Sigrún Davíðsdóttir's Icelog

Archive for May, 2017

Landsbanki Luxembourg: the investigated and non-investigated issues

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The long-winding saga of the Landsbanki Luxembourg equity release loans is now in a French court in Paris, i.e. the alleged mis-selling. However, as the oral hearings brought out so clearly, other angles of this case have been ignored, i.e. the bank’s potential mismanagement of clients’ funds and the very questionable handling of the Landsbanki Luxembourg administrator. These last two issues have left so many clients frustrated and at their wit’s end.

A court case at the Palais de Justice, part of the spectacular Palais de la Cité on the Îsle de la Cité in the heart of Paris, is a grand spectacle to behold. Or at least that was my impression last week as I sat through two afternoons of oral hearing in the penal case against Landsbanki Luxembourg bankers and Landsbanki’s chairman Björgólfur Guðmundsson, the only one of the accused who was not present.

Apart from the three judges and the prosecutor there were the thirty or so lawyers fluttering around in their black cloaks with white bands around the neck. The lawyers were defence lawyers for those charged, lawyers for some of the witnesses and then there were lawyers related to civil cases connected to this case.

The case, brought by a prosecutor after an investigation led by Justice Renaud van Ruymbeke, centres on alleged mis-selling of equity release loans, as explained in an earlier Icelog. Oral hearings are scheduled until May 24, but the hearings were taking longer than expected and extra days to be added. The judgement can be expected in autumn.

French borrowers got contract in English, foreigners in French

The involvement of the very famous French singer Enrico Macias in the Landsbanki Luxembourg case has secured the attention of the French media; Macias took out an equity release loan of around €35m and his losses amount to €9m.* On the first day of the oral hearings, 2 May, Macias sat in court surrounded by his black-cloaked lawyers. On the second day of the hearings when Macias was questioned I counted nine lawyers apparently part of his entourage.

Macias was questioned back and forth for ca. three hours, no mercy there for this elderly gentleman, by the very astute and sharp judge. Only at one point, when one of the defence lawyers had probed Macias’ story did the singer lose his patience, crying out he had lost his wife and his house because of this bank. The judge reminded him that the charges were serious and the nine men accused had the right to defend themselves.

When Macias’ contract was brought up during the questioning an interpreter was called to assist. It turned out that Macias’ contract was in English. Some of the foreign borrowers were in court – German, English, American etc. It turns out that the foreign equity release borrowers all seem to have a contract in French. One told me he had asked for a contract in English and been told he would get it later; he didn’t.

Intriguingly, there seems to be a pattern here as I heard when I spoke to other borrowers: Landsbanki Luxembourg gave the foreign borrowers, i.e. non-French, a contract in French but the French borrowers, like Macias, got a contract in English.

“Produit autofinancé”

Much of the questioning centred on the fact that Landsbanki Luxembourg promised the borrowers the loans were “auto-financed.” To take an example: if the loan in total was for example €1m, the borrower got 20-30% paid out in cash and the bank invested the rest, stating the investment would pay for the loan. Ergo, Landsbanki promised the borrowers they would get a certain amount of cash for free, so to speak.

The judge asked the various witnesses time and again if that had not sounded to too good to be true to get a loan for free. As Macias and others pointed out the explanations given by the bankers and the brokers selling the loans seemed convincing. After all, these borrowers were not professionals in finance.

This line of questioning rests on the charges of alleged mis-selling. Other questions related to information given, who was present when the contracts were signed, validity of signatures etc.

The dirty deals in Luxembourg

The operations of the Icelandic banks have been carefully scrutinised in Iceland, first in the SIC report, published in April 2010 and later in the various criminal cases where Icelandic bankers and some of their closest collaborators have been prosecuted in Iceland.

There is one common denominator in all the worst cases of criminal conduct and/questionable dealings: they were conducted in and through Luxembourg.

All of this and all of these cases are well known to authorities in Luxembourg: Luxembourg authorities have assisted the investigations of the Icelandic Special Prosecutor, i.e. enabled the Prosecutor to gather information and documents in house searches in Luxembourg.

These cases exposing the role of Luxembourg in criminal conduct are all Icelandic but the conduct is not uniquely Icelandic. I would imagine that many financial crooks of this world have equally made use of Luxembourg enablers, i.e. bankers, lawyers and accountants, in financial shenanigans and crimes.

The Landsbanki questions Luxembourg has ignored

As I have pointed out earlier, alleged mis-selling is not the only impertinent question regarding the Landsbanki Luxembourg operations. There are also unanswered questions related to management of clients’ fund by Landsbanki Luxembourg, i.e. the investment part of the equity release loans (and possibly other investments) and, how after the bank’s collapse in October 2008, the bank’s court appointed Luxembourg administrator Yvette Hamilius has fulfilled her role.

As to the management of funds, some borrowers have told me that after the collapse of Landsbanki Luxembourg they discovered that contrary to what they were told the bank had invested their funds in Landsbanki bonds and bonds of other Icelandic banks. This was even done when the clients had explicitly asked for non-risky investments. As far as is known, Luxembourg authorities have neither investigated this nor any of the Icelandic operations with one exception: one case regarding Kaupthing is being investigated in Luxembourg and might lead to charges.

The latter question refers to serious complaints by equity release borrowers as to how Hamilius has carried out her job. Figures and financial statements sent to the clients do not add up. Hamilius has given them mixed information as to what they owe the bank and kept them in the dark regarding the investment part of their loans. Icelog has seen various examples of this. Hamilius has allegedly refused to acknowledge them as creditors to the bank.

On the whole, her communication with the clients has been exceedingly poor, letters and calls ignored and she has been unwilling to meet with clients. One client, who did manage to get a meeting with her, was seriously told off for bringing his lawyer along even though he had earlier informed her the name of the person he would bring with him.

Hamilius, on the other hand, claims the clients are only trying to avoid paying their debt. She has tried to recover properties in Spain and France, even after the bankers were charged in France. One of many remarkable turns in this case (see here) was a press release issued Robert Biever Procureur Général d’Etat – nothing less than the Luxembourg State Prosecutor – in support of Hamilius in her warfare against the equity release clients.

The court case at the imposing Palais de Justice in Paris gives an interesting insight into the operations of Landsbanki Luxembourg. As to management of funds prior to the bank’s collapse and the administrator’s handling of her duties Luxembourg has, so far, only shown complete apathy.

*I picked these numbers during the hearings but French media has reported different figures so I can’t certify these are the correct figures.

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Written by Sigrún Davídsdóttir

May 11th, 2017 at 7:30 pm

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Macron and the power of ideas

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During the Cold War there was no lack of Western intellectuals prophesying the end of the Western world as the efficient Soviet bloc would unavoidably win over democracy. Now the pre-destined outcome is seen to be populism that will engulf Western democracy. Making democracy work certainly is no mean task but one way of understanding the victory of Emmanuel Macron in France is reason beating irrational fears. Or as Macron himself has said: you convince people “by speaking to their intelligence.”

What do you do if you want to become a political leader? Listen to angry voters airing ideas politicians for decades haven’t had the wisdom or courage to challenge, such as foreigners and Europe being the reason for all problems – or do you formulate ideas you feel are important and debate them?

The latter is what Emmanuel Macron did in France: instead of lapping up anti-Europe sentiments and xenophobia advocated by Marine le Pen and her National Front, echoed in Brexit and, on a wider scale, the Trump victory in the US, Macron took two ideas seemingly on the vain, free trade and Europe, and won.

How did he do it? As Macron explained in a Channel 4 interview: “By fighting. By convincing people, by speaking to their intelligence, by trying to build stronger arguments in order to present and highlight our project.”

Take a risk or die

A key moment in Les coulisses d’une victoire, (01:16:24) a documentary of Macron’s campaign, is when Macron, after an off-site meeting with some Whirlpool workers, is told that National Front leader Marine Le Pen has just visited the factory: she appeared, she told the workers they were fighting for France and then left after giving some selfie opportunities.

Now, Macron wants to go to the factory – one has to take risks, he says, jump into the battle. His team worries about security but he counters them saying that at present no place in the country is completely safe. “If you listen to the security guys you end up like Hollande,” Macron says. “You may be safe but you are dead.”

Yes, Macron may very well fail. He has only conquered his first hurdle; the second one is securing support in the parliamentary elections in June. The third and most difficult hurdle is governing for the next five years, fulfilling some of his promises.

The power of ideas

However, the refreshing air Macron has already brought into politics is the power of reason, the power of reasoning, the sense that ideas are powerful.

Much of the political discourse of the 1960s and the 1970s was coloured by the sense of predestination on the Left that the democratic West was doomed to fail and the Soviet Union would rule. That dictatorship, void of stimulating competition and sparkling innovation, does not foster growth did not enter this argument.

Following the 2016 Brexit outcome in Great Britain and then the Trump victory, the general line of the commentariat, both in the established media and the social media, has benn that the West was destined for populist rule.

Speaking to people’s intelligence, not their ignorance

Macron has shown that fear of “the other,” xenophobia in all its gloom, fear of jobs leaving, jobs being taken by foreigners, fear of international trade agreements, European co-operation etc. can be encountered with reason and arguments for a better society. Closing borders does not create jobs. Pandering to ignorance and fear does not solve the underlying problems.

Macron has encountered these sentiments “by convincing people, by speaking to their intelligence, by trying to build stronger arguments” for the things he believes in, such as Europe and free trade.

With the Macron victory in France Front National and populism has neither been eradicated in France nor elsewhere. But after the elections in Austria, Netherlands and now France it can be argued that the populist element in Brexit and the election of Trump could be an aberration – is does not need to be an invincible trend.

Determinism and democracy

To claim that populism is unavoidable in our times of growing inequality is to believe in some sort of determinism: that certain conditions unavoidably lead to a certain outcome. But that is to negate the power of ideas, the power of reasoning and ultimately the power of democracy.

However, democracy certainly is vulnerable, exactly because it rests on ideas, on the power of ideas, on the need to have the energy to debate what one believes in. And democracy is also vulnerable to the distorting and corruptive force of money working for narrow special interests and not the general good. Alarmingly, this can possibly be happening in the US as Jane Mayer has so brilliantly documented and argued in her book Dark Money and as Angus Deaton concludes in The Great Escape. – Another saga but a very important one.

Not big data but big ideas

The thrust of opinions aired in much of the established media and the social media since Brexit and Trump is the belief that what has happened will continue, will increase and is unavoidable and unstoppable. Macron’s victory has shown that the rise and rise of populism is neither unavoidable nor unstoppable. It was not about clever use of big data but of big ideas and forceful arguments.

Contrary to what the UK Tories and to a certain degree Labour have done by towing the Ukip line or Francois Fillon trying to make a palatable version of Le Pen, Macron has shown that by taking a political risk, by throwing himself into the battle it is possible to win. – To believe in democracy is to believe in the power of ideas and to believe in the power of ideas is to believe in democracy.

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Written by Sigrún Davídsdóttir

May 11th, 2017 at 10:10 am

Posted in Uncategorised