Sigrún Davíðsdóttir's Icelog

Last week, Deutsche Bank announced what analysts have called a catastrophic loss, for the last quarter of 2011. Greek debt isn’t good for Deutsche but the largest bit to swallow is an impairment of €407m related to the bank’s interest in Actavis. In total, the losses in the corporate investments division were €722m, making it clear that the losses stemming from Actavis account for over half of these losses. In comparison, losses stemming from impairments on Greek sovereign bonds amounted to mere €144m. These losses mark the end of Josef Ackerman’s reign at the bank, not quite the numbers he would like to end on.

Actavis was built up by Bjorgolfur Thor Bjorgolfsson who in 2007 took the company off the market. That move was financed by Deutsche that has, since the late 90s, showed great faith in Bjorgolfsson’s ventures by financing a number of his moves.

After the collapse of Landsbanki in Octobe 2008 Bjorgolfsson struggled to maintain ownership of Actavis. Here is how Deutsche describes its interest in Actavis after the bank completed the restructuring of its loans to Actavis (making it clear that the ownership is through a Luxembourg company):

Actavis. On November 24, 2010, Deutsche Bank completed the restructuring of loans it held with the Icelandic generic pharmaceutical group Actavis Group hF. (“Actavis”).

The restructuring resulted in Deutsche Bank continuing to provide both senior and subordinated debt financing to Actavis as well as a new Payment in Kind (“PIK”) financing arrangement. The terms of the subordinated financing arrangement resulted in Deutsche Bank having an equity method investment in Actavis Equity S.à r.l. (“Actavis Equity”), a 100 percent holding company of Actavis.

The terms of the subordinated financing arrangement give Deutsche Bank certain noncontrolling rights, consents and vetoes over certain financial and operating decisions of Actavis Equity. In addition, the terms of the subordinated financing arrangement subordinate repayments of amounts owing where the borrower is unable to pay its debts or on the sale of Actavis Equity or its subsidiaries. The effect of these rights and restrictions resulted in the treatment of the subordinated financing arrangement as equity for accounting purposes.

The terms of the PIK financing arrangement also provide for the subordination of amounts owed to Deutsche Bank (in the form of interest or repayment premium) under such arrangements where the borrower is unable to pay its debts or on the sale of Actavis Equity or its subsidiaries.

The carrying value of Actavis, which reflects the subordinated financing arrangement, is based on its financial position to September 30, 2010 adjusted to take into account transactions after that date.

The Actavis head quarter is no longer in Iceland but in Zug. The CEO is Swiss and out of the 15 top managers 6 are Icelandic.

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The Icelandic pension funds suffered heavy losses around and after the collapse of the Icelandic banks and consequently the Icelandic financial system. Today, an investigative committee published a report of 700p, on various aspects of the pension funds (a summary in English). In total, the committee calculates that losses during 2008-2010 amounted to ISK480bn, almost €3bn.*

Interestingly, the Association of Icelandic Pension Funds had earlier done its own investigation, of a few pages, concluding that the funds had done remarkably well. The new report paints a darker picture. More on the findings later.

*The number is corrected from an earlier version.

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