Sigrún Davíðsdóttir's Icelog

Tonight, the Office of the Special Prosecutor declared that Halldor Kristjansson, the other Landsbanki ex-CEO, following a court order, is not allowed to leave Iceland until January 25. Kristjansson, who now lives in Canada and returned to Iceland early Sunday morning, has been questioned all day. His lawyer says that Kristjansson has no intention to leave until the questioning is over. He is not appealing the court order.

Sigurjon Arnason, the other CEO of Landsbanki, and Ivar Gudjonsson manager of the bank’s proprietary trading are in custody, respectively until January 27 and January 21. Arnason was always seen as the hands-on driven CEO with Kristjansson being the bank’s statemanlike face to some extent. The two couldn’t be more different. Kristjansson was a lawyer, a former permanent secretary in the ministry of trade and industry and a polished civil servant. He left the civil service in 1998 to become the CEO of Landsbanki, at the beginning of the privatisation process. He remained with the bank after Bjorgolfur Gudmundsson and his son Bjorgolfur Thor bought the bank in 2002. Arnason is an engineer, a nerdy type who mastered excel, numbers and calculation like few others and was famed for his taste for sweets, as his round figure shows. Together with a team from Bunadarbanki, he was hired by Landsbanki in spring 2003 and made a CEO next to Kristjansson.

According to the OSP ca 30 people have been questioned over the last week regarding Landsbanki. The main focus seems to be on market manipulation, reaching back as far as 2003, when Bjorgolfur Gudmundsson and his son Bjorgolfur Thor bought over 40% of shares in the bank.

In early December, a report by forensic accountants on Landsbanki annual accounts 2007, done at the behest of the OSP, was leaked to the Icelandic media. One of the findings of the report was a gross misstatement of the bank’s capital. If this were correct, the bank’s capital would have been below legal limits already in November 2007, almost a year before the bank collapsed. In a press release following the leak, the bank’s auditors, PriceWaterhouse Coopers, said they stood by their accounts but underlined that the board of Landsbanki did bear the final responsibility of the bank’s operations.

According to the report the information on loans to related parties is misleading. The two examples below are related to the bank’s major shareholders:

Samson was the holding company where Gudmundsson and his son had their Landsbanki shares. Samson went bankrupt following the collapse of Landsbanki. Although not a listed company Samson issued bonds held by several Icelandic pension funds that consequently lost money on Samson.

So far, neither father nor son has been called to be questioned. Gudmundsson’s lawyer, Thorunn Gudmundsdottir, i.a. earlier on the board of Straumur investment bank, where father and son were the largest shareholders, has stated that the OSP has asked her about Gudmundsson’s whereabouts and that he is now in London. Gudmundsson, who earlier owned West Ham, went bankrupt already in summer 2009.

After the collapse of Enron and WorldCom the boards weren’t sued whereas CEOs and other managers were charged and ended up in prison. Boards can easily claim that they were kept in the dark by managers. The boards of the Icelandic banks were to some extent closely connected to the major shareholders. Gudmundsson was the chairman of the board of Landsbanki and did, together with his son, own around 45% of the bank through Samson. People closely connected to Novator, Bjorgolfsson’s investment fund, also sat on the Landsbanki board.

If Landsbanki was involved in market manipulation all the way back to 2003, as the OSP seems to be investigating, and if the bank’s annual reports didn’t give a fair representation of the state of the bank’s operations it will have to be clarified what the role of the board was and who stood to gain most from these alleged misconducts.

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