Sigrún Davíðsdóttir's Icelog

Landsbanki casualties of lax regulation and Luxembourgian secrecy

with 6 comments

These days, the administrators of Landsbanki Luxembourg, led by Madame Yvette Hamelius, are sending bailiffs around in Spain and France to take over properties against which Landsbanki made equity release loans. These loans have already been reported on by English media in the UK expat community since many of those hit by the Landsbanki loans are English.

Typically, the bank would lend against the value of the property. The borrowers, often pensioners living in valuable property without much cash at hand, would get 20% of the loan in cash whereas Landsbanki invested 80%. The bank promised that the investment was good enough to pay off the loan. In theory, this could perhaps work. In practice it didn’t, the investments were unsound and resulted in losses and the small print hid the horrors of fees and interest rates. About 400 people took out these loans. Plenty of them, also hit by falling real estate prices, can’t pay, which is why Madame Hamelius is now making use of bailiffs to recover the outstanding loans.

The three main Icelandic banks are now being investigated for fraud by the Office of the Special Prosecutor in Iceland. Equity release loans were not prevalent in Iceland and cases, identical to the Spanish and the French stories, haven’t surfaced there. But if the Landsbanki equity release loans are partly an example of faulty advise there are similar cases. The Icelandic High Court has recently ruled in several cases where people had borrowed money from Glitnir to increase their stake in Byr, a saving society.* The Court ruled that those borrowers did not need to repay their loans because the bank hadn’t fully informed them of the risk and also because the bank had put pressure on these people to take out the loans.

It is interesting to keep in mind that administrators in the Icelandic banks have all spent a considerable amount of money to investigate the respective banks. It’s a fact, ia clear from the SIC report, that much of the dodgy loans and deals going on in Landsbanki did indeed go through Landsbanki Luxembourg. The question is if the Landsbanki Luxembourg administrator is doing anything to investigate eventually fraudulent activities in the bank. It should be in the interest of the creditors of the bank to make sure that these issues are investigated.

It should also be of interest for the Luxembourg authorities that the bank is investigated. A failure to do so won’t do much good for the reputation of this secrecy jurisdiction at the heart of Europe. As it is now, the borrowers of Landsbanki Luxembourg now driven to despair because of these loans will certainly not be recommending anyone to do business with banks in Luxembourg because they feel badly let down by the Luxembourg authorities.

The administrators make use of EU regulation on collaterals from 2005. However, the recovery of collaterals rests on the assumption that everything in the bank’s operation complied with rules and regulation. When this case came up in the Icelandic media in March 2009 the Landsbanki Luxembourg manager Gunnar Thoroddsen claimed the loans had been no different from similar loans offered by other banks.

The question is if this well and truly was the case and if the bank’s operations were sound. Was Landsbanki solvent in 2008? Did it have the full credential to issue these loans in these two countries? Did the investments Landsbanki supplied against these loans meet the investment framework of the loan agreements and the standards that this type of investments should meet? – These are some of the questions that the Luxembourg authorities, the lawyers of the borrowers and the administrators should be looking at.

The SIC report sows doubt as to the solvency of Landsbanki, as well as Glitnir and Kaupthing, from late 2007 until its collapse in early October 2008. Landsbanki had grave funding problems during 2008 and focused heavily on the equity release loans in France and Spain during that time.

The loans issued to borrowers in France and Spain were issued through Landsbanki Luxembourg. Questions have been raised if Landsbanki Luxembourg had the proper credentials to issue the loans in these two countries. Icelog sources have pointed out that questions have been raised if those acting on behalf of Landsbanki in Spain had the full credentials to operate in finance.

The nature of the investments also raised serious questions. I have heard from Landsbanki borrowers in Spain, who have investigated the matter, that the set-up of the investment – part investment, part insurance and fees to two companies – was such that it could indeed never have provided the cover promised to the borrowers.

It also seems that the invested funds were, at least to some extent, used to buy shares in the bank itself and possibly in other Icelandic banks. Shares in Kaupthing have been mentioned. The question is if this was in compliance with the information given to the borrowers. In the SIC report there are examples where ia the banks’ money market funds were used to invest in shares of the banks though that seems to go against the investment schemes for these funds.

Landsbanki wasn’t the only bank issuing equity release loans and not only Landsbanki customers are now feeling the pain. But due to the above – questions of solvency, legality of the operations and the set-up of the investments – the Landsbanki case raises different questions.

A famous French singer, known as Enrico Macias, has brought his case to a French court, saying he borrowed €8m but is being pursued by the Landsbanki administrator with a claim of €43m. Recently, the court demanded that Landsbanki place €50m as a guarantee, a record sum at a French court according to French media. The ruling in this case is being followed closely by other borrowers of Landsbanki Luxembourg.

It’s been pointed out that some clients of Landsbanki might have used these loans for tax purposes. That is another story and shouldn’t detract attention and focus on the legality of the Landsbanki operations in Spain and France.

*Why would Glitnir be interested in lending to Byr stake-holders? Because at the time the same group – Baugur and others related to Jon Asgeir Johannesson and Palmi Haraldsson – were in control of these two financial institutions. The Byr story has been told earlier on Icelog.

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Written by Sigrún Davídsdóttir

December 12th, 2011 at 12:04 am

Posted in Iceland

6 Responses to 'Landsbanki casualties of lax regulation and Luxembourgian secrecy'

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  1. A first class article and congratulations for your support to all Landsbanki equity release victims. As you say Landsbanki and the Luxembourg Regulators are not on their own in these fraudulent schemes. We at ERVA (Equity Release Victims) in Spain ( have recently filed a criminal complaint with the Audiencia Nacional (Central Criminal Court)in Madrid against Landsbanki, Nordea Bank SA, Dansbank, Rothschild and several other banks and Spanish Financial Istitutions for fraud and especially fraud against the Spanish Treasury the complaint is currently with the Public Prosecutor for investigation and we are hoping that once admitted all these banks will be investigated, we believe that there are about 400 victims of the Landsbanki scheme in Spain and a total approaching some 800 + victims across the whole of the banks. Somewhere in excess of 50 million euro has/or could be potentially lost to the Spanish Treasury in relation to inheritance and wealth tax issues. If you want to know more log in to the ERVA web site or visit out lawyers blog at Antonio Flores Blog. We need to bring these banks to account for their activities, You will notice that these banks are Scandinavian and all operate out of Luxembourg. It is worth noting that only France and Spain have been targeted as these schemes are illegal in the UK.

    Ian Sherdley

    12 Dec 11 at 5:19 pm

  2. Latest news on Landsbanki Luxembourg is that they lost their appeal in the Paris Court and the 50 million bail is maintained as well as a fine of 1.875 million Euros plus Court expenses of 10.000.

    It is also clearly stated that there is sufficient evidence to support the Criminal Charges which led to the Judge Van Rumbeyke’s record 50 million bail.

    There is a long list of breaches in French Law in the whole Landsbanki Luxembourg scheme and Luxembourg does not look good as they allowed these banks to do as they pleased and helped them attack the victims instead of the Bank who had lied not only to the Luxembourg Government but to all the victims.

    Many victims have tried hard to negotiate with the Luxembourg administrator Mme Hamilius and have been treated with incredible arrogance,aggression and disdain as they refused to negotiate anything and most of the time did not even bother to reply.

    Now these same victims are furious as Mme Humilius, in view of their failed appeal, wants them to accept an unfair offer without taking into consideration the terrible suffering and financial loss caused by THEIR criminal actions and ensuing arrogance.

    Why was Mme Hamilius not willing to be reasonable for these last 3 years? Why did she want innocent victims to suffer for so long?
    I think the answer is the usual one. GREED, GREED GREED and arrogance, whilst they maintain they did nothing wrong and throw Luxembourg Law around as if Luxembourg owns Europe.

    Luxembourg, through the Landsbanki administrator was forcing Luxembourg Law on France whilst conveniently ignoring that the whole scheme was illegal in France and is being proved fraudulent!

    All the Landsbanki administrator seems to be worried about now, is that everything is going to come out in the Criminal Court and they will have to stop seizing the homes of innocent victims who have been treated by Luxembourg administrators as if they were criminals.
    It is only now that they have lost the appeal that they finally make a small step to negotiate! Disgusting, isn’t it?

    Rachael Williams

    19 Jan 12 at 4:15 pm

  3. Rachael Williams comments are so correct. All victims have had to endure terrible stress as a result of the Landsbanki criminal actions and the whole process of completing this business should proceed as quickly as possible. Unfortunately, in Spain, the authorities seem reluctant to act upon the overwhelming evidence in favour of the mainly British victims, it is not only concerning but very suspicious as to why the Supreme Court in Madrid, allthough accepting Landsbanki’s criminal activities, pass it off to a regional Judge to deal with the case, knowing it will take enormous time. Again, the time element heaps more stress onto aged people who do not deserve such treatment. The European Union should wake up to this travesty and consider the human rights of the victims of this disgusting crime to so many people who were duped by Landsbanki and their agents, helped by the Luxembourg Banking protection of cover up.


    5 Mar 12 at 11:02 am

  4. […] documentation. That has proved to be very far from the truth. – As reported on earlier on Icelog, a group of Landsbanki Luxembourg clients claim they are wrongfully being targeted by the bank’s […]

  5. […] further information, here is an earlier Icelog on the nature of the equity release […]

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