall for the bank occurred in the end of 2008 when the United Kingdom froze the assets of Landsbanki along with the assets of CBI in order to protect the native depositors under the anti-terror legislation.
Analysis and Evaluation
Among the features of Landsbanki that stood out the most were its incredibly fast growth and frustrating attitude towards risks. Besides, during its development the bank was exposed to too few borrowers most of which were the bank’s main shareholders. Moreover, the bank invested into the shares of other banks of Iceland which lead to an artificial boost of the capital ratios. Finally, Landsbanki accepted overpriced equity as collateral against loans.
As a result the growth of the bank was too complex to monitor for FME. Generally, the interdependence of Icelandic banks which occurred due to the practice of cross-holding served as one of the major threat to the sound development of financial institutions. Finally, the rapid growth of Landsbanki facilitated the constant need for new human resources, which it took from FME depowering this organ. Besides, the infrastructure of the bank could not keep up with the growth of the organization and the best employees of all fields were forced into sales.
Among the bank’s strengths there was strong financing acquisition. In the first years of being privatized the bank started to expand into international markets and obtain new debtors from abroad which created great capital and attracted new assets. The bank’s revenues tripled over just five years of functioning which made this organization highly profitable and this also was a strong feature of Landsbanki.
The main weakness of the organization was the reliance on foreign funding. Besides, the organization did not invest enough into research, and analysis of the field so that many of its decisions were inappropriate for a sound financial organization. Finally, being constantly understaffed and not using their human resources in the appropriate way was another weakness of Landsbanki.
Among the most important development opportunities for the bank was the expansion to international market and beginning to interact with foreign funders and debtors. By 2005 the bank managed to expand to twelve different countries and there were still so many more states to cover. Besides, if Landsbanki survived till today, it would have more opportunities due to the financial grown in the Middle East and Asia.
The threats for Landsbanki were the growing competition from the side of other banks, which were also involved into international expansion. Besides, the bank was rather dependant on prices for housing, for example, the change of prices was a potential threat. Besides, one of the most serious threats was posed by the human resources factor. The company was in need of fresh resources and high performing workers. Becoming unattractive to the new employees would have threatened the growth of the bank. The aspect closely related to human resources was the bank’s infrastructure. Too fast growth caused a major frustration for the administration of the bank just because the infrastructure could not keep up with the expansion.
An alternative way of development for the bank was to build stronger domestic presence on the home market. The practice of cross-holding initially was a wrong step to take for the banks of Iceland. The bank’s leaders became too impressed with its high performance over the first several years. They got carried away and focused on the development of sales while other sectors remained underdeveloped and soon started to drag the organization down. In order to avoid such errors the organization should have worked out a step by step plan of development for the bank with the particular goals determining the success of each stage. The departments and sectors of the organizations needed to be expanded equally in order to support the areas of main success.
In order to defeat one of the main issues Landsbanki had – the scarcity of resources, it had to develop a competitive system of benefits and compensations. Besides, the organization’s leaders had improper ethics for the workers of financing sphere. Instead of getting obsessed of earning more and more money they should have the priority of building a strong and enduring business. Transparency was an issue for the bank. In order to function as a reliable and sound financial institution Landsbanki needed to implement a system of clear reporting.