Sigrún Davíðsdóttir's Icelog

Goldman Sachs was charged with fraud, or as former Under Secretary of the US Treasury Peter Fisher put it, the bank showed the kind of behaviour Fisher has called ‘naughtiness.’ Now, it can pay its way out of court with a $500m fine to the SEC. The story is that a hedge fund, Paulson, was certain that the mortgage market had peeked and wanted a mortgage product it could bet against. It chose products to put in a bundle, called Abacus – Goldman’s staff chose about half of it. Then it was sold to customers who weren’t told that this product was made for someone to bet against, thus defining customers’ relations the Goldman way. As envisaged, the customers who bought the product lost and Goldman and Paulson won (though Goldman’s CEO Leo Blankfein tried to pretend during hearing at US Congress that Goldman had also lost until he was reminded of the fact that Goldman only lost because it couldn’t sell all these product, not because it believed in the product).

Plenty of people will not have too great a sympathy for the customers who lost. Aren’t they institutions who should know better, who have the means to know what they are buying? In short, aren’t they big boys who should be big enough to know what they were being sold?

In an ideal market they are big enough to know. But the market was far from ideal in 2007 leading up to autumn 2008. Recently, I talked to an analyst who worked for Kaupthing, the failed Icelandic banks. He mentioned the Goldman Sachs case, adding ‘we were the suckers back then,’ meaning that also Kaupthing bought similar products (not the Goldman products at the heart of the fraud case though) that later turned out to generate losses (although none of the Icelandic banks bought much of the subprime toxic products – their largest clients turned out to be much more toxic though but that’s another story).

Kaupthing, like any other bank, had of course analysts who in principle should analyse what the bank was being offered. But these weren’t normal times. In 2007, the analysts got ever shorter time to analyse. Towards the end of the year they weren’t given any time at all to do their work. The bigger boys, the big banks and the market makers shoved a product under their nose with the offer ‘buy it now or leave it,’ giving no time to scrutinise or analyse.

Those who didn’t say ‘yes’ fast enough just lost the opportunity to buy this product and then eventually would lose out on everything. Or that at least was what they feared. The refrain was ‘if you don’t buy it we will sell it to someone else.’ End of story – and banks like Kaupthing feared they would simply be left out of the loop completely. No deals, nothing would be coming their way. And that would of course have been end of story. End of their story.

I have no pity for any of these banks and certainly no sympathy for a bank like Goldman. But behind this story is the story of big boys being squeezed, threatened and bullied by yet bigger boys. Like Goldman Sachs.

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In Iceland, playful kids throw snowballs at each other in winter. Not so playful businessmen, down on their last million, throw threats of personally suing those who on behalf of the collapsed banks are clawing back the billions of Icelandic Kronur of debt. In an interview, published in the Icelandic Vidskiptabladid today, Jon Asgeir Johannesson claims he will personally sue Steinunn Gudbjartsdottir the chairman of the Glitnir Winding-Up Board for her ‘sworn lies’ submitted in connection with the freezing order, confirmed last Friday.

According to Johannesson Gudbjartsdottir alleges that his assets are more exstensive than the £1.1m. In an email sent to Glitnir CEO Larus Welding and Stodir (earlier FL Group) Jon Sigurdsson just before the collapse of the banks in Oct. 2008 Johannesson lists accounts holding £202m. The email hasn’t been published so it’s unclear why Johannesson was listing these assets to the two CEOs.

During the freezing order hearings Glitnir’s lawyer pointed out that, contrary to what Johannesson now claims, Gudbjartsdottir didn’t know who owned these £202m. She didn’t know May 11 when the freezing order was submitted – and she didn’t know late June when asked again. In the meantime Johannesson had given a statement, saying that the money belonged to the supermarket chain Iceland where he was a director until he resigned in May due to the freezing order.

Now, Iceland’s CEO Malcolm Walker, who Johannesson and his co-investor in Iceland chose as a CEO, has written a letter to Gudbjartsdottir, saying that the millions belonged to Iceland the supermarket chain. If Johannesson thought it important to clarify who owned the £202m it’s rather mystifying why he didn’t ask Walker to document this while the freezing order was still being dealt with by the court. Why did he wait until after the Court had already confirmed the freezing order?

Gudbjartsdottir is hardly quaking in her boots over Johannesson’s threat – and by the way, he hasn’t mentioned if he will sue her in Iceland or abroad. From other resolution committees and winding-up boards I know that the big debtors regularly threat to sue their members personally. For those who deal with the big debtors who are used to being able to rule with money and the threat of making use of their money it’s all part of their job – for them c’est la vie.

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On Friday, Justice David Steel had two things to consider regarding the freezing order on Jon Asgeir Johannesson’s assets: did he believe that Johannesson had more assets than those he had already informed Glitnir of – and is Johannesson’s career and character such that he might possibly try to dispose of assets without informing Glitnir?

By upholding the freezing order Justice Steel answered these two questions quite clearly. No, he didn’t believe Johannesson had given a ‘full and frank disclosure’ of his assets – and yes, he did believe that Johannesson, a man of ‘low standard of commercial morality’ according to Justice Steel, might indeed try to dispose of assets and thus continue trying to avoid paying his humongous debt to Glitnir. This phrase, ‘low standard of commercial morality,’ is a marvellous example of English understatement and is indeed laden with potent meaning.

Since I broke the news in Iceland of the hearing on Friday I’ve heard from many Icelanders – and the message has been: what a relief to hear a judge speak so clearly of Johannesson and his character. Here was a venerable judge who absolutely didn’t mince his words and left no lingering doubt as to what sort of a businessman he thought he was dealing with – a businessman of ‘low standard of commercial morality.’

Those I’ve heard from are also content that the case has been brought out of Iceland, into another context, absolutely beyond any possible interference of interests and personal connection. I firmly belief that in spite of the dismal story of the Baugur case earlier (where most of the charges against Johannesson were thrown out but where Johannesson was indeed handed a sentence of three months in jail, albeit a conditional sentence) the Icelandic courts will be able to deal with eventual charges against bankers and their fellow business travellers in a fair and frank way – but the clarity of Justice Steel was refreshing and uplifting and will hopefully constitute an example for his Icelandic opposite numbers.

But it’s not just in Iceland that there is a lack of clarity when it comes to alleged fraud. In his statement before the US Senate’s Subcommittee on Crime in May the economist James Galbraith pointed out that on the day that the SEC charged Goldman Sachs with fraud a former Under Secretary of the US Treasury Peter Fisher couldn’t bring himself to mention the word ‘fraud.’ Instead, he used the word ‘naughtiness’ – as if a banker had been caught in spending the night with his secretary on the bank’s expenses account.

Clarity is also sorely needed when it comes to the flight of certain businessmen into secrecy jurisdictions – the web of offshore havens that the big banks have been pretty good at offering to their clients when they want to be really naughty. It’s to the great shame of both the UK and the US that the major part of these secrecy jurisdictions thrive in places connected to these two countries. But also here there is an ongoing detectable change: HSBC is under criminal investigations in the US for selling offshore tax services to their clients – and Deutsche Bank is under similar investigation in Germany, alleged to have assisted clients to avoid tax by trading emission allowances. The intriguing bit of the DB story is that DB bankers were warned beforehand of extensive raids but the investigators were a step ahead and were listening in on their phone calls.

The refreshing clarity that Justice Steel showed isn’t only desperately needed in Iceland but when dealing with white-collar fraud in general. In Johannesson’s case Justice Steel saw more than just some naughtiness – he spotted the low standard of commercial morality, not only an Icelandic trait.

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There is the Eton mess, a delicious summer dessert of whipped cream, icecream, strawberries and meringue. The Magma mega mess is less delicious but it’s also a summer thing and is now all-consuming news in Iceland. There is suddenly a frantic political activity to stop the Magma deal but it’s not clear what will happen.

It was during summer last year that Magma Energy surfaced in Iceland as the potential buyer of one of the Icelandic energy companies, HS Orka, to begin with the share of OR, Reykjavik Energy, owned by the city of Reykjavik. This wasn’t the first move towards mixing private enterprise and public ownership. A year before the Icelandic banks imploded in October 2008 it emerged that some of the most risk-prone businessmen, notably Hannes Smarason of FL Group-fame, together with Bjarni Armannsson ex-CEO of Glitnir, a banker no less taken up by his own interest than the bank’s, had been planning a particularly cunning deal to buy OR. Part of the cunning was that the deal would immediately release zillions of Kronur for Armannsson, Smarason and their partners. Since the city of Reykjavik was incidentally aiding the instantaneous enrichment of the few chosen the news of this deal so enraged Icelanders that the deal collapsed.

Ever since, it’s been clear that Armannsson, together with other ex-Glitnir managers, has been looking for opportunities in the Icelandic energy sector. After all, energy and food was Glitnir’s speciality. Armannsson is now involved in one of the date centre projects in Iceland.

Favoured deals, like the OR deal, has been the chosen way of doing business in Iceland – a way that many Icelanders now hope will come to an end. After all, it’s clear that this was a major factor in the fall of the banks. Therefore, many in Iceland have a lingering feeling that ex-Glitnir bankers or other Icelanders are somewhere involved in the Magma affairs in Iceland.

There are some disturbing inconsistencies. Last year, Magma-CEO Ross Beaty, also Magma’s largest shareholder, sought to convince Icelanders that he wasn’t at all interested in buying the whole of HS Orka. Well, now nothing less will do.

Already last September I pointed out two major flaws in the Magma deal: firstly, when a public good is sold it has to be done in a transparent way – not the case here, there’s total opacity. Instead of a transparent deal where Magma pays outright and OR sells outright its coveted share in HS Orka the deal is convoluted with loans from the sellers. This is completely opposite to golden rules on privatisation laid out by the World Bank, OECD and others: if a public good is sold the sale should be transparent and bring plane cash to the coffers right away. All risk should be on the buyer, not the seller as is the case in the Magma deal.

Secondly, is so happens that Icelandic law prohibits non-EU/EEA companies to buy into the Icelandic energy sector. Magma found a way around this lay by setting up a subsidiary in Sweden as a holding company for its Icelandic assets. The Swedish company has, as far as is known, no purpose other than owning the Icelandic assets. It’s clear that if all it takes to own energy assets in Iceland is an off-the-shelf company in some EU/EEA country then the law is void and meaningless. – It’s difficult to belief that the Efta-court will let this pass since this would constitute an example in the other EEA countries.

It’s also interesting to note that Magma didn’t set up an Icelandic holding company. Most likely, a Swedish company brings some tax benefits. The ownership of Magma itself is an interesting case: a charitable foundation, Sitka Foundation, owned by Beaty, is the major shareholder. This has all the characteristics of a tax speculation and hidden ownership.

Consequently, Magma has been able to buy up ever-greater parts of HS Orka and now owns 43% and is buying Geysir Green Energy’s 55% in HS Orka. As if all this weren’t enough the truly scary part is that whereas it was at first trumpeted that Magma would bring much needed investment to Iceland it’s now liaised with a fund owned by the Icelandic Pension Funds that will invest in HS Orka. It also seems that Magma was allowed to buy offshore Kronur, no doubt at a favourable rate, instead of bringing foreign currency to Iceland. This weekend, it transpired that Magma’s CEO is himself lending money to Magma – a rather surreal course of events in a company that was supposed to be a strong investor bringing foreign investment to Iceland.

An ever-present element in discussion on foreign investment in Iceland is the atavistic Icelandic xenophobia, the fear of foreign barbarians at Icelandic shores. However, in the case of Magma there is a firm and solid ground to doubt the soundness of this investment. Foreign investment is of course painfully necessary in Iceland. It beggars belief why politicians are so prone to make elementary mistakes when it comes to foreign investment and the sale of public good. The fearful danger is that this proneness will create one mess after the other, certainly no Eton mess – and that this proneness will perpetuate itself by attracting the wrong kind of foreign investors to Iceland.

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This is the list of Jon Asgeir Johannesson’s assets as presented to the UK court on Friday:

British assets:

Bank accounts:

Coutt’s     £30,675.89 (ISK5,8m) 5.7. 2010

Coutt’s     £71.53  (ISK13.400) 5.7. 2010

Cars:

Range Rover, valued £15,000 (ISK2,8m)

Rolls Royce Phantom, valued £90.000 (ISK17m)    Regisistered on Johannesson who now claims it’s a birthday present to his wife

Aston Martin, valued £40.000 (ISK7,5m) In the process of being sold

Shares:

Shares in JMS Partners, valued £32.000 (ISK6m) according to an offer from the two other shareholders (Gunnar Sigurdsson Baugur’s ex-CEO and Don McCarthy chairman of board House of Fraser) will be sold; until then Johannesson is paid as a boardmember

Icelandic assets

Property:

Laufasvegur 69, valued £600.000 (ISK113,5m)

Hverfisgata 10, valued £3.125.000 (ISK591m)*

Farmland in Skagafjordur, valued £73.000 (ISK13,8m)

Vatnsstigur, valued £182.395 (ISK34,4m)

Mjoanes, Thingvellir, valued £40.000  (ISK7,5m)

Langjokull Chalet, valued £11.000 (ISK2m)

Shares:

Thu Blasol, valued 0

Gaumur efh, valued 0

101 Chalet efh, valued 0

Bank accounts:

Glitnir, ISK2,2m

Byr, ISK0,5m

Arion, ISK0,1m

Cars:

Range Rover 1, valued £20.000 (ISK3,7m)

Range Rover 2, valued £20.000 (ISK3,7m)

Bentley, valued £70.000 (ISK13,2m)

*Johannesson now claims this property belongs to his wife

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The beauty of the American court system is the transparency into the cases as they evolve – and right now, it’s the Glitnir Winding-Up Board against the Johannesson Defendants, i.e. Jon Asgeir Johannesson and his wife Ingibjorg Palmadottir. An active business woman in her own right she’s aired her irritation at being seen as her husband’s ‘alter-ego.’ No doubt, this is because her husband is seen as the main culprit but due to the fact that their business interests have become intertwined this is the way American lawyers have chosen to frame the case. After all, it’s difficult to suspect the GWB of sexism: it’s headed by a sure-footed female lawyer, Steinunn Gudbjartsdottir.

Johannesson, his wife and five others are being brought to court in New York as the GWB seeks to get back $2bn claimed to have been looted from the bank by this gang of seven with a strong support of Glitnir’s auditor PriceWaterhouseCooper, Iceland. For the time being, the case centres on Johannesson-Palmadottir and their ownership of three flats in the super-exclusive NY condo 50 Gramercy Park, also mentioned in the international freezing order, confirmed by a UK court on Friday.

The flats have been the centre of some attention lately. In 2006-07 – the time when the folly of the favoured clients of the Icelandic banks reached its climax, the years of buying yachts, jets and other trophy assets – the couple bought not one but three flats at this Ian Schrager-designed condo, 16A, 17A, 18A, for $25m. Two flats were merged, which is why just two flats are often being mentioned. Landsbanki lent the money but either didn’t bother their clients with collaterals or forgot – I’ve repeatedly asked the Landsbanki resolution committee about this case but they decline to comment until this case is over. However, on in the UK court papers it seems that Johannesson has given conflicting information on the financing, claiming at different times that his family financed it or that the financing came from Landsbanki.

Be that as it may, from the NY court document it’s now clear that the couple possesses these three units, now two flats: one flat is now a collateral held by Landsbanki, the other by Glitnir. Palmadottir’s address in the court documents is given as 50 Gramercy Park though in a recent statement she claims to be domiciled in the UK. Johannesson’s address is the same though he also gives a Knightsbridge address and the address of JMS Partners, one of his businesses in the UK, in London’s West End. From the documents it’s also clear that the couple rents one of the NY flats out, collecting a rent of $312.000. According to Palmadottir’s statement her son (from a previous marriage) now lives in the other one. She also confirms earlier news that other inhabitants at Gramercy Park have sued the couple because they hadn’t kept to the high standard of interior decoration expected in this distinguished property (the couple fitted their flat with an IKEA kitchen).

In an article recently, Johannesson refused that he had any assets in offshore islands. According to the NY documents he has millions with the Royal Bank of Canada – interestingly, the bank offers extensive offshore services and is under investigation in Canada for allegedly helping some clients to evade tax. Out of these millions the couple are said to have paid up a loan to the RBC recently of $10m. The GWB claims that these 10m are part of the Glitnir loot. Palmadottir claims that she bought the flats with her own family money, she comes from a wealthy family, and that the flats belong to her except for a 1% belonging to her husband. At the UK court on Friday, Johannesson’s lawyer maintained that Johannesson’s total assets now only amount to £1,1m.

The report of the Althingi Investigative Commission tells a rather different story. Palmadottir, as business partners like Palmi Haraldsson, Magnus Armann, Sigurdur Bollason, Thorsteinn Jonsson, Hannes Smarason and several others were a tightly knit group where assets moved around in an incestuously intimate way – made all the easier because the banks quite often didn’t see these parties as at all related though every Icelander on the street would know that the ties were indeed close. – The NY court documents mention these close ties.

The couple is mainly contesting the jurisdiction of the NY court, claiming that any case against them should be brought in Iceland, the information from subpoena regarding 50 Gramercy Park and from Royal Bank of Canada be revealed and that Glitnir can use any information from the NY court case in either Icelandic or British court.

The GWB claims that the Johannesson transactions made no economic sense for Glitnir. The same counts for so much of the money the favoured few obtained from the Icelandic banks – and so much of these loans wasn’t used to build up any business but was just spent on private assets such as houses, cars, yachts and jets.

Most likely, Kaupthing will be issuing charges later this year, possibly late summer or autumn. The resolution committee has already gathered a lot of material passed on to the Office of the Special Prosecutor. Johannesson was also a big borrower in Landsbanki. Hopefully, the Landsbanki resolution committee will at some point throw light on Johannesson’s relations with Landsbanki – and within Landsbanki there are undoubtedly many interesting stories, indeed whole sagas, waiting to be told of the bank’s relations with its major shareholders father and son Bjorgolfur Gudmundsson and Thor Bjorgolfsson who in addition also had yet another bank Straumur, with yet more stories in addition to the apparent interconnections of the banks and their major shareholders.

There are plenty of new Icelandic sagas in the making…

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David Rowland, who will be the Conservative Party’s treasurer come October, has had a colourful live with some dirty spots here and there – or that’s at least what the Daily Mail has dug up. Rowland bought Kaupthing Luxembourg, turned it into Banque Havilland with his son Jonathan now as its CEO after Magnus Gudmundsson who used to run Kaupthing Luxembourg and was retained by the Rowlands was remanded in custody because of an ongoing Icelandic investigation of Kaupthing. Havilland is the administrator of the failed bank, through Pillar Securitisation.

It was through Kaupthing Luxembourg that Kaupthing, under Gudmundson, ran its most shady deals – and from there the web trails to offshore havens such as Panama, Cyprus and most notably the BVI. Recently, authorities in Luxembourg searched the premisses of Havilland on behalf of the Office of the Special Prosecutor in Iceland, to aid investigations unrelated to the present Banque Havilland.

It’s interesting to note, however, that there are still some Icelandic clients at Havilland. Gaumur, a company owned by Jon Asgeir Johannesson and his family, has a Luxembourg subsidiary registered with Havilland with three BVI companies, previously owned by Kaupthing, registered as Gaumur S.A.’s directors so no changes there in that respect.

Daily Mail notes that Rowland once said that money makes your life complicated and the more money the more complicated life becomes. Now that Rowland will be taking up a position with the Tories he’s bound to be heavily scrutinised by the press and that might in turn make his life more complicated.

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‘There is something unreal about this,’ the sharp and witty Justice David Steel said late in the day Friday afternoon, after listening to Glitnir lawyers debating from the morning with lawyers representing Jon Asgeir Johannesson. In the dignified surroundings of Old Bailey his team was trying to quash the international freezing order that the Glitnir Winding-Up Board obtained at the Royal Court of Justice in May. More than once, Justice Steel reminded himself and the others present – mostly lawyers, apart from the black-clad couple Johannesson and Ingibjorg Palmadottir and a couple of their friends – that Johannesson had been the prince of the UK high street challenging the king of retail, Sir Philip Green.

To begin with, Johannesson’s lawyer asked for the hearing to be held in private – the delicate information unavoidably disclosed would be all over the Icelandic papers tomorrow (as a matter of fact the news was out during the lunch break) – but Justice Steel upheld the core British principle of an open court. So I wasn’t thrown out but could sit and listen – and there was a lot to hear.

Johannesson claims that his assets now total only £1,1m: his assets in the UK total £199.000, including three cars – a Rolls Royce Phantom, a Range Rover and an Aston Martin. However, after presenting the list of assets earlier Johannesson has now changed his mind on the Rolls Royce claiming it’s a gift to his wife though he hasn’t produced any documents to support his claim. In London Johannesson lives in a rented property, paying £6.000 a month. From JMS Partners, the company that Johannesson co-owns with House of Fraser chairman Don McCarthy and ex-CEO of Baugur Gunnar Sigurdsson Johannesson draws a £700.000 annual salary – though its operation is rather unclear.

In Iceland, his assets are again three cars, two Range Rovers and a Bentley and then four houses one of which is heavily mortgaged, £15.000 in four bank accounts and shares of no value in several companies, most noteworthy in Gaumur where Johannesson owns 45%. Gaumur’s debt is ISK8bn and seems, according to Justice Steel, in reality insolvent. Earlier, Johannesson had claimed that he co-owned Hotel 101 with his wife but now claims that his wife owns is. He also claims that two properties are hers although the mortgages are in his name. He has £22.000 in a Coutt’s account and some $70.000 in an account with Citigroup.

Justice Steel was intrigued by the fact that a man who was once said to be worth £600m, who had in the years 2001-2008 a monthly expenditure £280.000-350.000 (!) and also had £11m flowing through his Glitnir account in autumn 2008, as the banks were collapsing, now only has a paltry £1,1m worth of asset to show for it out of which 275.000 are in cars. An expenditure on this level couldn’t but leave something more substantial behind thought the judge.

Around the time that Glitnir obtained the freezing order Johannesson had ca £500.000 flowing in and out of his account at Coutt’s (a UK bank for very wealthy individuals) – Johannesson’s lawyer explained, apparently to Justice Steel surprise, that the money stemmed from the sale of his ex-wife’s house, bought by him, and then used immediately to pay off bills that Johannesson hadn’t been able to pay earlier.

Today it transpired that Johannesson and his wife used to own two (not just one as earlier believed) yachts, one of which had been repossessed and sold on by Kaupthing Luxembourg (in reality, Banque Havilland). The interesting point here is that according to Justice Steel no documents have been produced to prove the sale – and the Kaupthing Luxembourg administrators have not been willing to co-operate with Glitnir on this matter. The question left hanging in the air was if the proceeds of the sale really did go to Kaupthing. The other yacht, a Ferretti, was pledged to and apparently repossessed by  Sparbank – a surprising lender if it’s the Danish Sparbank since it’s a small bank.

An additional reason to distrust Johannesson’s list of assets produced was, according to Justice Steel, the fact that Johannesson had been less than forthcoming with information and had then changed his mind on some things without any documents to support what Johannesson then called ‘mistakes.’ Also that he hadn’t been able or willing to produce any overview of his salary at Baugur – only, that a flow of £3-4m had gone through his pockets every year. In all, £30m had been paid to his Glitnir accounts during these years. SWIFT transfers show accounts with Kaupthing Luxembourg, KSF and Royal Bank of Scotland.

Justice Steel had also doubts about the source of Johanneson’s funding, i.a. the loan on the flats in New York where Landsbanki had lent of $25m without any security. It was obvious that his Lordship struggled to understand the logic in this for the bank. And he also struggled to understand the change of ownership in the media company 365 midlar that Johannesson now claims belongs to his wife. Nor could his Lordship understand that someone who didn’t seem to have any assets was engaging lawyers both in the UK and the US. Probing his lawyer on that the lawyer also had difficulties in explaining the importance of a freezing order when there were practically no assets to freeze.

Listening to these and other issues, Justice Steel said he wasn’t assured that Johannesson had given a full and frank disclosure of his assets. In addition, there was the complicated corporate structure that would give ample room to move assets around. The fact that Johannesson had sold the Chalet 101 to his wife while negotiating with Glitnir on how to repay the loan didn’t inspire confidence either. The judge also mentioned what the Glitnir lawyer had said: that Johannesson’s conduct indicated a ‘low standard of commercial morality’ – on the whole there was, according to Justice Steel, a real risk that assets would be disposed of, leading him to renew the freezing order.

In the end, Johannesson’s lawyers had to disclose their bill of whopping £600.000 – Johannesson has to pay all cost, possibly running up to £360.000 but the immediate payment is £150.000. If he doesn’t pay he risks being declared bankrupt.

The freezing order is related to the Glitnir case in the UK against Palmi Haraldsson and Johannesson regarding ISK6bn loan to Haraldsson’s Fons. The basis of that case is that assets were sold at a premium only to extract money from Glitnir for the benefit of the two businessmen and make the bank lose. – No doubt, there is more of amorality and the unreal to come.

*There were no documents handed out in court – I hope the information above is correct but mis-hearing or misunderstanding can’t be ruled out.

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Now that Iceland has been more or less permanently in the eyes of the world for the last five years or so, acres of articles have been written about Iceland and radio and tv transmissions on Iceland could fill days and nights. Around and after the collapse of the banks the media interest was, for good reason, particularly intense. I read, listened and watched a good deal of all this. Almost without an exception there were factual errors and misunderstandings – yes, also in material from famous media and journalists. One of the more memorable ones was when one of the UK broadsheets quoted ‘the MP of Reykjavik,’ thereby transplanting the UK voting system to Iceland. There isn’t one MP for Reykjavik, there are several whereas each UK constituency has only one MP.

I can’t say that these mistakes irritated me much, plenty of erroribus around. Journalists are often in a hurry, deadlines have to be met and editors kept calm. It did however make me more alert to the fact that news reporting from small faraway places may quite often contain errors and misunderstandings. That’s the inequality of size and importance: the more important the country is in the eyes of the world the more likely it is that the news coverage of it abroad is more or less correct: there will more knowledge on it in the news rooms and also among the general audience and readers who will complain of mistakes and errors.

On the whole, these errors in the reporting of Iceland usually didn’t have much influence. But much worse than media mistakes are the errors and misunderstandings coming from ‘experts’ such as foreign economists who now and then take a look at Iceland, fit it into their grand scheme of thinking and then declare that the solution for Iceland is this or that or somehow advance their theories with often the wrong/misunderstood facts about Iceland. These ideas would often find their way into the Icelandic media and be hotly debated – even though they were based on wrong numbers and facts.

Earlier this week the Nobel Prize winner in economics Paul Krugman went to a conference in Luxembourg where he listened to an interesting lecture on Iceland, by two Icelandic social scientists, on the income distribution in Iceland: ‘The Income Inequality in a Bubble Economy.’ The academics, Stefan Olafsson and Arnaldur Solvi Kristjansson, have written on this issue for years. One of their more interesting findings is that the bubble years concentrated wealth with an even smaller segment of society than before. Wealth concentration is one of the things that most clearly divides Iceland from the other Nordic countries where income equality has been much greater than in Iceland.

This prompted Krugman to write a blog where he pointed out the conclusions of Olafsson and Kristjansson but saw a further twist in the tale: Iceland had, according to Krugman, massively devalued its currency and Krugman holds this up as an example to Eurozone countries going through misery and austerity. Here, Krugman gets it dismally wrong, Iceland didn’t devalue, the currency just dropped like a stone. And there’s further a whole string of other wrong conclusions on what Iceland might teach the rest of the world. The Icelandic economist Jon Danielsson, lecturer at the LSE, dissects Krugman on his blog today, concluding that Krugman couldn’t be assigned a higher grade for this piece of writing than an F.

The morale of this story isn’t that Icelandic economists, or Icelanders, are always right. It’s just that when it comes to small countries (or exotic topics) it seems permissible to express opinions without knowing very much – or even anything at all.

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‘Iceland was bankrupted by twenty or thirty men.’ That’s how Vilhjalmur Bjarnason lecturer at the University of Iceland and a vocal commentator on finance and business put it a few months after the collapse of the banks in October 2008. At first, many felt that Bjarnason was overstating his case but time – and most clearly the report of the Althingi Investigative Commission – has shown that it did indeed only take ca thirty people (almost all male) to bankrupt Iceland.

Most Icelanders will be able to list these thirty odd names. These are the bank managers, the banks’ chairmen and the banks’ principal shareholders. The understanding is that the Office of the Special Prosecutor will in due course most likely bring criminal charges against these people. The banks’ resolution and winding-up committees are already bringing charges or planning charges against these people to claw back the money extracted from the banks by illegal means.

All these people were extremely prominent and visible in Iceland in the years up to October 2008. They sponsored art, culture, sport and charities and appeared frequently in the media. Some of them gave interviews in the weeks and months after the collapse but as more light was thrown on the operations of the banks and their shareholders they have become increasingly silent. After the report, little is heard from them – there isn’t much to say now that the report has spelled it out so clearly what went on, including verbatim sources such as emails. Some of this material contains phrases that everyone in Iceland now knows by heart such as ‘Thank you, more than enough:-)’ – the succinct answer from Magnus Gudmundsson director of Kaupthing Luxembourg when Kaupthing’s executive chairman informed him, in equally few words, that his bonus for 2007 would be €1m.

From being feted and admired these people are now generally despised in Iceland. There are stories of theatregoers unwilling to stand up to let them to their seats at the theatre, guests at restaurants driving them out, passengers accosting them as they waited for their luggage at Keflavik airport. There are even stories that they have been hit or spat on, on the streets. People threw snowballs at Jon Asgeir Johannesson when he left his wife’s hotel in Reykjavik during the winter following the collapse of the banks.

No wonder that many of them prefer to live abroad. There have been rumours lately that some of them might want to move to Luxembourg but sources close to a well known Luxembourg bank claim that some of the more famous names have already been turned down as clients. And in order to properly settle down in Luxembourg one has to register with the police. People then do have to declare if they have an earlier conviction or if they are under investigation – not a trivial question for some of the Icelanders who might be considering to move to Luxembourg.

For most of these people the yachts and private jets are gone. Some are bankrupt other still hold on to some assets though more might be lost later on. In Iceland, many speculate if and then how much these people have stacked away on in offshore save havens. But where are they now, the bankers and the Viking raiders?

Kaupthing

When Sigurdur Einarsson ex-executive chairman of Kaupthing was summoned to Iceland in May to be interviewed by the OSP in Iceland he refused to go to Iceland since he didn’t want to risk following three Kaupthing ex-top executives into custody. He probably didn’t expect that he would end up on Interpol’s wanted list – but that’s where he’s now. Einarsson isn’t known to have been involved in any business after the collapse of the bank and has been living in London since 2005. According to the AIC report Kaupthing lent Einarsson the £10m needed to buy his house in Chelsea – and then Einarsson rented his house to the bank so he could live in the house, apparently an exceedingly smart way of living for free as the rent paid or didn’t pay off the mortgage.

Kaupthing’s CEO Hreidar Mar Sigurdsson moved to Luxembourg last year to run Consolium, a consultancy staffed by several ex-Kaupthing managers. Sigurdsson was held in custody for ten days in May as the OSP picked through his testimony and some of his colleagues’. Sigurdsson is now back in Luxembourg.

Magnus Gudmundsson was the director of Kaupthing Luxembourg where some think that Kaupthing’s darkest secrets, if there are any, were kept. When David and Jonathan Rowland, father and son, took over Kaupthing Luxembourg last year and turned the good bank into Banque Havilland and put the bad assets into Pillar Securitisation that Havilland administrates, they retained Gudmundsson as a director, much to the surprise of those who thought that the new owners wanted to start with a clean slate and a new business. When however the OSP put Gudmundsson into custody the Rowlands dropped him like a hot potato. Consolium had business ties with Havilland and Pillar and according to my sources these ties are still in place.

Olafur Olafsson has a longer business record than most of the other high-flying Icelandic bankers and businessmen since he’s older than most of them. He grew up when political ties were essential and his fortune was tied to the Progressive Party and the co-op movement, part of the Progressive sphere of influence. From Kaupthing’s first ventures during the late 90s he was close to them, underlining that bank’s connection to this party.

The softly spoken cultivated Olafsson wasn’t much seen in Iceland during the noughties but he had and still has a charity there. He used to have an office in Knightsbridge and lived close by. Last year he moved to Lausanne. According to a Swiss source he lives modestly. The SIC report is full of juicy stories of Olafsson – there’s his connection to the Qatari investor al Thani who seemed to have the greatest trust and belief in Olafsson’s two main undertakings in Iceland, Alfesca and Kaupthing. But according to the report there was less trust and more loans from Kaupthing. Through Kjalar Olafsson owned 10% in Kauphting but still holds on to companies in Iceland, most notably the shipping company Samskip. The Kaupthing loan overview from end of September 2008 indicates that Olafsson’s personal loans from Kaupthing Luxembourg were €49m.

Until shortly before the collapse of Kaupthing brothers Lydur and Agust Gudmundsson, the bank’s biggest shareholders, were seen as being of a different breed from Viking raiders such as Jon Asgeir Johannesson and Thor Bjorgulfsson. The brothers started in fish manufacturing during the 90s, seemed to have built their wealth up out of concrete things and not only financial acrobatics. But the report throws a different light on their activities, their close if not incestuous connections with Kaupthing and equally close ties to many of the bulging Icelandic pension funds. Robert Tchenguiz sat on the board of Exista.

Lydur owns a beautiful house in Reykjvik where he hasn’t been much seen lately and a grand house on Cadogan Place that Pillar now wants to take over due to unpaid mortage of £12,8m. It seems that Agust might suffer the same fate – Pillar isn’t showing any mercy and according to the loan overview Agust had a mortage of €9m with Kaupthing Luxembourg. As Olafsson the brothers still hold on to companies in Iceland, most notably the investment company Exista and the food company Bakkvor UK – but the final outcome is still unclear.

Landsbanki

Father and son, Bjorgolfur Gudmundsson and Thor Bjorgolfsson, shot to fame in Iceland when they managed to set up a brewery in St Petersburg in the 90s. The story of that venture is most fully told in a front-page article in Euromoney November 2002, ‘Is this man fit to be at the helm (of Landsbanki)?’ and in documents on Wikileaks: the short version is that father and son were working for two investors running a bottling plant in St Petersburg in the early 90s. One day in 1995 the investors found out they no longer owned the bottling plant though they couldn’t remember ever having sold the plant father and son and their co-worker Magnus Thorsteinsson. The venture took off and the St Petersburg power elite, i.a. Vladimir Putin, was friendly. Deutsche Bank started financing other Bjorgolfsson’s ventures in Easter Europe in the late 90s. When the trio sold the brewery to Heineken in 2002 they had the money to buy 40% of Landsbanki, then already partly privatised.

The distinguished-looking Gudmundsson is now bankrupt, having not only lost his share of Landsbanki but also his ultimate trophy asset West Ham and lives in Iceland. His son, with the body of a body builder and the square jaws to go with it, still lives in Holland Park though there might be fewer vintage cars in the garage now. It’s not clear if he still owns his country house in Oxfordshire but he is holding on to Novator, his investment company with ties to Luxembourg, the Cayman, Cyprus and other offshore havens. The fate of his biggest asset, Actavis, depends on what Deutsche Bank intends to do about the loan against Actavis, said to the single biggest loan on DB’s loanbook. The question is if DB turns the debt into equity, practically taking Actavis over, or if Bjorgolfsson manages to turn things to his benefit. Thorsteinsson was declared bankrupt in Iceland last year, used to have a large country estate in the UK but is now said to live where it all started, St Petersburg.

Landsbanki had two CEOs, Sigurjon Arnason and Halldor Kristjansson. Kristjansson was a civil servant before becoming the CEO of Landsbanki as it was being privatised. Arnason was the CEO of Bunadarbanki but when Kaupthing bought the bank he and a whole team from Bunadarbanki defected over to Landsbanki. Kristjansson kept the quiet demeanour of a civil servant, Arnason was the aggressive banker known to empty bowls of chocolate is within his reach. It’s interesting to note that Kristjansson kept his post after the privatisation, possibly underlining that the change wasn’t as fundamental as one might have thought – the political ties were still important. Kristjansson now lives in Canada, working for a financial company. Arnason lives in Iceland and is, as far as is known, not involved in any business.

Glitnir

While Landsbanki and Kaupthing were involved with high-flyers abroad Islandsbanki, later Glitnir, seemed more down-to-earth expanding in Norway. Bjarni Armannsson ran the bank with experience from the investment bank FBA in the late 90s. The AIC report shows that Armannsson was very deft at trading for his own companies along running the bank leading the report to advice clearer regulation of CEO’s personal dealings. Armannsson left the bank when Jon Asgeir Johannesson and the FL Group gang became the bank’s largest shareholder in early 2007. He moved to Norway for a while but has recently returned to Iceland and runs his own business there.

Earlier on, two brothers were among Glitnir’s major shareholder, Karl and Steingrimur Wernersson. Their father was a wealthy pharmacist and they, mainly Karl, built on that wealth which mushroomed into companies at home and abroad under their investment fund Milestone. Milestone bought into the Swedish financial sector, bought a bank in Macedonia and an Icelandic insurance company, Sjova, in Iceland. The crudeness and excesses of it all, i.a. a villa in Italy and a vinyard in Macedonia, have been masterly documented by the daily DV in Iceland. Milestone is bankrupt and the brothers are no longer on speaking terms as Steingrimur, who now lives in North London, has accused his brother of bullying him into business ventures. Karl lives in Iceland and spends most of his time on his farm in Southern Iceland where he tames and breeds horses.

The group that came to power and ownership in Glitnir was headed by Jon Asgeir Johannesson, famous his UK retail partners such as Sir Philip Green, Tom Hunter, Kevin Stanford and Don McCarthy. Johannesson started his business ventures by opening a supermarket with his father Johannes Jonsson who now lives in Akureyri. Jonsson is still involved in business though there a now more debts than assets to care for.

Johannesson has for years invested together with a small group of Icelandic businessmen, most notably Palmi Haraldsson, Magnus Armann and his wife Ingibjorg Palmadottir, herself the daughter of the man who built up the biggest retail empire until Johannesson arrived on the scene, bought the empire and later got the princess as well. These shareholders brought in a new CEO, Larus Welding who ran the bank for just over a year. Welding now lives in Northern London and doesn’t seem to be involved in banking anymore. Johannesson still owns the biggest private media company in Iceland. His ownership is the source of some speculation in Iceland since Baugur, also Baugur UK, and so many other investments of his have failed.

On the sideline in this group but for a while extremely powerful was Hannes Smarason, much admired as the McKinsey man who turned biotech to gold at deCode and later built up the investment fund FL Group that outshone everyone in excesses and, in the end, losses. Smarason lives in Notthing Hill, London and documents at Companies House show a string of failed business ventures of his.

The connection between Johannesson, Armann and Haraldsson goes roughly a decade back and though his Icelandic partners were less famous than some of his UK partners they stayed with him. Now they all and Palmadottir are charged by the Glitnir Winding Up Committee that wants $2bn dollars back. Haraldsson has two major investment companies, one is bankrupt the other is in operation and he still owns Iceland Express. Haraldsson has been living in Iceland but has a flat in Chelsea, London.

Johannesson allegedly lives with his wife in Surrey on the same road as Armann, yet again underlining not only the closeness of these two but also the Icelandic tendency to stay with one’s own countrymen. A clan mentality that also characterised the now failed Icelandic banks and businesses.

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