Kaupthing’s ad campaigns underlined the banks innovative thinking as ‘thinking beyond.’ Scrutinising the minutes of the Credit Committee of the Board of Kaupthing hf’s last meeting, Sept. 24 2008, the loan decisions seem far beyond rhyme and reason, at least from the perspective of the bank’s shareholders minus the major shareholders who were being laced with more loans.
Unsurprisingly, the CC was lending more to companies owned by Lydur and Agust Gudmundsson and Olafur Olafsson, the bank’s biggest shareholders in addition to Robert Thenguiz Discretionary Trust. Skuli Thorvaldsson and Kevin Stanford were getting loans to buy CDSs in Kaupthing in order to influence the bank’s CDS. In spite of their companies’ lousy credit rating they were getting yet more loans. Not loans to do anything new but loans to pay older loans.
The billions of ISK sunk into these companies are however dwarfed by the sums that Kaupthing was offering the Uzbek oligarch Alisher Usmanov, recently in the news as an eager investor in Facebook. Usmanov owned 1.48% in Kaupthing. Since Kaupthing had the policy to lend large clients and employees to invest in Kaupthing shares the first thought here is that Usmanov’s ownership was of that kind.
Through one of his companies, Epion, Kaupthing offered Usmanov two loan facilities, in total €1,1bn, to acquire up to 9,9% of shares in Sampo Group. Intriguingly, Exista was selling its 20% in Sampo at the time through Citigroup and Morgan Stanley. It doesn’t take much imagination to think that this deal was somehow linked with Exista’s sale. Exactly how isn’t clear to me. Perhaps Epion was supposed to buy what the two banks couldn’t sell or Epion was supposed to buy but didn’t get around to it because the bank collapsed before it could pay out the loan. Whatever the plan was Exista did in the end lose €1,4bn euros when it sold its 19,98% in Sampo early October 2008.
Usmanov, through his Gallagher Holdings, was also seeking an approval to build up to $1.2bn of stake, by CFDs, in Norilsk Nickel. At the time, Usmanov had a total exposure of $827.000 in CDF trading positions that did ‘not reflect regulatory exposures,’ according to the minutes. An important client at Kaupthing has told me that he found it difficult to understand Kaupthing’s thinking on this deal since the bank ran a huge risk by building up this position in illiquid shares. Perhaps the Sampo deal was important enough according to Kaupthing to run this risk. According to my sources, Kaupthing was planning to expand in Russia and saw a major advantage in having the well-connected Usmanov on board.
At this CC meeting the Israeli London-based brothers Moses and Mendi Gertner also got a share of Kaupthing’s thinking beyond. Although their company, Crosslet Vale, was on the exception list with regard to credit rating, their loan facility was increased from $120m to $350m. Earlier that year, Crosslet Vale, got a Kaupthing loan to the equivalent of €120m, in Swedish krona, to buy shares in Kaupthing. According to the minutes the brothers have been investing in Congo. – For Kaupthing’s big client a loan to buy shares in the bank was like a piece of chocolate with a cup of coffee.
The complicated deal with Sheik Mohamed al Thani was also presented at this meeting. In collaboration with Deutsche Bank it was structured around credit link notes. One of al Thani’s companies was supposed to get a loan of $50m, which was ‘parts of the profits of the transaction,’ according to the minutes. In other words, al Thani wasn’t supposed to wait for the profit to materialise.
Some of these loans were already known. What is truly revealing – or horrifying – is the ease with which the CC poured billions of krona into either sinking ships or clients that hardly served the broader interests of shareholders outside the narrow circle of the chosen few. Just this single meeting and the loans shovelled out seems a clear cut case of breach of fiduciary duty. Whether the Special Prosecutor thinks the same is still unclear.
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