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Here are the charred ruins of Landsbanki. Now kindly write off our ISK 3 billion debt

I think it’s safe to say that the collective Icelandic nation pretty much keeled over at the news two days ago that the two Björgólfurs had allegedly requested that Kaupthing bank write off half of a loan used for acquiring a controlling share in Landsbanki in 2003 – an ISK 3 billion debt.

Quick rewind: in the early part of the decade, the Icelandic government, then led by one Davíð Oddsson and his Independence Party, decided to privatize Iceland’s two largest commercial banks, Landsbanki and Búnaðarbanki [now called Kaupthing]. Stipulated in the privatization deal was distributed ownership, so that no one large investor could have too much control. After all, the move was designed to be a step up from the status quo, whereby the state [read: the political sector] had for years had excess power to decide who should receive favour from the banks, and who should not.

Before the privatization was completed, however, there was an uproar in the privatization committee. The head of the committee abruptly resigned, citing that the terms of the privatization had been broken, and that the leaders of the two coalition parties – Davíð Oddsson and Halldór Ásgrímsson of the Progressive Party – were intervening unduly in the privatization procedure. He famously remarked that he had never in his life encountered working practices of the sort that were being employed in the privatization scheme and that he could no longer be a part of it.

A short while later, Landsbanki and Búnaðarbanki were both sold. A controlling share in the former was sold to father-and-son team Björgólfur Guðmundsson and Björgólfur Thor Björgólfsson [and their business partner Magnús Þorsteinsson, who has since buggered off to Russia], who were favoured by the IP. They allegedly made a deal with the IP to install high-ranking IP members as executives [and swiftly appointed the IP’s executive secretary as vice-chairman of the board] and grant favour to IP members and their supporters. Kaupthing [nee Búnaðarbanki] was subsequently sold in large part to brothers Ágúst and Lýður Guðmundsson [they of the ISK 500 billion loan], who were favoured by the Progressive Party.

In a classic case of incestuous nepotism – so prevalent in the Icelandic commercial sector of the past several years – Kaupthing loaned Samson [the holding company owned by the Björgólfurs and MÞ] some ISK 6 billion to acquire the share in Landsbanki.

Of course, as those of us who have been following this sorry story know, Landsbanki was driven into the ground by its owners and management. Today, six years later, we the Icelandic nation preside over the charred ruins of a bank that at over a century old is this country’s longest-running financial institution, and which previously had a spotless reputation and endless goodwill. And as if that were not enough, the debts incurred by this institution – partly acquired on the strength of Landsbanki’s stellar reputation – are too colossal for a normal person to comprehend, are already the cause of massive social dissent, and if all goes as planned, have the potential to turn each and every member of this society into a debt slave for years to come, for something we did nothing to incur. [Yes, I am talking about Icesave.]

And now, Björgólfur Guðmundsson and Björgólfur Thor Björgólfsson [he who was pictured a few weeks ago hob-nobbing on a yacht in Cannes] allegedly want their debt written off. They’ve supposedly “made Kaupthing an offer” to pay off half the ISK 6 billion debt, but would like ISK 3 billion [USD 23 million / EUR 17 million] to be dropped.

Some people just have no shame. NONE.

Predictably, there has been a public ROAR of indignation. Kaupthing saw reason to issue a statement yesterday [breaking the bank secrecy code] saying that no – and repeating NO – decision had yet been made on whether the loan would or would not be written off. [In the initial news item it was reported that the offer by the Björgólfurs was considered “viable” within the bank]. This came in the wake of news that Kaupthing employees – including Kaupthing’s CEO and his wife – had been the target of threats after the news broke.

Even Finance Minister Steingrímur J. Sigfússon was quoted in Fréttablaðið today as saying that, as a regular citizen of this country, he felt that this debt was “the last thing under the sun” that should be written off [but emphasized that, “in his role as minister”, he could not comment on the situation – heheh]. Fréttablaðið also spoke to Gylfi Magnússon, Minister of Banking Affairs, who claimed he “choked” when he read the news, and said that he would – like most Icelanders – find such a write-off “a hard thing to swallow”.

Possibly the understatement of the year. Other experts have warned that, if the loan were written off, it would cause massive civil unrest and people would stop their own loan payments to the banks, en masse. Personally I think it would be the spark that could set off an explosion of anger in this country, similar to the Rodney King ruling that sparked the LA riots back in 1992. In my view, Kaupthing is totally playing with fire.

NOT MUCH NEW ON THE WEATHER FRONT
Still mild, cloudy, relatively calm. Currently 15°C [57F], which come to think of it is pretty nice, particularly if the sun comes out, as it did late yesterday afternoon. Somewhere in the south it looks like it may be trying to do just that. Fingers crossed. Sunrise was at 3.23 am, sunset at 11.40 pm.

MORE ON THE TWO BJÖRGÓLFURS:
On the status of the Icesave debacle
Another day, another bank failure
The FSA denies claims by former Landsbanki owner

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  • Chris July 9, 2009, 2:15 pm

    There is only one word for it: Impertinent. And these guys obviously haven’t understood, what they did.

  • Lee July 9, 2009, 2:27 pm

    Why would Kaupthing consider an offer of only half the original loan value: are the funds likely to flee abroad otherwise, or are those two debtors likely to go bankrupt, or…?

  • Sigga July 9, 2009, 2:55 pm

    I feel ill every time I think about this and you know the worst thing, – it may have been agreed to behind closed doors without the nation finding out. Thank goodness there are people in the banks willing to let word out when “deals” of this nature are being discussed!

  • Bryan Bessette July 9, 2009, 4:49 pm

    Alda,

    I completely agree with your observation in the final paragraph.

    As far as Kaupthing describing the suggestion as VIABLE, that is outrageous. I think the word they were looking for is VILE.

  • kevin o'connor waterford Ireland July 9, 2009, 7:38 pm

    This icelandic saga gets truly amazing by the day I thought our Anglo Irish bank guys were good real good but well how wrong I was, I wish I had the money to go on vacation to Iceland catch the mood of the nation etc,This is real french revolution stuff

  • Jessie July 9, 2009, 9:47 pm

    Why hasn’t a judge ordered a lien against all personal assets of these knuckleheads who drove the banks into the ground, including those suspected of using their insider knowledge from their positions to ransack the banks just prior to their collapse? Or am I missing something? If someone saw Bernie Madoff sunbathing off the coast of Southern France after pilfering billions from people for his own luxury, he would be beheaded.

    Ordering these people to disgorge their money and selling off their assets might not cover all the Icesave debt, but it’s a start… Where is the judicial system in all of this?

  • alda July 9, 2009, 11:41 pm

    Jessie – I asked Eva Joly that question in the interview I did with her a few weeks back. Her answer:

    “Yes, it is viable to freeze assets, but first it must be established what the offenses were, who benefited from them, and so on. After that, assets can begin to be confiscated.”

  • Lee July 10, 2009, 12:43 am

    Assets can be frozen and then, if suspicions are incorrect, they can be unfrozen later. That’s the point of asset freezing orders: you normally don’t wait until all the details have been established, otherwise the assets could be long gone. This is so obvious that Eva Joly’s answer seems weak. Maybe it’s an artefact of Scandanavian culture. You could bet your life that, if the UK or US found themselves in similar circumstances, they wouldn’t have hesitated to slap on many asset freezing orders ages ago…

  • Jessie July 10, 2009, 1:11 am

    Thanks, Alda. Sorry, if i missed that earlier. The law is far from perfect here in the US, but it’s common for a federal judge to temporarily freeze assets pending the outcome of an investigation in a situation like this (criminal or civil), because the longer the investigation takes, the more likely the assets will be spent or shuffled around (i.e. hidden) and irretrievable down the line.

    It just seems to me that Icelanders should be demanding this. I understand the situation is complicated and it may be difficult to determine the full extent of the people involved at this point, but some of the allegedly primary culprits under investigation are known.

    I respect the efforts Eva Joly has made with the investigation, and I don’t mean to be disrespectful, but it doesn’t seem like the time or place to be soft on people who have (allegedly) committed such egregious acts (and continue to do so). Icelanders should not have to sit and watch people under investigation take vacations in Cannes while they default on their own loans. It doesn’t seem the government has been accommodating at all in providing Joly with the number of investigators she needs. At the very least, take some law students, put them in a room, and get them to work on document/email review.

  • Oscar July 10, 2009, 7:46 am

    If Kaupthing writes a percentage of their loan off they had better plan on
    writing off the same amount on my mortgage! It´s easy to see how Russia was a good fit for these guys.

  • Carl Mosconi July 10, 2009, 9:53 am
  • Jessica July 10, 2009, 1:00 pm

    With the daily news of the banks getting weirder and more depressing every week, I can completely understand why some Icelanders are eagerly packing up their stuff and accepting that visa offer from Manitoba. Or fleeing to Norway. Sad.

  • Ljósmynd DE July 10, 2009, 2:09 pm

    A couple of days ago an Icelandic friend was driving us around in the country. The recent news were part of almost every conversation with Icelanders on the way. So, while the mood is already down, there are reasons to expect, that at a not too distant point in the future, something in society is going to explode.

    We are currently into the third day of spotless blue skies in the south and interior of Iceland. It started with ascending the Sveinstindur mountain, which provides one of the most stunning views Iceland has to offer. It would be hard to see this beautiful area fall prey to new power plants providing energy for the unsustainable production of candy wrappers and softdrink cans, which is the bulk of what aluminium is produced for.