New Zealand investors are set to lose more money to the global credit crunch after Cayman Islands-based bond issuer Credit Sails revised its losses for investments from New Zealand to 71.2% of initial investments, or a total of NZ$65.2 million. The losses all stem from failed Icelandic institution, Kaupthing Bank.

The losses relate to 'Momentum Collateral Securities' that mature on December 22, 2012. Forsyth Barr managed and promoted the 2006 listing which raised NZ$91.5 million.

The portfolio included investments in five banks that have failed over the last five months: Lehman Brothers, Washington Mutual; and three Icelandic Banks: Landsbanki Islands, Glitnir Bank and Kaupthing Bank.

Losses from the first four banks were protected by credit default swaps, leaving the portfolio to be hit by losses to New Zealand investors of NZ$65.2 million from Kaupthing Bank.

The Icelandic financial system suffered a meltdown in the last three months of 2008 due to heavy foreign borrowing by its banks and a massive current account deficit close to 20% of GDP. On October 6, the Icelandic government passed a law allowing the Icelandic Financial Supervisory Authority (IFSA) to intervene in the operations of Iceland's financial institutions.

A day later, Kaupthing bank sought to reassure investors by issuing a statement saying the bank had not been approached by the IFSA regarding any intervention in its operations, adding that it had also just secured a 500 million Euro loan from Iceland's central bank.

Early in the morning of October 9 (Icelandic time) international ratings agencies Moody's and Fitch both downgraded the bank's ratings, forcing the IFSA to take control of the bank's operations later that evening.

On November 24, Kaupthing was granted a moratorium set to last until February 13, 2009.