Sigrún Davíðsdóttir's Icelog

David Rowland, the owner of Blackfish Capital UK, has been named the treasurer of the Conservative party. Through their ownership of Banque Havilland Luxembourg David and his son Jonathan are almost household names in Iceland. But there are other intriguing Tory connections to the Icelandic banks, notably Kaupthing.

David and Jonathan Rowland, or rather their investment company Blackfish Capital, took over the Kaupthing operation in Luxembourg last year and turned it into Banque Havilland. Havilland draws its name from the family’s Guernsey address, the splendid Havilland Hall. Father and son firmly deny any connections to the owners of Kaupthing but they held onto Magnus Gudmundsson until he was taken into custody due to the Kaupthing investigation in Iceland. The Rowlands have stressed that house searches at the former Kaupthing premises in Luxembourg earlier this year were unrelated to Banque Havilland. It is of interest that Martyn Konig, a well merited banker who had worked for Blackfish, resigned as a chairman of Havilland almost as soon as it opened.

Earlier, the Rowlands weren’t bothered neither over the Kaupthing investigation in Iceland nor in the UK – and yet, it’s been clear for a long time that the Kaupthing Luxembourg operation was central in all the deals and connection that are being investigated, be it the al Thani case or loans to UK business men such as Kevin Stanford and Robert Tchenguiz. It’s interesting to notice that al Thani is of the Qatari ruling family. Recently, a court case in London showed that a Qatari company bowed to pressure from Prince Charles. Christian Candy who won that case was also one of Kaupthing’s clients and a partner in joint ventures with the bank.

A source close to the Havilland informed me earlier this year that the Rowlands were interested in private banking and had been looking for a bank to buy for some time. When the Libyian Investment Authority’s offer for restructuring Kaupthing was turned down by the bank’s creditors and JC Flower’s rumoured interest didn’t materialise the Rowlands stepped in to buy the bank. The good assets were put into Havilland and Pillar Securitisation took over the bad assets, administrated by Havilland.

Unexpectedly, the Rowlands and Blackfish are also a well-known name in Latvia. When the renowned newspaper Diena was sold last year it seemed at first that Latvian businessmen with previous ties to the paper were buying it. Then it turned out they didn’t really have that kind of money and in the end the real owners came forth: Blackfish and the Rowlands. Why they suddenly wanted to own a newspaper in Latvia seemed hard to explain – and hasn’t really been explained except the Rowlands say they won’t interfere with the editorial line. That didn’t satisfy the Diena journalist: most of them left the paper and have now founded a new paper.

David Rowland moved from Guernsey to England in 2009 to be able to donate money to the conservatives. He has donated £3m, is now the party’s major donor – and that qualifies him to be the next party treasurer when Michael Spencer steps down in autumn. Now that the Conservatives are in government Spencer isn’t quite the kind of name they want to be linked to. Spencer has long had a reputation for being rather unsquemish when it comes to ways to make money. Last December, Spencer’s company Icap made $25m settlement with the US Securities & Exchange Commission, following a four years investigation, to escape charges for using fake trades to encourage customers to trade.

But Spencer’s company Icap was also a broker in the UK and did business with the Icelandic banks. Butlers, Icap’s financial consultancy, advised its customers, i.a. many of the UK councils, to keep their funds with the Icelandic banks even though the rating agencies, unbelievably late, downgraded the banks. Consequently, the councils that used the advice of Butlers lost badly and lost more than those who had other or no advisors. A possible conflict of interest has been alleged but strongly denied by Icap and Spencer. But the owner of a company that used fake trades would certainly have found a common ground with the Icelandic banks that are now being investigated i.a. for market manipulation.

Interestingly, the incoming and the present treasurer of the Conservative party aren’t the only conservative high-fliers with Icelandic connections. Tony Yerolemou is one of the Tories important donors and has been over the years. The Cypriot food producer was one of the owners of Katsouris Food, sold to Bakkavor in 2001. He got very close with the Bakkavor owners Lydur and Agust Gudmundsson who eventually became Kaupthing’s biggest shareholders. – And mentioning the Rowlands: as administrator Pillar is claiming back a Kaupthing Luxembourg loan to Lydur who might lose his £12.8m house on Cadogan Place if he can’t refinance his loan.

The Rowlands might also have to pick over their fellow conservative Yerolemou who not only sat on the Kaupthing board but had huge loans with the bank through Luxembourg. When the bank collapsed Yerolemou was one of the bank’s biggest debtors, his loans through Luxembourg amounting to €365 (whereof £203m were unused). The report of the Althingi Investigative Commission concludes that because of the loans and because his companies were firmly in red Yerolemou hadn’t been fit and proper to be on the bank’s board. Together with Skuli Thorvaldsson Yerolemou was involved in companies organised by Kaupthing and partly financed by Deutsche Bank to influence Kaupthing’s CDS spread. Yerolemou has been the chairman for Conservatives for Cyprus – and interestingly, the Conservative party had pledged before the election to give Cyprus priority when the party would be in power. Yerolemou has donated money to the campaigns of various MPs, i.a. Theresa Villiers now minister of State for transport and who also very much has the interest of Cyprus at heart.

Apart from ongoing investigations in Iceland the Serious Fraud Office is conducting an investigation into Kaupthing. With the conservatives in power and the particular ties that some conservatives have had with Kaupthing it will be of great interest to see what happens with the SFO investigation. It’s also interesting to see if authorities in Luxembourg make a move to look more closely at the Kaupthing operation in Luxembourg.

Who would have guessed there were so many Icelandic ties to the Conservative party? There are many stories to follow here.

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Although the Office of the Special Prosecutor had asked for the court rulings on the custodial sentences of two ex-Kaupthing managers not to be published the charges have been seeping into the Icelandic media through the day. The most extensive leak throws light on the charges against Magnus Gudmundsson ex-manager of Kaupthing Luxembourg and manager of Banque Havilland until his arrest last week. Most likely, it’s the defense team of those arrested who are responsible for the leaks that are clearly against the interest of the OSP.

The OSP is investigating five separate issues of what they call ‘extensive, calculated and unparalleled fraud.’ Gudmundsson appears to be at the centre but it’s highly likely that these issues involve at least Hreidar Mar Sigurdsson Kaupthing’s ex-CEO as well as Sigurdur Einarsson ex-executive chairman.

1 Gudmundsson is being investigated for involvement in dealings with the sole purpose of increasing the bank’s share value. This market manipulation is thought to have been going on from June 2005 until the demise of Kaupthing in October 2008.

It’s known that the Icelandic Financial Authorities, FME, has been investigating what is thought to be an extensive market manipulation in all the banks, not only Kaupthing.

The report of the Althingi Investigative Committee, published on April 12, also throws light on this issue. According to the report the bank bought 29% of the bank’s shares, issued on June 30 2008. The bank’s own trade in its shares amount to 60-75% of all trade on the Icelandic Stock Exchange from June to October 2008.

The OSP seems to suspect that managers and certain key employees responsible for the bank’s proprietary trading carried out these trades in a calculated way in order to influence the share price. It then became a major problem for the bank what to do with all the shares it bought. Gudmundsson seems to have played a key role in ‘parking’ the shares.

This throws light on the extensive loans that Kaupthing issued to key employees and many of its major shareholders and clients with the bank’s shares as collateral. It was almost a rule that the bank’s clients bought shares in addition to what other business they had with the bank, i.e. extra money was thrown into the loans for the purpose of buying Kaupthing shares. A foreign employer of the bank recently explained to me that he had been very surprised when he realized, some years ago, how the bank mildly insisted that any big client/borrower also bought shares in the bank – shares that the client wouldn’t need to pay for but that the bank financed with loans.

2 Issues related to alleged market manipulation and breach of fiduciary duty on behalf of Gudmundsson in relation to several companies. One of them is Holt Investment Ltd, a company related to Skuli Thorvaldsson, an Icelandic businessman living in Luxembourg and a major client of Kaupthing but otherwise not very visible. Thorvaldsson was the biggest borrower in Kaupthing Luxembourg. Another company is Desulo Trading Ltd, registered in Cyprus in October 2007. Desulo’s manager is an Icelandic businessman, Egill Agustsson. From mid 2008 until the collapse of Kaupthing Desulo Trading Ltd borrowed ISK13,4bn to buy shares in Kaupthing. Companies related to Kevin Stanford seem to be part of these suspicious trades. Loan agreements and other documents related to Kaupthing’s dealings with these companies are found to be in breach of the bank’s own rules, made without proper documentation and with insufficient collaterals. It’s alleged that it was clear to the managers that these loans were contrary to the interests of the bank as a listed company.

Most likely, the dealings with these companies are only the tip of the iceberg – it’s clear that this extensive ‘parking’ explains many otherwise inexplicable loans to key employees and trusted clients. The OSP mentions deals going back to 2005 – I’ve heard that signs of market manipulation can be traced as far back as to 2004.

3 It’s clear from earlier reports that Kaupthing, advised by Deutsche Bank, tried to influence its CDS spreads. The investigation focuses on two companies, Chesterfield United Inc. and Partridge Management Group, that Kaupthing fed a loan of €260m through four other companies, Trenvis Ltd., Holly Beach S.A., Charbon Capital Ltd and Harlow Equities S.A. in order to trade in the bank’s CDS and influence the spread. The companies were connected to the bank’s major shareholders/clients Olafur Olafsson and Skuli Thorvaldsson. Loans from Deutsche Bank formed a part of this package. When DB made margin calls Kaupthing lent money to these companies to meet the calls. Kaupthing did in the end lose €510m on these transactions and DB refuses any responsibility.

During its last hours, on Oct. 6 2008, Kaupthing got a loan from the Icelandic Central Bank of €500m. Though Kaupthing already seems to have been doomed there was still a belief among Icelandic regulators that Kaupthing might survive though Landsbanki and Glitnir would fail. It now seems that some of this loan was used to lend these companies used to give entirely wrong information about the bank’s standing. – The investigation aims at clarifying who was responsible and whether it was i.a. a question of a breach of fiduciary duty.

4 Two companies, Marple Holdings S.A., owned by Skuli Thorvaldsson and Lindsor Holdings Corporation, owned by Kaupthing’s key employees, bought Kaupthing bonds, issued in 2008 when Kaupthing, as many other banks, ran into financing difficulties. The aim seems to have been to remove any risk of a falling bond price from the beneficial owners of these companies to the bank itself. Documents related to these companies seem to have been falsified so as to indicate that the deals had been done earlier than was the case.

5 In September 2008 Kaupthing announced that the Qatari investor Sheik Sheikh Mohammed Bin Khalifa Al-Thani was buying 5% of the bank. The OSP is investigating if a Kaupthing loan to companies related to the Sheikh and Olafur Olafsson were intended finance the deal so that the Sheikh was actually not putting any money into the deal, done only to make the bank look stronger than it was. (Olafsson owns a food company, Alfesca, that had announced in summer of 2008 that the Sheikh was buying shares in the company. That deal was never finalized but it’s unclear if Kaupthing was also here the lender of a loan that was never going to be repaid.)

In short: the issues investigated relate to deals between Kaupthing and major shareholders/big clients that favoured the key employees and affiliated clients but dumped any losses onto the bank. The investigation focuses on breach of fiduciary duty, counterfeiting and market manipulation and involves billions of kronur.

Kaupthing operated in Luxembourg for eight years and in London since 2005. It operated in all the Scandinavian countries and in the US. In the UK the FSA was warned: the board of Singer & Friedlander, the bank that Kaupthing bought in 2005, repeatedly made it clear to the FSA that it didn’t think the mangers of Kaupthing were ‘fit and proper’ – and yet, nothing was done and in none of these countries the regulators saw anything questionable. Yet, the meteoric growth of the band and ‘incestuous’ relationships with major shareholders should have been an indication, as well as persistent rumours. The good thing is that Serious Fraud Office is now conducting its own investigation of Kaupthing.

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‘No’, is my short answer to the question above echoing all around Iceland. I am confident that the report of the Investigative Commission, set up at the behest of Althingi, the Icelandic parliament, will answer many of the questions that have been in the air since the collapse of the three main Icelandic banks in October 2008. And I’m sure it will also answer questions that no one has thought of asking. We just have to keep in mind that the Commission’s remit is to clarify the collapse – i.a. why the banks collapse, how they operated and the role of the regulators, the politicians and the media – it’s not a criminal investigation.

The report has taken  much longer than foreseen. It was supposed to come out on November 1, less than a year after it set to work. This was undoubtedly far too optimistic to begin with but not until well into October did the Commission announce up to three months’ delay. Late January the publication was again postponed, no date give – until finally that Monday April 12 has now been set as the date of publication.

The delay has given rise to all sorts of conspiracy theory. One of the more persisting ones is that the report was finished already in January but has since been purged of ‘compromising’ material. I don’t for a second believe that this has been the case. Everyone who has ever written something that involves a large amount of information from various sources knows that editing is a time-consuming process. In addition, extensive parts though not the whole report have been translated into English.

When the text was more or less finished leading politicians and high-ranking civil servants, in all twelve persons, were allowed to read and control what was written about them and to counter or clarify the report’s account, with documentation if they wished. Out of this came allegedly 500 pages of material that the Commission then had to review. Except for eventual errors it’s unlikely that the Commission has changed its text much during this review. If those twelve wish their views to be known their riposte is published as an appendix.

So far, the only known fact is that the report will be published on Monday April 12 but the programme for that day is still unknown. Monday April 12 will be the first day that Althingi gathers after the Easter recess, with a meeting scheduled at 3pm. It’s always been understood that Althingi and the general public will receive the report at the same time, i.e. that the web version will be released as soon as the Althingi is presented with the printed version (which will be sold in books shops for ISK6.000, £30, the price of a hardback though the report, running to more than 2000 pages, is a tad longer than a normal hardback).

However, since the Althingi’s Presidium (consisting of MPs from all the parties in Althingi) appointed the Commission it seems logical that the Presidium will first be presented with the report – then they can answer the questions that undoubtedly will arise once the rest of us can read the report. My guess – and it’s only a guess – is that the Commission will meet with the Presidium early in the day, followed by a press conference as the text will be released on the internet.

In a comment on Icelog, Tony Shearer, CEO of Singer & Friedlander at the time Kaupthing bought it, points out that the Icelandic report emphasises ‘the fact that the UK Government is not doing so, and has steadfastly refused to do so. The reasons are simply that the current UK Government and Prime Minister have no desire for one to be published as it would inevitably place the main causes of the failures of the British Banks at the doors of Gordon Brown, Ed Balls and Tony Blair, the three politicians who, at that time, were responsible for the UK economy. Their failures lead to the collapse of the UK banks, but also were heavily instrumental in the collapse of the Icelandic banks of Kaupthing and Landsbanki. Hopefully the Icelandic report will be direct and clear as to where the blames truly lies. If so, it will be a tribute to Icelanders. It will also show how the Icelandic political system is strong enough to force such a report, and the UK one so weak that people in power are not held accountable.’

Telling the truth is a sign of strength. Of course, banks such as Royal Bank of Scotland, Lloyds and the three Irish banks, Anglo Irish, Allied Irish and Bank of Ireland where the state now is a major shareholder, should be scrutinised. It’s not enough just to bring Anglo Irish’s chairman to court. The Irish need to know what happened – and the same counts for the UK: the British need to know why the British government was forced to become a bank owner.

But there is more in store regarding the banks. Glitnir’s resolution committee has hired Kroll to scrutinise Glitnir’s operations. When finished, this report will be published, possibly later in spring or early summer. I’ve already heard that the report is a riveting read. The resolution committees of both Kaupthing and Landsbanki have had forensic teams doing similar work. Hopefully, their reports will also be published.

As to possible criminal acts within the banks that’s for the Special prosecutor to work on. Another story of delays – the first charges were expected at the beginning of this year – but now it seems as if they might appear before the end of April. Again, it takes time to chase information through the tangled web of companies stretching from Iceland, Cyprus and Panama, to name but a few off shore jurisdictions used by Icelandic businessmen and their bankers.

The Commission’s report will hopefully tell the story of the Icelandic financial system in a clear and concise way. But it might also give us a different story from the one mostly expected. One thing that’s been repeated over and over again for the last months is that the Icelandic FSA, FME, was a cheerleader for the banks instead of keeping them on a short leash. Clearly the FME was no better than regulators in so many other countries but recently, I spoke to someone who has read the minutes of the board at one of the banks: the minutes show clearly that the FME did indeed try to enforce rules and regulations on the bank – but the bank spent a lot of time and man power to figure out how best to evade the rule.

The fact that the UK FSE, as late as February 2008, allowed Kaupthing to set up a high- interest internet account, not to mention Landsbanki and the Icesave, indicates that the FSE also has some things to clarify – but so far, only silence. No matter how dismal the story in the April 12 report will be the relief is that knowing is better than not knowing.

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