Sigrún Davíðsdóttir's Icelog

Since 28 November 2008, Icelanders, both companies and individuals, have been locked inside capital controls. Those who owned assets outside of Iceland before that date were allowed to keep them abroad. Now it turns out that the wife of prime minister Sigmundur Davíð Gunnlaugsson, Anna Sigurlaug Pálsdóttir, was one of the lucky ones with assets outside of capital controls, free to invest according to her choice.

The news came out Tuesday evening when Pálsdóttir announced on Facebook that she hoped to put all rumours to rest by acknowledging the existence of a company of hers, “registered abroad” but administered by a bank in London. This company had been set up some years ago as an investment vehicle around her inheritance.

Only after request from the media was it confirmed that this company, Wintris Inc., is registered in the British Virgin Islands. In Iceland, these companies go by the name of “Tortola companies” and have a very unflattering tone since so many of the viking raiders, the largest shareholders in the Icelandic banks and their fellow travellers, hugely enriched by their close connections with the banks, also had BVI companies.

In her Facebook message Pálsdóttir said that the company had been set up in 2007 at a time when the couple did not know whether they would be living in Britain or Denmark, which meant that having the company abroad would have been convenient.

This explanation does however bypass the fact that at the time the Icelandic banks were operating abroad and there was no hindrance to move capital in and out of the country. Living in Britain or in Denmark would have made no difference to the availability of the funds had they been kept in Iceland.

Also, the sale that released the funds was made in Iceland, meaning that the funds were most likely moved abroad for other reasons than availability abroad. The wife and her husband’s spokesman strenuously deny that this arrangement had any tax purposes. It had all been above board, all reported to the Icelandic Inland Revenue.

The question remaining unanswered is why these funds have not been moved back to Iceland, not least after her husband became party leader in January 2009 or at the latest when he became prime minister in spring 2013. At the time, it was clear that one of his government’s main task would be to lift the capital control, as the prime minister had indeed repeatedly promised to do speedily when in office.

That task in not yet completed but will most likely be very soon; the governor of the Central Bank Már Guðmundsson said Wednesday that an announcement on the offshore króna – the last major part of the capital controls still unsolved – could come as soon as Thursday 17 March.

The reason for Pálsdóttir’s sudden declaration seems to stem less from a certain urge for transparency and more because a journalist had been asking about the existence of a BVI company owned by Pálsdóttir. However, Icelanders will be asking themselves how fit and proper it was that a prime minister of a country locked in by capital controls was wholly unencumbered by these same controls as the family assets were safely beyond the controls.

Update: Turns out the prime minister’s wife not only owns a Tortola company but she holds claims in the collapsed banks, ca ISK500m or €3.5m, making her a creditor in the banks. Since her husband didn’t hold back earlier on, before the government was actually negotiating a solution to the capital controls, to call the creditors “vultures” his political opponents haven’t held back in pointing out that being a creditor would make his wife, seen from his point of view, a vulture. – And which bank does the couple choose? Credit Suisse, which has quite a number of Icelandic clients through ties established before the banking collapse in 2008.

Further: Upcoming on Icelog is a blog on the latest debate in Iceland re Wintris, other ministers who own offshore companies and more on Icelandic offshorisation. This will be a summary of these matters before Rúv and other media will start publishing reports based on leaked material in cooperation with International Consortium of Investigative Journalists this coming Sunday at 18GMT. This leak contains wealth of material regarding Iceland, via Landsbanki Luxembourg as indicated on news in Iceland so far.

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By overturning an earlier court decision an appeal court in Luxembourg now seeks to establish an investigation into “money laundering, fraud and criminal conspiracy.” Benjamin Bodig, lawyer for the Landsbanki victim group, says it “opens the door to discover the truth and could lead to its victims being recognised as aggrieved customers” according to an article in Wort.

In October it will be six years since Landsbanki collapsed. The Luxembourg clients, mostly elderly foreign pensioners owning property in Spain and France, who had taken out equity release loans from Landsbanki have now for years sought to have investigated how Landsbanki handled these loans and the investment that were part of the loans and also the actions of the liquidator, Mme Hamilius.

Special prosecutor in Iceland has already charged Landsbanki managers for market manipulation and breach of fiduciary duty. These charges are still being dealt with by Icelandic courts. In France there is now an investigation into the Landsbanki practices as well. From what I have seen regarding Landsbanki operations in Luxembourg there is good reason to investigate the bank’s operation, both before and after the collapse.

The actions against Landsbanki in France and Luxembourg would not have happened if it were not for the heroic attempts by the Landsbanki victim group to have these operations investigated. Their attempts in Luxembourg were met by remarkable lack of interest on behalf of the authorities, the height of which was when Robert Biever Procureur Général d’Etat, state prosecutor, sided openly with the liquidator, echoing her view that the Landsbanki Luxembourg clients raising concerns just did not want to repay their loans, as mentioned in an earlier Icelog.

As I have written earlier this “case has shown that when it comes to unified European financial  sector it only works for banks, facilitating cross-border operations. For clients and consumer protection this sector has as many holes as a Swiss cheese. A food for thought: if cross-border operations only work for banks and not for clients they should not be allowed.”

Here are some earlier Icelogs on the remarkable story of this case that authorities in Luxembourg have ignored for so long.

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Three Kaupthing bankers and the bank’s second largest shareholder were recently sentenced in Iceland to 3 to 5 1/2 years in prison for market manipulation and breach of fiduciary duty. The story behind the case is a share purchase in Kaupthing in September 2008. At the time, all four now convicted – then chairman of the board Sigurður Einarsson, CEO Hreiðar Már Sigurðsson, Kaupthing Luxembourg manager Magnús Guðmundsson and investor Ólafur Ólafsson – were interviewed in the Icelandic media where they underlined the strength of Kaupthing by pointing out that a Qatari investor, al Thani, had bought 5.1% in the bank.

What they failed to mention was that al Thani was not so much risking his own money as Kaupthing money: via an intricate scheme based on a few offshore companies the funds for the share acquisition came from Kaupthing itself. And where was the master plan carried out? In Luxembourg.

Kaupthing subsidiary in Luxembourg was at the centre of the al Thani saga. That was were the idea was brought into action, money into one vehicle and out into another. It is a well known fact in Iceland that most of the banks’ most questionable deals were indeed carried out in Luxembourg. It is an intriguing thought that Luxembourg was time and again chosen at the preferred place for these deals.

In early 2011 I was in Luxembourg and had a meeting at the Luxembourg financial services authorities, Commission de Surveillance du Secteur Financier, CSSF.* I met with a few people in a meeting room. I was on one side of a huge table, four or five people on the other side. Already then it was clear that the Icelandic banks had been doing some rather “inventive” banking in Luxembourg. I presented some of the cases I knew of. On the other side of the table there were only expressionless faces and then I was told that rules and regulations were strict in Luxembourg. Nothing contrary to laws could take place in Luxembourg banks.

In the CSSF 2012 Annual Report its Director General Jean Guill writes:

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After much effort by former clients of Landsbanki Luxembourg – mostly foreign pensioners in Spain and France who took out equity release loans at the bank – it now seems their efforts have caught the attention of authorities in Luxembourg. In France, a judge has halted the recovery of these loans by the Landsbanki Luxembourg administrator

According to the Luxembourg paper Wort, there are now two investigations ongoing in Luxembourg related to Landsbanki’s operations there. This surfaced in the Luxembourg parliament as the minister of justice Octavie Modert responded to a parliamentary question from Serge Wilmes, CSV. Ms Modert said that both cases related to alleged criminal conduct in the Icelandic banks and great progress was being made in one of them.

According to Wort the progress relates to the Landsbanki equity release scheme, extensively covered on Icelog. It is not clear if both investigations relate to Landsbanki or if the operations of Kaupthing and Glitnir in Luxembourg are also being investigated.

The website of the Landsbanki Victim Group is here. This group has hired lawyers both in Luxembourg and Brussels. Considering the fact that the banks collapsed in October and that there have been efforts in Iceland to investigate operations there, also with assistance from authorities in Luxembourg it can only be said that if there is much progress made now, little was done for a long time. It seemed that Luxembourg was more than reluctant to pay any attention to the financial sector this little Duchy lives so well off.

The latest move is that efforts by the Landsbanki Luxembourg administrator to recover assets from the equity release clients have now been halted. As an investigation is ongoing in France into this scheme sold through Luxembourg, a judge in Paris has thwarted the recovery efforts while the legality of the scheme is still unclear.

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A group of investors in Luxembourg funds have been trying to lodge complaints with the Luxembourg financial services authority, CSSF, after enduring losses in 2008. According to the FT (paywall), the group got a negative answer and little understanding from the CSSF in 2011 and has since been trying to get their complaints taken seriously, lately by sending a flurry of letters to prominent politicians in Luxembourg, i.a. PM Jean-Claude Juncker and Minister of Finance Luc Frieden.

One of the group’s interesting discoveries is that although financial regulation in Luxembourg is, on paper, comparable to other EU countries, the enforcement lags far behind. The result seems to be that if things go sour, as in these investments, the CSSF allegedly is not there to protect the interests of investors. The feeling is that Luxembourg is a country where the interests of the financial sector are seen to be best served by doing very little about eventual rogue elements.

This attitude of the CSSF will not come as a great surprise to regular Icelog readers.* Icelog has earlier dealt extensively with the plight of a group of clients of Landsbanki Luxembourg to get authorities in Luxembourg take their complaints seriously. Complaints that both regard the dealings of the bank before its demise in October 2008 and also how the bank’s administrator has handled both complaints and these clients. This group has run into closed doors time and again. Only through the extremely diligent work of the Landsbanki Victim Action Group – at great cost, both pecuniary and emotional – is the group hopefully moving its case onward.

One of the most remarkable events in that whole saga was when the Luxembourg Prosecutor issued a press release to declare his support for the Landsbanki Luxembourg administrator, thereby alleging that the clients were seeking to avoid paying their debt. The fact that the State Prosecutor saw fit and proper to give his support to an administrator of a private company puts Luxembourg in a league of its own among EU countries.

The banking collapse in Cyprus has led the attention to other financial centers in small economies, such as Luxembourg. It seems that much of the shady money, previously nesting in banks in Luxembourg, has not gone back to countries of their owners, such as Russia, but is seeking shelter in other offshore places, Luxembourg being one of them. It seems that ties between Russian and Luxembourg might be strengthening.

The fact that the Luxembourg media and international media is now reporting more on irregularities in Luxembourg increases the hope that the Luxembourg finance sector will at long last operate under the rules and regulations as should be the standard in the EU. Though Luxembourg certainly is not the only country with questions to answer regarding its finance sector, it still seems too difficult for clients of the very potent financial sector to seek justice in cases of alleged irregularities and outright fraudulent behaviour.

*Here is one log on Landsbanki Luxembourg; here are logs related to “equity release” loans, which are at the core of the Landsbanki Luxembourg saga. A log on the CSSF and the Icelandic banks.

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The equity release scheme sold in France and Spain are sold by banks operating in Luxembourg. The banks in question are Danske Bank, Nordea, Rotschild Bank and, until 2008, Landsbanki. Clients of these banks have raised some serious questions regarding the legality of these loans – i.a. if these banks were at all allowed to sell these products in countries where they did not properly operate, how these banks informed their clients, if the banks did possibly promise far beyond what the schemes could sustain. And there are questions regarding the agents who sold the loans.

There now seems to be a good reason for Luxembourg, together with authorities in Spain and France to take action, to investigate all these schemes and to give these clients clear answers.

These clients have had no help from any authority. They have had to hire lawyers themselves to fight their corner. It is grotesque that in spite of all the talk EU directives on consumer protection turn out to give… errr, no protection at all to these clients.

The Landsbanki clients then have the additional problem of the bank’s bankruptcy and the lack of information from the administrator. Since the Landsbanki Luxembourg estate in reality only has two creditors – the Central Bank of Luxembourg and the estate of the Landsbanki Iceland – it raises the question why these two creditors do not seem to pay any attention to the complaints made loud and clear by the Landsbanki equity release clients.

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Equity release schemes have been causing trouble and tragedies for decades. The UK had its share of this ca two decades ago but stronger regulation put an end to the abuse of these products by its sellers. Scandinavian banks in Luxembourg have been selling the same products in Spain, causing similar harm to clients as Landsbanki caused (except the Landsbanki harm was compounded because of the how the administrator of Landsbanki Luxembourg has chosen to operate.)

Equity Release Scheme Association, Erva, is an association that aims at bringing the nature of these loans to the attention of pensioners who might be tempted by “free” cash offers, where an investment then pays off the loan. Working with the Spanish lawyer Antonio Flores they have successfully stood up for their rights against banks selling these loans. Erva members have filed claims against both Nordea and Rotschild Bank ia for mis-selling equity release loans. It will be interesting to see if actions agains these two banks and Landsbanki will put an end to these type of loan offers.

Luxembourg, as other EU countries, is obliged to follow EU directives on customer protection. The question is how diligently it’s been implemented and adhered to.

“How stupid we were!” said one Landsbanki client at the press meeting in Luxembourg. The sad thing is that banks talk people into it, by promises that don’t add up. Elderly people, often facing bad health and worries about pension have proven to be an easy pray.

The press in Belgium and Luxembourg reported on the Landsbanki action and no doubt the case will be followed with interest by the media, the authorities – and the banking sector.

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Icelog has earlier told stories of Landsbanki Luxembourg and equity release loans sold by the bank in France and Spain.

The remarkable thing is that although those who bought the product have good reasons to feel that that Landsbanki Luxembourg missold the loans, mismanaged the accompanying investments and miscalculated the loan cover ratio (in early Sept. 2008, a month before the bank collapse), the administrator has not been willing to discuss these matters with the clients. Since no reports regarding the administrator’s work can be found on-line (contrary to ia the operations of winding-up boards of the collapsed banks in Iceland), it’s not clear how and in what way the administrator has fulfilled normal duties to investigate if the bank took any actions before the collapse that might be either illegal or should be repealed.

In addition, the equity release clients have been frustrated by the wholly opaque and, what has at time, seemed arbitrary operations of the administrator. The clients have ia had varying and inconsistent information as to the status of their loans. Yet, no authority in Luxembourg – such as the Luxembourg financial services, CSSF or the Luxembourg Central Bank – seems to have paid any attention of a) what went on in Landsbanki Luxembourg before its demise b) the operations of the administrator. In this tiny country that lives of banking, the authorities don’t show any interest in knowing what really is going on in Luxembourg banks.

As to the assets, the Landsbanki Winding-up Board has now taken them over. The WuB has not been willing to answer questions regarding what they know about the Landsbanki Luxembourg operations before or after the collapse. The unusual position of the Landsbanki Luxembourg estate is that there are essentially only two creditors: the Landsbanki Iceland estate, now run by the Winding-up board and the Luxembourg Central Bank.

As mentioned earlier on Icelog there are two important events concerning Landsbanki Luxembourg: a court case in Spain and actions taken in France by a French judge.

A court in Spain has ruled in one case that the Landsbanki Luxembourg was illegal, awarded the borrow compensation – but because the case is being appealed these borrowers are still kept in agony.

In France, Judge Van Ruymbeke* is investigating the Landsbanki Luxembourg operations and has seized some properties belonging to Landsbanki Luxembourg clients – in order to prevent the Landsbanki Luxembourg administrator from confiscating the properties against loans she claims are in default.

In spring, the Luxembourg State prosecutor took the extraordinary step to issue a press release in support of the said administrator – although a) the prosecutor had not, judging from the press release, investigated the matter b) had not been asked to investigate it and c) had, as far as could be judged from the press release, nothing to rely on but information from the said administrator. Quite extraordinarily, the prosecutor makes the claim that a small number clients, complaining about the operations of the administrator, are only people who are trying to evade repaying their loans.

The fact that a State prosecutor steps forward to defend in this way an administrator of a private company, is I believe unheard of in any country claiming to be run by the rule of law.

What makes this case particularly poignant is that many of these clients, who now have lived with the threats of being evicted from their homes, are elderly people who thought they were securing their later years in a sensible way by taking out these loans. There are many and various European and domestic schemes to protect consumers and bank clients. So far, none of these seem to have worked for the clients of Landsbanki Luxembourg in Spain and France.

*Judge Renaud van Ruymbeke has a formidable track record in investigating huge and high-profile corruption cases. He worked with Eva Joly – who advised the Icelandic Special Prosecutor when the office was set up – on the Elf case where ministers and politicians were convicted to prison sentences and has run big investigations such as the Clearstream 2 case and French investigations into the Madoff fraud. 

Update to clarify the legal standing of an administrator in Luxembourg: a judge appoints an administrator and all actions have to be accepted by this judge. In the case of the Landsbanki Luxembourg administration the presiding judge is Karin Guillaume. As far as I understand, the judge is therefor also responsible for the actions taken by an administrator appointed by the judge.

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Readers of Icelog already know some of the answer to this question. Luxembourg is a gateway to the offshore world. The offshore world is a hide-away heaven for money that needs to be visible only to the owners and not to others. It’s a popular place for big corporations and wealthy individuals in search of good tax schemes and by shadowy elements who need to move money, quickly and efficiently, out of sight. It’s no coincidence that the Icelandic banks, allegedly, ran all their most dubious loan deals through Luxembourg. It’s also worth keeping in mind that all European – and many international – banks, which want to be something more than a little local bank, operate in Luxembourg.

An interesting view on Luxembourg – and Icelandic – operations can be gauged through the operations of Landsbanki Luxembourg. The bank’s equity release scheme leaves some questions to be answered, as pointed out earlier on Icelog. Also, how the bank bought Landsbanki and Kaupthing bonds as investment for clients in mid and late 2008, in some cases directly against written agreement with clients. (At this time, there were literally no buyers for bonds of these two banks. Landsbanki did at this time set up a company in the Netherlands, Avens BV, stuffed it with all sorts of Icelandic bonds and used it to repo with the European Central Bank, an interesting story in itself, with the aid of Crédit Suisse.)

In addition to the bank’s own operations, before the collapse, the actions of the administrator, Yvette Hamilius, have been brought into question.

The administrators of the Icelandic banks, in Iceland, have all scrutinised the banks’ operations prior to the collapse. This is always done in a bankrupt company. A bankruptcy is the outcome of a long process and an administrator always looks at all dealings some months prior to the bankruptcy to make sure that managers, owners or others haven’t made anything that could be seen as unfavourable to creditors.

All the administrators in Iceland have brought cases against managers – and in some cases against the large shareholders – for causing the creditors of the bank in question damages. Apart from that, there are the ongoing investigations of the Office of the Special Prosecutor in Iceland.

If the Landsbanki Luxembourg administrator has questioned any of the dealings in Landsbanki prior to its fall or brought any cases against the managers such moves have not been communicated. – Instead, the Luxembourg Prosecutor has issued a statement where he declares his support for the administrator’s actions. Just his statement makes one wonder what sort of a country Luxembourg is. Why isn’t the Luxembourg Prosecutor doing what is Icelandic colleague is doing, investigating banks, which have shown ample reasons for suspicion? Is that because Luxembourg bases its wealth on the flow-through of international funds and doesn’t want to do anything to disturb the smooth flow?

I have had the opportunity to look at, in detail, documents related to certain clients of Landsbanki Luxembourg. A perfectly normal part of the equity release contract is that if the value of the assets underlying the contract – in Landbanki case normally a property in France or Spain – falls below a certain limit, here 90%, the bank can call for cash or further valuables to cover itself.

A closer look at the realities in portfolios related to some clients Icelog has seen, indicates some rather remarkable movements. According to overviews, not only from one but several clients, the bank re-evaluated the portfolios just before its collapse – and miraculously the valuation turns out to be 89.9%. A tiny fall, allowing the bank to call in further payment.

At least in one case, an Icelog source who is familiar with the property in question is pretty sure the house is under-valued. One French real-estate agent who operates in the South of France, where some of these properties are, has commented on Icelog that she is unaware of any changes at the time the bank was claiming there was a falling value. – A banker, familiar with type of deals, says that the bank might have envisaged an imminent decline in its re-evaluation but there should have been some documentation to prove it. Otherwise, a bank can forecast whatever it wishes.

There are clients who are now just about to lose their houses to bailiffs because of this tiny fall. The administrator has offered them a deal, which means that they either pay – in cases that Icelog has seen they are supposed to pay much more than they took out of the scheme because they are deemed to be in default. The remarkable thing is that the administrator doesn’t seem to be paying any notice to these weird movements in valuation: if the valuation hadn’t fallen down below the 90% many of these borrowers wouldn’t have the bailiff at the door.

In the UK, equity release scheme don’t create havoc to lenders and make them lose their homes anymore – as was common some 20-30 years ago – because banks in the UK are bound by strict rules in this field. This doesn’t seem to be the case in France and Spain.

Now back to the original question: what sort of a country is Luxembourg? It seems to be ia a country where the State Prosecutor comes to the aid of an administrator who hasn’t provided lenders with numbers that make sense when their houses, the roof over the head, is being taken away from them. It’s not a country where banks are questioned. It’s also a country where bank clients are completely unprotected when a bank loses clients’ money by investing directly against written agreements. Why the Luxembourg regulator, the CSSF, hasn’t investigated the serious allegations of mismanagement of clients’ funds and breach of MiFID rules in Landsbanki indicates that the reputation of Luxembourg as a good country for banks means more than Luxembourg being a good country for bank clients.

These are not just theoretical issues. These issues mean that in France and Spain some real people of flesh and blood, mostly elderly people, are losing their houses after a harrowing fight against forces in Luxembourg that seem to protect banks and bankers, not ordinary people.

*Earlier logs on Landsbanki Luxembourg are here and here, where I go more in detail through some of the topics related to Landsbanki Luxembourg and the equity release scheme.

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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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