Sigrún Davíðsdóttir's Icelog

The Kaupthing settlement ends one part of Vincent Tchenguiz Kaupthing saga. But the other part is the SFO investigation into Kaupthing and the Tchenguiz brothers.

As the settlement between Vincent Tchenguiz and the Kaupthing ResCom is private and confidential there is no clear answer to the question above, but some guesses can made from the sparsely worded Kaupthing press release:

The Resolution Committee and the Winding-up Committee of Kaupthing confirm that all claims against Kaupthing lodged by the trustee of the Tchenguiz Family Trust (the “Trustee”) have been withdrawn pursuant to an agreement made between Kaupthing and the Trustee. The Trustee’s claims against Kaupthing were rejected by the Winding-up Committee of Kaupthing in March 2010, who referred the dispute to the Reykjavik District Court in Iceland, on 3 August 2010. The Trustee commenced litigation proceedings in the High Court of England on 1 July 2010. Both sets of proceedings have been withdrawn on the same basis.

The court cases in the UK and Iceland are withdrawn. But there must be more to the settlement than just this. Tchenguiz took a loan of £100m. That loan is, most likely, still there and has to be paid off and will not be written off. In that case, Kaupthing can claim victory since recovery is paramount to the Kaupthing creditors.

What Tchenguiz gains is control, in some shape or form, over corporate structures where Kaupthing claimed to hold collaterals. There are several banks, beside Kaupthing, that have lent into these structures. Tchenguiz has been held back in restructuring and re-negotiating his debt as long as Kaupthing upheld its claims. With the Kaupthing settlement, Tchenguiz will be free to seek new deals with his creditors. The Kaupthing settlement doesn’t solve all his problems but is an important step for him to work out how to proceed.

But there is still the other Tchenguiz, Robert, who has unresolved issues with Kaupthing. Kaupthing took over his company, Oscatello, into which Vincent had pledged collaterals, turning him into a Kaupthing client with an additional loan of 100m. It will now be interesting to see what happens re Robert’s dealings with Kaupthing and the giant debt of well over €2bn that Robert amassed with Kaupthing.

As a consequence of being Kaupthing clients, both brothers are now being investigated by Serious Fraud Office. Both deny any wrongdoing and have taken action against the SFO, which so far hasn’t brought any charges. The burning question is: what is the SFO investigating? The very laconic answer from the SFO is that it’s investigating if value was extracted from the bank in the period leading up to the bank’s demise.

Reading the SIC report, it seems clear that the SFO, just like the Office of the Special Prosecutor in Iceland, has a whole buffet of possible financial issues to choose from. There is alleged market manipulation, wrong information to markets, breach of fiduciary duty and so forth. But no, SFO isn’t touching any of this. It’s investigating loans into the Oscatello structure and to the two brothers.

As demonstrated earlier, Kaupthing took collaterals that it didn’t intend to enforce. It raises questions both regarding the valuation of these assets and if this kind of service was open to all clients of the bank. There must be something about these loans that the SFO sees as highly questionable, possibly incriminating not only the bank managers involved but also the clients, the two brothers, who got the loans. Looking at the loans, the SFO must detect something that makes these loans and the deals connected to them, stand out.

Since the brothers have called for judicial reviews on SFO’s actions against them, the SFO can’t, for the time being, make use of material confiscated during house searches related to the brothers. This means that the whole investigation will stretch over a longer time. The SFO does at times open an investigation that doesn’t lead to any charges. It remains to be seen what happens with its Kaupthing investigation.

Robert was heavily involved with Kaupthing, as its biggest client. Vincent only got involved through his brother, by posting a collateral for his brother and taking out a loan with Kaupthing as well. This has meant long and intense negotiations with the Kaupthing ResCom. His settlement now means that one part of his Kaupthing saga has come to a close. As long as the SFO investigation is running Vincent isn’t quite finished with this Icelandic bank that offered its chosen clients sweet deals, which in some cases have turned into a bitter pill.

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