All through the day yesterday, rumours circulated that the takeover of Glitnir bank by the state had been based on sinister motives. The word on the street was that this was yet another chapter in the ongoing saga of our former PM Davíð Oddsson’s personal vendetta against Jón Ásgeir Jóhannesson and Jóhannes Jónsson – the father-son team behind Baugur Group, one of Iceland’s [and northern Europe's] most prominent companies. As the day wore on, the rumours escalated and basically went from a whisper to a shout.
The whole mess of the Baugur Affair is a bit hard to explain to someone outside Iceland, but make no mistake: there is not a single person in this country above the age of 20 or so who is not familiar with its intricacies. In a very brief nutshell it revolves around conflict between some very powerful individuals in this country … on the one hand the Old Power structures represented by what was once known as Kolkrabbinn [The Octopus - on account of its many tentacles in Icelandic society] and New Money personified by the Baugur family, which essentially usurped power from the old establishment. I wrote a series of posts about this a couple of years ago here and here and here.
The key players in this drama were the aforementioned Oddsson, child of The Octopus, and the Baugur father and son [mostly the son, Jón Ásgeir]. Oddsson is a bizarre figure in Icelandic society. Equally loved and hated, often by the same people, he was the longest-serving Prime Minister ever in this country [just over ten years, if I remember correctly] and a very powerful figure, able to sway and manipulate like the best of them. He is notorious for pushing through a pension bill just before he left office that hiked his [and other parliamentarians'] pension payments by some outrageous percentage AND allowed him to collect his pension while serving in his new job as Governor of the Central Bank [into which he segued after stepping down as PM, of his own free will].
If you’ve read through the links I provided above you’ll have some idea of what’s gone down between him and the Baugur camp, something which has virtually split the nation in two and which I declare would make a fantastic television miniseries, what with the intrigues and plot twists and sheer outrageousness that just proves that life is so much more insane than fiction.
Fast forward to the present. Davíð Oddsson is now one of the Governors of the Central Bank, while the Baugur camp is the main shareholder in Glitnir.
Last Thursday, the Chairman of the Board of Glitnir [a straight-up and honourable individual who has recently come into the bank and done an excellent job of trying to clean up the mess that was left by his predecessors] requested a meeting down at the Central Bank. The reason: Glitnir was in trouble. They had been promised a loan from a German [I think] bank that was to have come through in the succeeding days. However, just a day or so earlier the bank had announced that there would be no loan. Apparently it is common for banks to loan only a fixed amount to each individual country, and as it happened, the Central Bank of Iceland had been granted a loan from that bank just a few days before, so Iceland’s quota was effectively used up. Supposedly the Central Bank did not know of Glitnir’s application, and vice versa.
According to the Chairman, when he requested the meeting at the Central Bank his intention was merely to sit down with the Governors of the Bank “as equals” to discuss ways out of this tight situation. The way he tells it, he viewed this as a temporary setback, and he wanted a loan from the Central Bank to get Glitnir through the crisis, until they could finance their need for liquid funds through other means. Admittedly, the loan they needed was high – ISK 84 billion [USD 818 million, EUR 572 million] – but they were prepared to put up as collateral a portfolio of assets that was, in their opinion, solid. Also, the bank’s equity was strong, it was well managed, and it had shown a profit for the entire year so far [on that all experts seem to agree].
Glitnir staff went to a meeting at the Central Bank later that Thursday to go over the matter at hand as it had been presented to Oddsson by the Chairman. They [the CB staff] then became “very busy” and were unavailable for a meeting on Friday. On Saturday they could not be reached. Meanwhile, the Chairman had met once more with Oddsson on the Friday, and with the current PM on Saturday, who had just arrived home from abroad. By this time it had transpired that the original collateral portfolio was not suitable [some technicality about the types of loans not being able to be assigned to a third financial institution], so the Glitnir team had put together a second package that according to the Chairman was even more valuable than the first. The Glitnir people finally managed to get in touch with someone at the Central Bank on the Sunday – a staff member who said that the collateral portfolio had arrived in his mailbox but that he had “not had a chance to look at it.”
According to the Chairman, by Saturday he had a bad feeling about what might be going down [referring to the bad blood between Glitnir's owners and the Governor of the CB], and requested a meeting with Oddsson. He did so again on Sunday, to no avail. Meanwhile, Glitnir’s staff was trying to reach people at the Central Bank, but no one could be reached. At 11 pm that evening, they were finally summoned to the Central Bank. There they were told that the CB on behalf of the Icelandic state would take a 75 percent share in Glitnir, in return for the ISK 84 billion. The agreement was already drawn up and had to be signed by the time the markets opened at 9 am the following morning. If they would kindly sign on the dotted line.
The Chairman was understandably taken aback; initially he had asked for a loan, had been pigeon-holed for the entire weekend, and now was being told that there was no other option – the state would take over the bank for that specific amount, take it or leave it – the only problem being that they couldn’t very well leave it. In their own words, their backs were up against the wall.
Meetings ensued throughout that entire night, and by early next morning the Chairman was off to get the signatures of the largest shareholders. Unbeknownst to him, the Central Bank had called a press conference for 9.15 on Monday morning to make the announcement. When he heard of this – by his own account – he called the Central Bank and spoke to one of the other Governors, saying the press conference could not be held, as he had not yet secured those signatures. The Governor assured him it would be postponed. Three minutes later Oddsson called back and said the press conference would go ahead. Davíð Oddsson then made the announcement to the press, even before those signatures were procured.
The interview in Kastljós with the Chairman, Þorsteinn Már Baldvinsson, aired last night and it was painful to watch. [It is here if anyone is interested.] Painful because of the way he presents those details, clearly highly emotional yet struggling to keep his composure. During the interview he repeatedly apologizes to the shareholders of Glitnir bank, claiming that by agreeing to the Central Bank’s terms he had failed them and made one of the biggest career mistakes he had ever made. And also painful because if his version of events is true, it is utterly shocking and undermines any faith we the citizens of this country can have in our Central Bank.
There are lots of other details – for instance there’s been much debate as to whether it would have been right for the state to make that high a loan, as this is a very small economy, if they’d had another option, in fact. And yet people, experts included, have a hard time understanding that a bank with strong equity which was being managed well needed to be nationalized in this way – in the words of the Chairman simply “wiped out”. It seems incredibly harsh. Also, it is completely unclear how they came up with ISK 84 million equaling 75 percent. And the way it was handled throughout the weekend, as though all meetings were purposely being postponed until the very last minute when the pressure was on and nobody had any time to think, and the way only a few individuals seem to have been instrumental in the whole deal [for example, the Minister of Finance - who should oversee banking matters, was largely kept out of the it] … it smacks of something highly unpleasant.
In another interview yesterday, the Chairman of Baugur – Jón Ásgeir Jóhannesson – called this “the biggest bank robbery in Icelandic history”. He is convinced Oddsson seized the opportunity to throttle them and had warned the Chairman against going to meet with Oddsson, saying that it would be a feigðarför - literally “a deadly journey”. I have no idea how much credit to give to that, but I – like everyone else here – finds the entire business of how events unfolded very unsettling. In fact, if the “man in the street” survey conducted by the Icelandic National Broadcasting Service this evening is anything to go by, public sentiment is very leery of what went down with the Glitnir takeover.
Meanwhile, the shareholders meeting – which is scheduled for 11 October – still has to approve the takeover, and I suppose that, until then, Glitnir can technically still look for another option. Let us see what transpires.
This post has gone on far too long already, but let’s just say it has been utterly miserable today, northerly winds and freezing cold. Right now 2°C [36F], sunrise was at 7:37 am, sunset at 6:55 pm.