Gudlaugur Thor and Illugi Gunnarsson

So what happened at Glitnir’s Fund 9? According to some journalists, people who want answers are advised against going there as it can only end up badly. Former investors are maintaining that a few investors were able to get rid of their worthless FL Group/Stodir paper into the fund, which then was bailed out by the government. 

Independence Party MP and special friend of Landsbankinn and FL Group, Gudlaugur Thor Thordarson and his supporters have not tired of throwing barbed comments in the direction of fellow party member and rival Illugi Gunnarsson asking for investigation. Illugi himself who sat on the board of the ill-fated fund has said that his detailed explanations on his webpage www.illugi.is should put this matter to rest. But after thorough reading, the reader is left with more questions than answers. 

Excerpts from Illugi’s website: 

3. What happened when the banks collapsed? 

When the banks collapsed, the market for corporate bonds in Iceland closed. An active market is the basis of the operation of these funds and that is why they were closed. This is what all managements of comparible funds did to protect the owners of the funds. 

On October 17, the Financial Authorities ordered that withdrawals from these funds should be unavailable, instead the owners should get paid in proportion to their share. This was done to protect the equaility of the owners, but the only way to do so was to sell all assets of the funds and pay them out in accordance to ownership. 

Owners in Fund 9 received 85,1% of ther assets from the last recorded price paid out. This is certainly a considerable loss and a bad result for a fund of this kind. The profits from the year before on the other hand were rather good, and therefore the loss turned out to be around two years worth of profits. 

4. Why did Glitnir buy bonds from the fund?

Because of the foreseeable problems of Stodir (FL Group), the fund sold its assets in that company to Glitnir which at the time was a private bank. Because of this the value of the fund depreaciated 7% and after that the fund was open for three business days and a number of owners cashed out at that time. In all the value of the fund fell by 20,8% from September 26 until they were paid out on October 30. 

Money market funds have to be able to pay out as soon as their owners ask for their money. In spite of intense attempts there was no way to find buyers of the Stodir bonds on the market. With the purchase, Glitnir was reacting to the demands of the fund and its customers who wanted to cash out. The bank was also exploiting a business opportunity that presented themselves in buying discounted assets. 

An outside accounting office was brought in to value the bonds owned by the fund. Their estimate as well as the fund’s itself on the assets led to Glitnir offering to buy the bonds at a 30% discount compared to orginal price.

5. Were any money paid from the government coffers into Fund 9?

No money went from the government to Fund 9. This misunderstanding has come about because when Stodir went into moratorium, Fund 9 had to be closed down temporarily. Like I said before, that was done so all owners were treated equally. On September 30, Glitnir’s management (which at that time was still a private bank and not nationalized) decided to buy the Stodir bonds from Fund 9 at a discounted price. For that Glitnir used its own money and no money came from the government. The story about the 11 billion from the state has been hard to kill in public disucssion, in spite of the truth being told a long time ago. Those who want to have the truth confirmed can look into the extra budget approved by Althingi from last year. According to the 40th article of the constitution it is forbidden to pay anything from the treasury unless it is in the budget. The extra budget for 2008 was approved in December and at that time it was clear that no payment went to Fund 9. A lot can be said about the state treasury and its payments but one thing is clear that 11 billion could not be taken from it without it showing up in its books.

A couple of questions come to mind after reading Illugi’s website: 

- If Glitnir had been bankrupt on September 29 if the government hadn’t injected those 84 billions into it the day before, would it have been able to buy those bonds the next day? And how reasonable is it to call the bank a private one when it isn’t functional without the state taking a majority ownership?

- Special consideration should be given to the statement ” On September 30, Glitnir’s management (which at that time was still a private bank and not nationalized) decided to buy the Stodir bonds from Fund 9 at a discounted price.” On September 29th, the Icelandic government had taken over 75% of Glitnir. So Glitnir was in reality ¾ owned by the state and other owners had seen their stock devalue massively in the previous days.

- Questions were raised at the time, why did the state not take all of Glitnir over? Could it be so that they could ensure themselves some misleading comments? A week later, the goverment took the bank over completely. 

- On September 29, the government puts 84 billion ISK into Glitnir. The next day Glitnir purchases 11 billion worth of FL Group/Stodir bonds from the fund? Of course this is not going to show up in the Treasury’s extra budget. So why is Illugi using that as an excuse? 

- Which outside accounting office estimated the FL Group/Stodir assets? Why not disclose their names outright? Which individual accountants were involved? Do they have any links to Glitnir or FL Group? How did they come to the conclusive price? 
Answer: KPMG and PwC.

- Which business opportunities did the bank Glitnir, majority owned by the state see in FL Group/Stodir? Can it be said that the state’s money was invested unwisely? Who made the decisions and on what grounds? 

- Is it unreasonable for investors in Fund 9 to ask to see its transactions and ownership during 2007-2008, so that they can be assured that nothing shady was going on? In light of the massive donations made by FL Group to the Independence Party, is it unreasonable to ask for a thourough investigation? 

- What more exactly can be said about the State Treasury? Illugi would do well to divulge on that. 

Election day is coming fast and straightforward answers to these questions are the least the voters of a member of parliament who is leading his party’s ballot in Reykjavik can expect from him.

Glitnir's Chairman of the Board and CEO leave the Central Bank on September 29

Related posts:

1. Who Were Able To Dump Their FL Group Stock Into Fund 7 and Fund 9?
2. How Long Can Illugi Hide?
3. A good solution for everyone involved
4. Questions that require answers
5. Foreign banks welcome