“Another day, another scandal,” someone wrote in the comments the other day – and ain’t it the truth. A day hardly passes around here with some dirty deed being dredged up from the cesspool that is Iceland’s economic collapse.
Today’s scandal is brought to you by an establishment close to the Nicelandic heart – the formidable Baugur Group, a company previously too cool for school, which presided over the minions in this land like overlords, chewed them up and spat them out … in fact, if I strain my ears I do believe I hear a movement in the distance, The Movement of Nicelandic Minions Screwed Over by Baugur Group … it’s large and it’s loud. And it takes a strange kind of pleasure in watching its former ringleader teeter and fall. – But I digress.
The scandal begins with an establishment known as The Hafnarfjörður Savings Bank, a financial institution established over a century ago to serve businesses and residents of Hafnarfjörður [a small municipality south of Reykjavík that is now part of the Greater Reykjavík Area]. It fulfilled its role with dignity and grace for many decades and over time it grew in size, stature and goodwill. Its own equity position was strong and no excessive risks were taken in its operations. It was essentially governed by the residents of Hafnarfjörður through 47 representatives, called stofnfjáreigendur, or initial capital holders. These individuals could not become initial capital holders of their own accord and the capital they contributed was nominal – around ISK 150,000 [approx. USD 1,300 / EUR 1,041] per share. The remainder [and majority] of the bank’s equity was provided by the town treasury. For their nominal contribution, they received a dividend of around 10 percent per year, which in those [happy, carefree] days was considered highly acceptable.
The stofnfjáreigendur represented the residents of Hafnarfjörður in that they nominated three out of five individuals to sit on the bank’s board. The other two board members were nominated by the town council. Legislation concerning savings banks was changed in 2002 and one of the amendments was that the original shares could actually be sold to a third party. Suddenly the people who had contributed their nominal fee of ISK 150,000 held shares with a substantially higher price tag. Then, in 2005 there was a complete turnaround when five stofnfjáreigendur ran against the existing board, and were voted in. On the new board were primarily friends and family of one Matthías A. Mathiesen, a former MP for the Independence Party and – as it happens – father of Árni Mathiesen, who was Minister of Finance last October when the banks collapsed [and indeed was in office until the government collapsed in January].
Cut to 2006, when a certain company known as A Holding, which was registered in Switzerland and controlled from Luxembourg, had its eye on the Hafnarfjörður Savings Bank. A Holding coveted those stofnfjár shares. An individual named Páll Pálsson, who had become chairman of the bank’s board in the 2005 coup, whispered to the stofnfjáreigendur that a company – A Holding – was willing to pay them ISK 25 million [USD 219,000 / EUR 173,000] for their original ISK 150K share. Not a bad profit.
A Holding, a.k.a. Baugur Group, thus managed to buy up the majority of those shares at ISK 25 million a pop. They then turned around and sold those same shares to “related parties” [related through cross-investments I presume] for ISK 45 million. Predictably the original stofnfjáreigendur are now pissed as hell and are suing the attorney recruited to work for A Holding for fraud, as he misrepresented to them the real value of their shares. When questioned by police, the attorney refused to reveal the real owners of A Holding – it has since transpired that A Holding is owned by Baugur Group and is represented by Stefán H. Hilmarsson, Baugur Group’s CFO.
The main purpose of A Holding – aka Baugur – appears to have been to gain hold of the Hafnarfjörður Savings Bank, since plans were already underway to merge it with another savings bank – Sparisjóður Vélstjóra, or the Machinists’ Savings Bank [originally founded by machinists who worked on ships]. That merger went through in December 2006 and increased the value of the two banks exponentially in the merged company, which was given the name Byr. Incidentally, those plans were – as yet – completely under wraps, so there was clearly some underhanded trading going on – I presume that is the basis of the aforementioned lawsuit, although based on the info I’ve seen that’s not completely clear.
A year later, or in December 2007, the owners of Byr decided to increase the bank’s initial equity by ISK 26.2 billion. Those who already owned shares in the bank – the stofnfjáreigendur – were invited to increase their investment, and the increase was financed through loans from Glitnir bank – which in turn was largely owned by Baugur.
Four months later, the bank paid dividends to its shareholders – the stofnfjáreigendur – worth ISK 13.5 billion.
As most people know, dividends are not paid out unless a company turns a profit. Revenues from Byr’s operations n 2007 were ISK 7.9 billion, so the dividends paid out were ISK 5.6 billion higher than the revenues. And those extra dividends … came from where? From a so-called varasjóður – or “rainy day fund” – that the original savings banks had prudently and carefully maintained throughout the years and which was never considered to be the property of the stofnfjáreigendur. Until A Holding and Baugur Group came along, that is.
So Baugur Group lay like a shark in wait, to gobble up the Hafnarfjörður Savings Bank at a price gained through carefully-orchestrated deception, then moved in to plunder its coffers at the first available opportunity. This while they were purposely deceiving Glitnir customers in order to get them to deposit their money in the infamous Fund 9 – another sophisticated form of pillaging. In other words, they were sucking the banks dry to fund their “raid of the British high street”* and their outrageously decadent lifestyles.
Meanwhile, when the Icelandic state moved in to nationalize Glitnir last October, Jón Ásgeir Jóhannesson, owner of Baugur Group, had the gall to call it “the biggest bank robbery in Icelandic history“. I’ll saynomore.
QUICKIE WEATHER REPORT
Because it’s way past my bedtime. It’s still relatively mild and today it was calm and damp, although free of precipitation here in the capital. Currently 2°C [36F], sunrise was at 8:59 am, sunset at 6:24 pm.
* I wonder: does this make the residents of Hafnarfjörður the rightful owners of Karen Millen, Oasis, House of Fraser, Iceland, et al?