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Archive for August, 2010

Landsbanki: a lost cause for bond holders

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Bondholders in Landsbanki don’t need to hold their breath much longer. In an interview with minister of finance Steingrimur J Sigfusson on Bloomberg Sigfusson states clearly that there won’t be much left after the priority claims have been paid out.

“The comments end hopes creditors, including BNP Paribas SA and Nordea Bank AB, may have had of recouping their share of $27.4 billion in debt owed them since Landsbanki’s collapse in October 2008.” All in all the collapse of the Icelandic banks left a debt of $85bn.

The question is what these two banks and banks such as Deutsche Bank had in mind when they showered the little island in the North Atlantic with amounts equalling decades of its GDP. Deutsche’s cooperation with Kaupthing in influencing its CDS is now being investigated by the Serious Fraud Office, as part of its investigation into Kaupthing. Deutsche has also been scrutinising its cooperation with Landsbanki, I’m told. Deutsche’s business with Thor Bjorgolfsson, one of Landsbanki’s major shareholders and the largest shareholder of Straumur, goes a long way back, back to his beginnings in Russia.

The Icelandic banks then lent the money on to their clients, often against no collaterals. Any read faces out there in international banks that were so lavish in their dealings with the Icelandic banks?

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Written by Sigrún Davídsdóttir

August 25th, 2010 at 11:41 am

Posted in Iceland

Sigurdur Einarsson: OSP’s interrogation ended

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The Office of the Special Prosecutor in Iceland finished interrogating ex-chairman of Kaupthing Sigurdur Einarsson. After figuring on Interpol’s wanted list since May, when Einarsson didn’t show up when the OSP called, Einarsson was taken off the list on Tuesday and appeared in Iceland the day after.

Einarsson met up at the OSP for interrogation, related to the OSP investigation into Kaupthing. Friday afternoon Einarsson was on free foot. The investigation is still ongoing.

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Written by Sigrún Davídsdóttir

August 22nd, 2010 at 5:15 pm

Posted in Iceland

Rowland: too busy to be a Tory treasurer

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This week, David Rowland discovered that his business interests are growing too fast to give him time to be a Tory treasurer. But according to The Spectator, Lord Ashcroft and others close to the Tory leader and PM David Cameron have warned that with Rowland as a treasurer some potential Tory donors would be unwilling to donate money to the party. The UK media wonders what this says about PM David Cameron’s common sense and about whom he listens to.

Earlier this year when Rowland was nominated as the coming treasurer (because Michael Spencer had to resign: sold shares in his Icap only a few weeks before a profit warning, causing concern but apparently nothing more, so far) Moneyweek published a profile on Rowland, mentioning his taste for opaque deals: a case in point was his buying of Kaupthing Luxembourg.

Daily Mail has been extremely diligent in bringing out old and new example of Rowland’s shady affairs, even publishing a photo of the tycoon with a glamours lady on his lap. All this was summarised this week as Rowland resigned, or rather declared he wouldn’t take up his post in autumn, as planned. Or as he stated: “I was honoured to be asked to become treasurer. Unfortunately, my developing business interests mean I will not have the time to give that role the focus and attention it deserves.”

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Written by Sigrún Davídsdóttir

August 22nd, 2010 at 5:00 pm

Posted in Iceland

The world according to BTB

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Bjorgolfur Thor Bjorgolfsson, who outside Iceland goes by the name of Thor Bjorgolfsson, is now using the world wide web to write his own story and to shape the past and present according to his Weltanschauung. Unfortunately for non-Icelandic speaking possibly avid readers the website is, so far at least, only in Icelandic.

Bjorgolfsson was, together with his father, the largest shareholder in Landsbanki and was in addition the largest shareholder in investmentbank Straumur. His shareholding in both banks has been wiped out but Straumur seems to be moving out of moratorium. His third main asset, the generic pharmaceuticals Actavis, is still in his name but the major part of the debt has been on Deutche Bank’s books.

Bjorgolfsson has been an immensely active investor since he and his father started their joint venture in St Petersburg in the early 90s. That story, shrouded in mystery, is so far best told in an article in Euromoney Nov. 2002 when it was clear that they would become principal shareholders in Landsbanki, together with their business partner in Russia Magnus Thorsteinsson. On Wikileaks there are documents from to the court cases related to how they became owners of the Russian businesses. There have been countless articles on the Russian activities and Bjorgolfsson’s Eastern European interests.

The trio then set up a brewery that they sold to Heineken in 2002. The brewery was set up together with an American investor, Capital Group of Los Angeles, at the time active in Russia. The sale to Heineken didn’t mark the start of an international investment carrier:  Bjorgolfsson was already actively investing in Easter-Europe, i.a. together with Deutsche Bank.

In Iceland the BTB web is seen as Bjorgolfsson’s PR campaign: he isn’t happy to be branded as a ‘viking raider’ excluded from all future involvement in Iceland due to his past in general and to Icesave in particular. A close associate of his, Hreidar Mar Gudjonsson who used to work for Novator, Bjorgolfsson’s main investment vehicle, is now leading a group of investor to buy Sjova, an insurance company brought to the brink of bankruptcy by its ‘raider’ owners, Milestone. Gudjonsson’s move will undoubtedly raise questions of possible involvement by Bjorgolfsson.

Information on the BTB web has already led to a statement from Robert Wessman ex-CEO of Actavis and earlier a close associate of Bjorgolfsson. The two had i.a. a joint real estate venture in Spain that didn’t do too well. On his web Bjorgolfsson claims that Wessman was fired. In a statement today, Wessman begs to differ, says he wasn’t fired and publishes his final salary agreement to prove his point. Wessman also points out that Bjorgolfsson is now running a huge spin campaign with a group of people on his pay roll; he should instead rather use the money he’s pouring into spin to pay his debt.

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Written by Sigrún Davídsdóttir

August 20th, 2010 at 6:25 pm

Posted in Iceland

‘Money isn’t everything’

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Walking through ‘Hljomskalagardurinn’, the little park by the pond in the centre of Reykjavik, earlier this evening the city seemed to be at the heart of Southern Europe: the temperature is around 20 degrees and the sun is still shining now just after 9pm. Every city shows its best side on a sunny summer evening but I don’t know any city that so much opens up and spreads out its charm as does Reykjavik on a evening like tonight. Especially because the inhabitants, not always caressed by the elements, show their uninhibited appreciation of their good luck and turn very cheerful. Even the ducks and geese swim merrily in the saturated colours.

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It is a truly magical evening – and the weather has been like this most of the summer. It seems that every summer is just better than the one before or rather, that’s what it’s like in Southern Iceland. The Northern part seems to have lost its warm summer that everyone in Southern Iceland was envious of. And there is a vibrant atmosphere, with open shops and cafés. On Saturday there is the annual ‘culture night.’

And Bankastraeti, ‘Bank Street’, could be San Francisco.

At Christmas 2006 I sat at this same café, b5 and heard, on my right, young men in black planning to buy an airline. An identical group, to my left, were planning to buy a bank. Tonight, one of these breathtakingly good-looking Icelandic girls passed me just above the café, talking to a friend. The sentence I caught was: ‘Money isn’t everything.’

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Written by Sigrún Davídsdóttir

August 19th, 2010 at 10:01 pm

Posted in Iceland

Einarsson: the future is unclear

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Around 6pm the Office of the Special Prosecutor decided to call it a day – and Sigurdur Einarsson left the office after a whole day of interrogations. As he left he said to the media that all allegations against him are wholly unfounded. The Kaupthing management had not been involved in market manipulation, fraud or embezzlement as the investigations indicates.

The OSP isn’t finished with Einarsson just yet. He has to show up tomorrow for another day. It’s still unclear if he came to some sort of an agreement with the OSP that he would only show up if he wouldn’t be put into custody though it seems, a priori, rather unlikely that the OSP would do such an agreement.

The UK Serious Fraud Office is conducting its own investigation into Kaupthing. The OSP and the SFO are collaborating though the investigations are independent of each other.

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Written by Sigrún Davídsdóttir

August 19th, 2010 at 6:39 pm

Posted in Iceland

Sigurdur Einarsson: off the Interpol list and in Iceland

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Sigurdur Einarsson, Kaupthing’s ex-executive chairman no longer figures on the Interpol wanted list. His name was taken off the Interpol list on Tuesday. Yesterday, he arrived in Iceland and is now being interrogated by the special prosecutor. The investigation by the Office of the Special Prosecutor relates to alleged market manipulation, fraud and embezzlement.

As he arrived this morning at the OSP he said to the journalists waiting for him that due to having his name on the Interpol list he had been unable to travel and that it hadn’t been a pleasant experience. He said he didn’t know how long he would stay in Iceland and added that his conscience was clean. Noticeably slimmer than last time seen he arrived accompanied by his lawyer Gestur Jonsson who was the lawyer of Jon Asgeir Johannesson during the Baugur trials some years ago.

In May, some Kaupthing ex-managers were kept in custody, the longest for ten days, as the OSP investigated their statements. At the time, Einarsson was due to appear but allegedly changed his mind when he saw the treatment his collegues received. The OSP reaction was to have Einarsson put on the Interpol list. The has effectively meant that Einarsson was in involuntary custody in London where he lives.

The development at the OSP today and the coming days will be in the glare of the Icelandic media.

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Written by Sigrún Davídsdóttir

August 19th, 2010 at 10:16 am

Posted in Iceland

UK: still no questions asked?

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‘If the RBS had gone down it would have taken the rest with it,’ Alistair Darling, ex-Chancellor of the Exchequer, said on the BBC’s Today programme earlier this morning. He was being asked about the events in October as Royal Bank of Scotland and other banks were teetering on the brink of bankruptcy. Darling told how a senior executive of RBS had been in touch with him saying that the bank would go under in just a few hours. ‘Happily we did have a plan and we stopped the bank from closing,’ Darling said – and the government stepped in. The financial system didn’t go under, money could still be taken out of cash machines and bank accounts. Just like in Iceland the UK banks were pulled through and there wasn’t a break down of the financial system.

But unlike Iceland the Labour government at the time and now the coalition government of Conservatives and the Liberal Democrats have done nothing to poke around in the once-teetering banks to understand what happened at the RBS and other banks that had to be saved. It’s almost a law of nature that in companies heading for bankruptcy things are done that aren’t necessarily entirely legal – or entirely cricket at the Brits say.

Whom was the RBS lending to? Some Icelandic businessmen, among others. RBS headed for world dominion, or at least to grow faster than fast and bigger than big. And so it did. That’s what Kaupthing was doing as well. The strategy of growth above everything tends to lead to unwise and imprudent lending. Plenty of that in Kaupthing, also to UK clients like the Tchenguiz brothers, Kevin Stanford and others. And at the RBS? We don’t know because the bank hasn’t been picked over by the FSA or any UK authority. Neither has HBOS or Lloyds or any of the other UK banks that needed assistance at the time. Yes, admirably the Parliament has asked questions and produced reports but nothing that’s nearly enough to explain and clarify what was going on in the banks at the time.

And so it is that billions of public money were poured into the UK banks, no questions asked. Iceland has had its very thorough report of the operations of the collapsed Icelandic banks. In the US much has been done and many stories have come out, clarifying what went on in the US banking sector. In the UK: nothing.

Just as in Iceland British politicians were eager to see the growth of the banking sector in the years up to 2008. Leaders like Tony Blair and Gordon Brown were visibly in awe of the financial wizards of the City. Industry has been disappearing in the UK over the past decades, factories closing. Banking was the economy’s new save-all. In Iceland, the dream of making Iceland an international financial centre completely blinded the politicians. And the financial and regulatory authorities.

The same happened in the UK. The FSA was either inept or unable to keep up with the growing and ever more complicated financial sector. At the time, I thought that since the Icelandic banks operated in the UK nothing much could be wrong with them since the FSA surely would be a strict regulator in a country with such a big financial sector and so much attention and focus on it as well as a great tradition of making laws and regulations. – That turned out to be far from the truth, as the SFO might be finding out if it doesn’t give up on investigating Kaupthing. And the FSA probably didn’t too great a job on the UK banks either.

Now the UK coalition government is readjusting the architecture of the FSA but it will be run by Hector Sants as earlier. There is no indication of acknowledging what went wrong and why, let alone investigating anything at all. The Conservatives are living up to their reputation of being intimate with the City. And it doesn’t seem to change a thing that the Lib Dem Vince Cable, earlier so vocal and clear in criticising the banks, is now a business secretary.

As the two years’ anniversary of the financial world crisis nears, Icelander are well informed about the operation of the collapsed banks. In the UK nothing is or has been done to investigate the operations of the banks leading up to the collapse of some of the UK banks. And the otherwise so outstanding Today journalist who interviewed Darling this morning didn’t even think of asking why the Labour government hadn’t done anything to investigate the banks.

The UK seems to be like Luxembourg: the banking sector here is too omnipotent and influential, too wedded to the political sphere, to be asked impertinent questions.

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Written by Sigrún Davídsdóttir

August 14th, 2010 at 9:10 am

Posted in Iceland

Iceland seen from Italy

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My annual Italian vacation is coming to an end. I’ve been coming regularly to Italy for twenty years now, speak Italian and in general understand the Italian way of thinking and being – coming here feels like coming home since it’s all very familiar. I know that only a few minutes after I land I’ll hear someone discussing what they had for dinner last night, what they are cooking tonight or remembering some good food they’ve had recently.

There are, however, darker sides to this country than it’s love of food. It isn’t for nothing that the Italian word ‘mafia’ has entered the global vocabulary. But it isn’t something that you necessarily notice when you just fly in and fly out for vacation. Some years ago I spent a few weeks in Naples, in Monte Santo, at the centre, or rather at the heart of the city. I would buy my capuccino at a small bar where I was usually the only guest – this was in August, the traditional Italian holiday month – and I would get my mozzarella and tomatoes from a tiny grocery shop run by two elderly men in the steep maze that is Monte Santo. All so friendly and wonderful.

But when I asked Lidia (not her real name), a middle-aged lady who grew up in Monte Santo, if the inhabitants noticed the mafia she explained that only those who run a business come in contact with the dark forces. ‘And they all pay, no matter what they say!’ As a young woman her dream had been to set up business in Monte Santo. When the opportunity arose she decided against it. ‘I couldn’t bear the idea that part of the money I earned with my own hands would end up undeserved in the hands of the bad lot.’

I’ve often said that I didn’t understand Iceland until I got to know Italy. In Iceland, like in Italy, everything is resolved through personal relations if possible. And in both countries it isn’t easy to be a foreigner because then you are without the personal connections unless you are married into an Italian/Icelandic family. It’s the ample space of personal relations that can easily be a fertile ground for corruption if decisions are made regardless of merit or against the interest of the community but solely in the interest of the few who are more powerful than others.

In summer 1992 the Sicilian investigative judge Giovanni Falcone was brutally assassinated by the mafia together with his wife and bodyguards. Just a few weeks later another prolific colleague of his, Paolo Borsellino, was also assassinated, together with some of his bodyguards as he came for his regular Sunday visit to his mother. Falcone once said that the mafia operates where the state isn’t present. And there is plenty of space in Italy where the state isn’t present. It’s the same in Iceland – plenty of space where things are resolved by personal contacts without official control or transparency.

Until recently, when comparing Iceland and Italy, I would always add that the main difference between Italy and Iceland was that there was no money to speak of in Iceland – and of course there isn’t organised crime in Iceland. Not at all.

But then, around 2004 Iceland was awash with money, mostly borrowed from abroad. We now know, broadly speaking but not in detail, how the banks lent that money: it was mostly lent to a small group of businessmen, closely related to the banks. They used the Enron system: create a myriad of companies where the loans were place, to move assets and debt about which makes it very difficult to keep an overview – and that’s of course the advantage for those who want to evade control and transparency.

But unlike Enron the Icelandic myriad of companies was privately related to these businessmen who are thought to have tunnelled money out of these companies into their own private companies, well hidden from the view of the banks’ resolution committees. The Glitnir charges in New York are one attempt to claw back some of this money. – Interestingly, the big shareholders didn’t go bankrupt though their shareholdings in the banks, thought to be their main assets, evaporated with the collapse of the banks in October 2008.

Just recently, the Italian police imprisoned 300 gangsters connected to the Calabria mafia called ‘Ndrangheta’ – the Italian mafia has several names according to where it operates. In an article in Foreign Policy recently the journalist Alexander Stille recounts these events and their connection to Italian politics. It may come as a surprise to readers unfamiliar with Italian affairs how explicitly Stille discusses the alleged mafia connections of Prime Minister Silvio Berlusconi but that’s how things are talked about in Italy. Ever since Berlusconi entered politics in the early 90s it’s been clear that he is in politics to guard his private interests that are unaligned to the interests of his county – and yes, yet he’s voted into power again and again, one of the paradoxes of this country, another story.

Part of the Italian mafia story is the connection with Italian politics as Stille’s article shows. The Icelandic political parties and individual politicians got handsome donations from the banks and the companies that thrived on handouts from the banks. In order to understand the Icelandic story of recent years it’s important to keep in mind the connections between politics and business.

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Written by Sigrún Davídsdóttir

August 9th, 2010 at 9:11 am

Posted in Iceland

More on Rowland and Kaupthing

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The Daily Mail, a UK newspaper, has taken quite an interest in David Rowland, the media-shy millionaire that lived in Guernsey until recently when he felt a pressing urge to donate £2,7m to the Conservative Party. Earlier this year, the party nominated Rowland its new treasurer, due to take office now in autumn. Daily Mail has been untiring in digging up interesting stories about Rowland in order to show the Conservatives predilection for shady money men. As the new owner of Kaupthing Luxembourg, now Banque Havilland, Rowland is of a particular interest to those interested in the aftermath of the collapse of the Icelandic banks.

August 7 Daily Mail came up with a very Daily-Mailish photo of the married Rowland sitting with a middle-aged blond in his lap. Not his wife but, according to the paper, an Italian property agent working in Antigua who, in spite of the intimacy of the scene, wasn’t at all taken in by Rowland. She said he presented himself as a single man but she likes men with ‘more soul’ – and apparently Rowland doesn’t meet that standard. All this according to Daily Mail.

The photo was allegedly taken in Antigua in autumn 2008, a few weeks after Kaupthing collapsed. Rowland was then on this Carribean island pursuing his interest in a property development, i.a. in Hodges Bay, a $60m waterside development where Kaupthing had been the main financial backer.

The collapse of Kaupthing was yet another setback for the Antiguan government – after all, Allan Stanford who is now charged in the US with a $8bn fraud ran his bank and the fraudulent schemes in Antigua. But the Hodges Bay Club still exists and is, according to the club’s website ‘now the reality of a very exclusive dream.’

Who Kaupthing was backing isn’t at all clear since the club’s website doesn’t contain any information on who now owns the club. Kaupthing funded various luxury developments, most noticeably with the Candy brothers. It would indeed be of interest to know who the Kaupthing clients were in the case – the development seems to have been run from London.

But back to David Rowland: it’s mighty interesting that Rowland was scrutinising the Kaupthing backed development because it shows some Rowland ties to Kaupthing. According to the lady on his lap in the end Rowland didn’t invest in the club.

The official Rowland story is that Blackfish Capital, the Rowland investment fund, first became involved with Kaupthing in early spring 2009 as the negotiations with the Libyan Investment Authority on buying Kaupthing Luxembourg collapsed. The Libyan deal collapsed because the bank’s creditors didn’t accept it. Blackfish Capital became involved because the Rowlands, David and his son Jonathan now CEO of Banque Havilland, had been in touch with Kaupthing Luxembourg manager Magnus Gudmundsson earlier that year when the Rowlands were buying some bonds from the collapsed bank.

The rumour in Luxembourg is that Kaupthing’s major shareholder and/or managers were in touch with the Rowlands and still have an interest in the bank. The fact that the Rowlands kept the Icelandic management seemed to support these rumours. It wasn’t until Magnus Gudmundsson was put into custody in Iceland in May that the Rowlands sacked him. The Rowlands firmly deny any contact with Icelanders, earlier connected to Kaupthing.

The fact that Rowland went to Antigua to look into the Kaupthing-related investment is interesting because it shows an earlier Kaupthing connection.

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Written by Sigrún Davídsdóttir

August 8th, 2010 at 3:10 pm

Posted in Iceland