Sigrún Davíðsdóttir's Icelog

Landsbanki equity release borrowers lose at first instance court in Paris

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After investigations by judge Renaud van Ruymbeke on Landsbanki Luxembourg equity release loans the case against its main shareholder and chairman of the board Björgólfur Guðmundsson and eight ex Landsbanki employees was concluded in a Paris court yesterday 28 August: the judge acquitted all of them. The group of borrowers who have been seeking answers and clarification to their situation is hoping the prosecutor will appeal.

The main issue addressed by Justice Olivier Geron in the magnificent Saint-Chapelle yesterday was alleged fraud by the nine accused bankers. After clarifying some procedural issues, the judge read for an hour his verdict with gusto, making only a short break when he realised that one page was missing from his exposé.

The Justice established that the financial collapse in Iceland had not affected the bank in Luxembourg and there had been no connection between events in Iceland and Luxembourg. – That is one view but we should of course keep in mind that the Landsbanki Luxembourg operations were closely connected to the financial health and safety of the mother bank in Iceland as funds flowed between these banks and the Landsbanki Luxembourg did indeed fail when the mother bank failed.

The Justice also considered if the behaviour of the individuals involved could be characterised as fraudulent behaviour and concluded that no, it could not. Thirdly, he considered the quality of the lending, if the clients had been promised or guaranteed the loans could not go wrong. He concluded there had been no guarantees and consequently, no fraud had been committed.

Things to consider

I have dealt with the Landsbanki Luxembourg at length on Icelog (see here) and would argue that the reasoning of the French Justice did not address the grounds on which suspicions were raised that then led to the French investigation.

France is not exactly under-banked: it raises questions why the loans against property in France (and Spain, another case) were all issued from a foreign bank in Luxembourg. Keep in mind that equity release loans, very common for example in the UK some twenty years ago, were all but outlawed there (can’t be issued against a home, i.e. a primary dwelling). This is not to say these loans should be banned but, like FX loans (another frequent topic on Icelog) they are no an everyman product but only of use under very special circumstances.

It is also interesting to keep in mind that other Nordic banks were selling equity release loans out of Luxembourg. Also there, problems arose and in many cases the banks have indeed settled with the clients, thus acknowledging that the loans were not appropriate. Consequently, the cost should be shared by the bank and its clients, not only shouldered by the clients.

The judge seemed taken up with the distinction between promises and guarantees, that the clients had perhaps been promised but not guaranteed that they could not lose, not lose their houses set as collaterals. – The witnesses were however very clear as to what exactly had been spelled out to them. Yes, borrowers bear responsibility to what they sign but banks also bear responsibility for what is offered.

One thing that came up during the hearing in May was the intriguing fact that English-speaking Landsbanki borrowers got loan documentation in English whereas a French borrower like the singer Enrico Macias got documents in English to sign. One English borrower told me he had asked for an English version, was told he would get one but it never arrived. So at least in this respect there was a concerted action on behalf of the bank to, let’s say, diminished clarity.

Landsbanki managers have been sentenced in Iceland for market manipulation. This is interesting since many of the borrowers realised later that contrary to their wish for low-risk investments their funds had been used to buy Landsbanki bonds, without their knowledge and consent.

And now to Luxembourg

As I have repeatedly pointed out, Luxembourg has done nothing so far to investigate banks operating in the Duchy. The concerted actions by the prosecutors in Iceland show that in spite of the complexity of modern banking banks can be investigated and prosecuted. All the dirty and dirtiest dealings of the Icelandic banks went through Luxembourg, also one of the key organising centres of offshorisation in the world.

In spite of the investigations and sentencing in Iceland, nothing has surfaced in Luxembourg in terms of investigating and prosecuting. One case regarding Kaupthing Luxembourg is under investigation there but so far, no charges have been brought.

A tale of two judges and their conflicting views

Judge Renaud van Ruymbeke is famous in France for taking on tough cases of white-collar and financial crimes. Justice Olivier Geron is equally famous for acquitting the accused in such cases. One of Geron’s latest is the Wildenstein case last January where a large tax scandal ended in acquittal, thanks to Geron.

After the Enron trial and the US there has been a diminished appetite there for bringing bankers and others from the top level of the business community to court, a story brilliantly told by Jess Eisinger in The Chickenshit Club – and nothing good coming since the Trump administration clearly is not interested in investigating and prosecuting this type of crimes.

In so many European countries it is clear that prosecuting banks is a no-go or no-success zone. As shown by Ruymbeke’s investigations there is the French will there but with a judge like Geron these investigations tend to fail in court.

Update: the Public Prosecutor in charge of the Landsbanki case has decided to appeal the 28 August decision, meaning the case will come up again in a Paris court.

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Written by Sigrún Davídsdóttir

August 29th, 2017 at 10:49 am

Posted in Uncategorised

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