Earlier today, a nasty, hissing rumour began circulating. It went something like this: Just before Kaupthing bank was nationalized a couple of weeks ago, the bank’s board made a decision to write off the debts of many of its key employees. Apparently we’re talking hefty sums. And in many cases those hefty sums were issued as loans to those key employees to allow them to buy shares in the bank.*
As the day progressed, the hissing turned into a buzz, and by evening the buzz had turned into the main item on the RÚV [state TV] evening news.
And wouldn’t you know that a number of those individuals, the ones whose debts Kaupthing’s board caused to evaporate, are now key managers in the new nationalized bank and thereby public employees.
It’s a banana republic, my friends. It just keeps getting better and better.
IT WAS A GRAY AND GLOOMY DAY
With just the occasional glint of sun and several hailstorms. Right now 5°C [41F], sunrise was at 9.18 and sunset due for 5.03.
PS – To my American friends: my thoughts are with you for your elections tomorrow! I’ll be casting my mental vote first thing in the morning – and hope you all go out to cast your real one!
* Apparently that’s illegal in most civilized countries. Not here.
{ 18 comments… read them below or add one }
Sure sounds shady to me! And yes, I will be voting first thing tomorrow morning.
Alda, you should join your Yankee friends at Grand Hotel Reykjavik tomorrow night at 9:00 for the election night party! Hopefully, this time the election will turn out *favorably* for all of us and I won’t be in a dark depression like the last 2 elections! (cross fingers…cross fingers…) Speaking of elections, when do the current Icelandic politicians get “refreshed” (for lack of a better word)?
‘Write off’ is done when a company determines debt won’t be paid off on-schedule, akin to saying, “Look, this money isn’t going to be repayed on-time, so we shouldn’t count it as an asset.” It seems like a prudent move by the bank to have written off the debt, given that its employees would soon be jobless, and the stock they purchased worthless.
The law should be applied where applicable, agreed, but do you feel that these bankers were too wrong to be allowed to work in the industry going forward? I’d rather employ a well-trained banker with the instructions “be much more prudent”, than hand the bank to a less-qualified individual. How does one judge the “incorrectness” of a certain banker, which would disallow them from working at new institutions?
Your blog is great. I ask these questions merely to challenge you from an outside perspective. Kindest Regards,
Devil’s Advocate.
Sounds illegal to me! At the very least it’s unethical. Something else to demonstrate about?
Iceland is turning into the Albania of the North Atlantic. Albania also went through a mass-mania get-rich-quick scheme that ended with most people in the country losing all their money. In Albania croneyism and bribes are the natural order of things. In Albania everyone has some devious scheme to defraud one another and the government. They steal Mercedes from all over Europe, they sell drugs and prostitutes, you name it. They even steal the paint off of buildings.
Another interesting newsbit you didn’t talk about was the rash of mysterious car-fires to collect on insurance money. Is house-burning far behind? Or maybe Icelanders will start throwing themselves in front of the American Embassy’s cars to collect personal injury money (if anyone acts on this tip, please send me 10% as a commission, thank you).
As the crisis plays out I imagine you will see lots more bad behavior. Forget the all-for-one, one-for-all propaganda in the politician’s speeches and the newspapers. It’s more likely to “every man for himself, and God against all.”
By the way, the loan-forgiveness scheme could be reversed retro-actively by bankruptcy judges. But wait a minute, isn’t the head of the Icelandic supreme court a friend of the bank officers? Yes, I think so.
Sounds perfectly reasonable to me, so long as they write off the debts of every non-employee who can’t pay their mortgage or car loan…….
Cat – hope you vote for the right candidate! Just sayin’
Jessica – hm. A thought. Thanks for the tip.
Paul – Well, if the head of the new bank is one of the people who had their loans written off (which apparently is the case) then I’d say, no, he should not be permitted to go forward into the new bank. There are plenty of good bankers out there right now looking for work – Icelandic and foreign. To me it’s inexcusable.
Andrew – no doubt someone will!
Muriel – thanks for the tip – do you take credit cards? Icelandic ones?
Obviously I can’t talk about every news bit I put up (for that I’d need a special news forum, natch) – but I believe you’re right about the bad behavior. Thankfully, though, I can’t agree with your comparisons with Albania – things are bad here, but at least we’re not stealing the paint off houses (at least not yet).
And yes – apparently there is to be an investigation. According to our Minister of Commerce this will not be tolerated.
trev – that’ll be the day!
I’m speechless. Again.
To expand on Paul in HK’s point.
It may well be that the debts are written off from an accounting point of view, which would seem reasonable, as Paul argued above.
It would be something entirely different if the debts were ‘forgiven’, but this may also have been reasonable depending on what these loans were secured by.
- If the loans were secured by the shares the money was used for, they should be forgiven, since the person taking out the loan would just say: here are my shares, goodbye! When the shareprice was going down, did the bank ask the lenders to post extra collateral?
- If the loans were personal loans they should not be forgiven and if they were that would amount to fraud. Even in Albania.
In any case, lending your own employees money to speculate on your shares, stinks to me.
Ohh, I want my mortgage debt to be written off too . Is that possible? Of course they’ll take the house. I don´t care much as my debt (part of it in foreign currency) is much, much higher than the actual price of the house.
to Mark and Paul,
of course it is not possible to loan money to buy shares and then use those same shares as the colleteral. and then to just hand them back in when the price drops and think that you have paid of yer debt is too simple. if it worked like that, would we not all borrow money to buy risky shares? only to return the shares when the gamble does not work out?! man, that would be the perfect scheme….
no matter how you turn it, if you loan money to buy shares, you have to repay the loan. on an accountancy level, the bank will write of the loan as being “bad”, so that they do show up on their ballance sheet as an asset, but they will still try to collect on that debt.
It may not be criminal for an employer to forgive an employee a debt, but… that employee then has to add that amount to his taxable income. after all it is money received. i bet those big boys forgot to do that.
as it can be seen as stock trading, i think some charges of insider-trading might be in place as well. this is a highly criminal offence for which people can actually go to jail.
it is again clear proof of the mentallity of the icelandic elite, who think that they are above the law and can get away with just about everything short of murder.
Well, at least the Icelandic Financial Supervisory Authority is investigating and, if true, will annul the write-offs. Treating specific bank debt-holders preferentially for write-off is unlawful, including in Iceland. The IFSA will reinstate any such debts and transfer them to New Kaupthing. The open question is what legal penalty will be taken against Kaupthing’s former board members, who now can’t even agree amongst themselves whether or not they discussed these write-offs. Criminal behaviour deserves an appropriate criminal penalty, not just the reinstatement of the debt…
The auction of credit default insurance contracts for Landesbanki is finished. In such an auction the amount is determined that insurers will have to pay buyers of credit protection for their estimated loss. The loss on Fannie Mae and Fredie Mac bonds was estimated between 1 and 8 cents on the dollar. The loss on Lehman bonds was estimated 91,375 cents on the dollar. The loss on Landesbanki bonds is estimated to be 98,75 cents on the dollar. That is a lot.
Exchange rates are (free vs official) are slightly closer together today. 289 vs 164. Original rates were closer to 300 and 150. Maybe in a couple of weeks there will be a currency market again.
I was gonna say “crikey” and then I read all the comments. I must say, I love all your commenters, it’s all very interesting to hear what people say.
The newspaper said the amount of debt “forgiven” was US $282 million. That’s a lot of money. And it probably went to a relatively small number of people. Those bankers were really feeding at the trough.
It’s not just the cake they’ve run off with and eaten, it’s the whole damn bakery…..
Muriel – yes indeed. It was a LOT.