Sigrún Davíðsdóttir's Icelog

These days the Icelandic government is struggling to close a budget hole of ISK40bn, €258m. Budget cuts are imminent, estimated to reach ISK30-33bn. The cuts will be felt all over the country, be it in hospitals, schools or elsewhere in the public sector.

It is interesting to compare this sum, ISK30bn, to a loan that Landsbanki granted in summer 2008 to an obscure company called Stytta. Stytta means ‘statue’ but also figures in an idiom, ‘stod og stytta’, i.e. ‘support’. And Stytta certainly was an important support to Fons, a company owned by Palmi Haraldsson. In Iceland Haraldsson has commonly been seen as a business Siamese twin to the arch Viking raider Jon Asgeir Johannesson. A link that Haraldsson now contests in a court case in New York where the Glitnir Wind Up Board is suing Johannesson, Haraldsson and other main shareholders and directors of Glitnir.

In the summer of 2008 Fons situation was precarious due to falling asset prices against astronomical leverage as the Icelandic banks granted their chosen clients (certainly not an Icelandic invention but practiced there in an usually reckless way). At this point the banks in general couldn’t lend more to those they had already lent too much. Instead they started buying assets on dubious valuation and terms, often with a highly favourable buy-back scheme.

In summer of 2008 there was news that Fons had broken all Icelandic earning records when it sold its share in the UK supermarket chain Iceland Food for ISK75-80bn, ca €516m but the buyer wasn’t mentioned. However, the story told in the Althingi Investigative Report is rather less glorious. Stytta was a company set up in summer of 2008 to buy Fons’ share in Iceland Food. Three months later Stytta’s debt amounted to ISK60bn, €387m – enough money to run Althingi, the Icelandic parliament for about 25 years and more than enough to cover the present budget black hole.

With Stytta in place a series of transactions was set in movement between Stytta, FL Group (then with a new name, Stodir, making the Stytta name a great pun) and Fons. Stytta borrows ISK50bn, €322m, from Landsbanki. The bank’s loan committee granted the loan in between meetings, a regular way of granting dodgy loans as the AI report shows. Glitnir grants Stytta a loan of ISK6bn, €38m, on September 17 2008 when it must have been crystal clear to the Glitnir management that Glitnir’s bankruptcy was imminent. My source close to Glitnir says that at that time there was no sensible ground for the Stytta loan.

But why did Landsbanki grant Stytta the exorbitant sum of ISK50bn? This was done to improve Fons’ standing with Landsbanki. Landsbanki lent Stytta the ISK50bn to buy the Iceland Food shares from Fons – and 50bn goes on Fons’ account with Landsbanki. Fons was then expected to lower its debt by 50bn. On Landsbanki’s books it appears that one company gets a loan of 50bn and then another company pays down its debt in an unrelated transaction.

Or rather, this was what the management at Landsbanki envisaged. In reality, Fons didn’t quite follow the instructions: Fons didn’t pay back ISK50bn out of the ISK50bn they got but only 48bn. Fons kept ISK2bn, €13m, for itself. Sigurjon Arnason CEO of Landbanki said to the AIC that this had been ‘bad’ – an understatement if there ever was one. Since this was Arnason view it’s all the more surprising that Landsbanki did nothing to chase and reclaim the ISK2bn. So what did Fons do with the ISK2bn that summer when no money was to be had at all? Fons used that money to secure its control over Iceland Express. Later the air company was moved over to Fengur, another Haraldsson company. Fons then went bankrupt and Haraldsson still owns Iceland Express.

Stytta is still going strong, at least on paper, in the sense that it isn’t yet bankrupt. However, I’m told that the Landsbanki ResCom might be about to take the company over and that there might possibly some news on this later.

But who owns Stytta? FL Group owned 36%  – but the main shareholder is an Isle of Man company called Blackstar, set up in the obscure off shore way allowed there. The beneficial owner of *Blackstar is Iceland Food’s CEO Malcolm Walker and two other Iceland Food managers. Walker, who has never answered when I’ve contacted him, founded Iceland, then left the company and was brought in by Johannesson, Haraldsson and the consortium that bought Iceland in 2004.

Stytta hasn’t sent in annual returns for 2009 but according to the 2008 accounts the results that year were, unsurprisingly, a huge loss. This year, Stytta is due to repay 63bn. On the board is Bernhard Bogason, an Icelandic lawyer living in London and closely connected to Johannesson e.a., and a manager from Iceland Food.

Landsbanki and Glitnir now own ca 70% of Iceland, Glitnir’s stake is small, probably only around 10%. It’s been confirmed that Malcolm Walker and other managers now want to buy back the supermarket chain. Given the intimacy Walker has had with the previous Icelandic owners and his part in Stytta this sale is being followed with a great interest in Iceland.

The story of Stytta is in a nutshell what was going on in the banks in the summer of 2008 around Johannesson, Haraldsson and others in the ‘cabal’ mentioned in Glitnir’s New York court case. Walker’s connection to Stytta is also of interest and shows his close ties with the Icelandic Iceland Food owners. It is also highly remarkable that Landsbanki’s ResCom has been so slow in taking over Stytta with its astronomical leverage.

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* Interestingly, Blackstar got a loan from Kaupthing in April 2006. A loan of €12m, given in two 6m installments with, as far as I can see, insufficient and obscure collaterals. A name listed as the recipient of the loan is a certain Jan Geertman living in Spain. Sources from within Kaupthing’s old management tell me that they can’t remember having lent money to a Jan Geertman so there is a question mark as to who was involved here, why Kaupthing granted this loan and what interests were at stake. Further information would be appreciated ([email protected]).

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