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Wednesday May 23 2007

The pact of a new government
This morning, the chairmen of the political parties announced the pact of a new government formed by the Independence Party and the Social Democrats. The pact states that one of the most pressing tasks of a new government is to ensure economic stability. The aims of economic policy are to ensure low inflation, a low level of interest rates, better balance of foreign trade, stable and robust economic growth and continuing strong position of the national treasury. Major developments, changes to the tax system and other measures of economic policy will be timed in light of those goals.

The government is seemingly set on further cuts in personal and corporate taxes. The system of indirect taxes, including excise taxes and value added tax, will be reviewed. Further, stamp duty in real estate transactions will be abolished during the term, when conditions in the housing market permit.

Overall, this seems to be a continuing government of liberalism, reform and welfare, focusing on good operating conditions for companies as well as equality and beneficial conditions for households.  This government has a strong majority and is likely to uphold a policy similar to the one which has driven economic growth in recent years. (IHB)

Alfesca: results in line with expectations

Alfesca's results in the first quarter (Q3 according to Alfesca¿s fiscal year) was in line with our expectations. Sales increased by 12.8% in the quarter, which is substantial growth but is partly explained by the acquisition of Adrimex last February. The EBITDA was in line with expectations. It should be duly noted that Alfesca¿s operations are subject to wide seasonal fluctuations as sales are highest in the run-up to Christmas and Easter. This year, Easter was in the second quarter but Easter sales nonetheless appeared near the end of the first quarter. The price of salmon in world markets was relatively stable in the quarter, but has however fallen in recent weeks, which should improve performance in the current quarter. Profit in the period amounted to EUR1.3m which was better than we had expected. The main explanation for that were positive tax items, as the company was able to utilise unused tax credit.

Good outlook and further external growth in the cards
According to Alfesca's earnings announcement, the company's operating outlook is good. The management believes that the position of Alfesca's subsidiaries in main markets is good. The sale of duck products and salmon in France has been successful and the sale of shrimp products in Britain has remained good, as in recent quarters. The management has said that the company may grow further through external growth. This plan is partly set forth to strengthen operations with the aim of increasing stability and reducing the seasonal fluctuation. (VH)

Moody's affirms credit ratings of Glitnir and Landsbanki
Moody's Investors Service yesterday confirmed its credit ratings of Landsbanki and Glitnir following the banks' acquisitions in recent weeks. Landsbanki is in the process of acquiring Bridgewell plc whereas Glitnir has recently acquired FIM and Tamm & Partners Fondkommision in Sweden. In its rationale, Moody's says that the strategic direction and size of the acquisitions mean that the ratings of the Icelandic banks remain unchanged. Moreover, Moody's believes that the acquisitions are part of the Icelandic banks' attempts to diversify their sources of income in response to the competition-driven tightening of net interest margins. Moody's therefore believes that the takeovers have a neutral rather than a positive impact on the banks' ratings. Moody's will to begin with watch whether risk management will be swiftly implemented in the merged companies and whether the managements of the acquired companies will continue to work for the banks when the earn-out period expires.

Moody's rationale

High credit growth in April

There was a considerable increase in lending by deposit money banks to residents in April, or about ISK136bn, representing a 5.5% increase. The increase primarily occurs in two types of lending. Firstly, foreign exchange-rate denominated bonds increased by ISK68bn, and, secondly, debentures increased by ISK70bn. Very little change occurs in other types of lending, including CPI-linked loans. In a 12-month period till the end of April, lending increased by 26.6%, or by 23.7% when including market securities. Credit growth has contracted significantly since its peak in the first months of the year 2006 and is now similar to what it was in the autumn of 2004. This is indicated in the Central Bank's Statistics published yesterday.

Companies increase borrowing
The increase in lending was almost entirely limited to lending to companies, or more than ISK131bn. Borrowing by households increased by just over ISK12bn and that of the government and government agencies by just over ISK1bn, but there is a contraction in lending to other parties. The increase in lending to companies is mainly in the form of long-term credit in foreign currency which increased by ISK91bn or 9% between months. Although corporate borrowing revived in April, lending can be expected to continue declining parallel to an economic slowdown in coming quarters. (HDV)


High credit growth in April
Alfesca: results in line with expectations
Moody's affirms credit ratings of Glitnir and Landsbanki
The pact of a new government
Sharp pay rise in the private sector
Contraction in car sales coming to an end?
Alfesca acquires a French spreadables business
Forecast 0.7% rise in the CPI in June
Straumur-Burdarás acquires eQ in Finland
Date: 5/23/2007
Category Volume Trades
Benchmark Bonds 780,544 57
Equities 10,911 733
Other Bonds 122,702 17
Total 914,158 807
Date: 5/22/2007
Largest turnover  
ID Vol. Price Price ch.
STRB 2,660 21.35 1.18%
KAUP 2,352 1,105.00 0.64%
LAIS 1,336 37.00 0.27%
BAKK 1,330 71.70 1.70%
EXISTA 1,183 33.65 1.20%
Date: 5/22/2007
ICEX-15 8,102 0.57%
Date: 5/22/2007
Benchmark Bond Issues  
ID Vol. Yield
HFF150224 44,800 5.32% -0.01
HFF150434 265,495 4.61% 0.01
HFF150644 280,764 4.28% 0.00
HFF150914 47,003 6.27% -0.02
RIKB 08 0613 44,514 12.96% -0.09
RIKB 08 1212 75,304 12.82% -0.13
RIKB 10 0317 140,730 10.92% 0.00
RIKB 13 0517 1,752 9.24% 0.00
RIKS 15 1001 0 5.13% -0.03
Date: 5/22/2007
REIBOR Market  
O/N 13.30% 13.55%
SW 13.35% 13.60%
1M 13.57% 13.82%
3M 13.63% 13.88%
6M 13.64% 13.89%
12M 13.45% 13.70%
Date: 5/22/2007
Exchange Rates  
  pr. ISK 3m.Libor 3m.fwd.
USD 61.60 5.36% 1.3
GBP 122.38 5.78% 2.4
JPY 0.51 0.67% 0.0
EUR 83.12 4.09% 2.0
Vt. ISK 112.60 4.49% 2.6
Date: 5/23/2007 14:01 GMT
Volume in ISK m. 

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