Sigrún Davíðsdóttir's Icelog

The Winding-Up Board of Landsbanki has sued the bank’s external auditor, PriceWaterhouseCooper, apparently for hundreds of millions of kronas in damages. The SIC report makes it abundantly clear that with so much wrong in the banks, their annual accounts were not much to rely on. And that raises serious questions regarding the auditors. Questions that the Landsbanki WUB has now formulated in a writ of 90 pages. It seems certain that other cases will follow. The question is if the Office of the Special Prosecutor will follow suit, bringing criminal charges against auditors.

The WUB clearly is of the opinion that already by the end of 2007 PwC knew the bank’s position was a lot more precarious than the accounts showed. According to a presentation to a Landsbanki creditors’ meeting in December 2010 the bank’s capital had fallen below the legal limit before its collapse in October 2008 – probably already before the end of 2007. The bank’s definition of “related parties” wasn’t correct, ia leading to over-risky loans to the bank’s largest shareholders, Bjorgolfur Gudmundsson and his son Bjorgolfur Thor. The presentation implied that the managers had given the auditors wrong information. Landbanki’s two CEOs have already been sued for damages caused to the bank.

According to Ruv, the WUB has now gone a step further, suing the auditors. The role of the banks’ auditors is scrutinised in the SIC report with many examples of highly questionable actions. It also raises questions, raised with international banks, on the relationship between banks and auditors.

By the end of 2007 Landsbanki had issued loans to father & son related companies and companies related to Jon Asgeir Johannesson, almost ISK200bn, now €120m. The WUB claims the auditors knew these loans either had no or insufficient collaterals. In spite of this and knowing that the bank was insufficiently capitalised the auditors went along with the managers in signing misleading and wrong annual and quarterly accounts.

If the accounts had been truthful the bank would have failed in 2007. Consequently, there would have been less losses resulting from Icesave UK, the Icesave in Netherlands would never have been opened and the over-all losses would have been less.

This case will no doubt be followed with great interest, not only in Iceland but also abroad. New York Attorney General is pursuing a case against Lehman’s auditors, Ernst & Young, for an alleged fraud involving a so-called Repo 105 transaction. Considering the evidence in the SIC report, the auditors for the two other Icelandic banks, Glitnir and Kaupthing, must already be pouring over their auditing and their relationship with the banks during the last years of the banks.

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