Economic Disaster Area » Kaupthing

Frozen Assets: How To Do Business With Icelanders

Dadi — Sat, 15 Jan 2011 20:57:27 +0000

I’ve been reading Frozen Assets, former Kaupthing Singer&Friedlander boss Armann Thorvaldsson’s account of his Kaupthing days.

Armann is a charismatic character who I recall claiming that his ambition when moving to London to build Kaupthing’s business there was to get himself onto the pages of the Financial Times and Hello. His New Years Eve parties were certainly flashy, with Duran Duran and Tom Jones performing at such venues such as the Natural History Museum.

Something sticks out from this easy and fun read. Mainly, the business-vikings as they were called used to tell stories of their unusual willingness to put in hard work and being smarter than the competition when explaining their ascent during the good times and Armann repeats the story in the book.

Yet from reading his account and from hearing Lydur Gudmundsson of Exista describe how the small caviar producer from Njardvik became one of Europe’s leading food companies, it seems what they all had in common above their foreign counterparts was each other phone numbers and unlimited access to credit through their control of the Icelandic banks and politics.

So the lessons president Olafur Ragnar Grimsson should have presented to the Walbrook Club in 2006 should really have been:

1) Invite one of the Icelandic businessmen who control the banks through ownership or employment to a party, trip to a sunny beach or salmon fishing.

2) Make sure you get their phone number.

3) Cut them in on your business through ownership in your leveraged venture buyout or investment in their banks’ shares, just make sure it is a bullet loan with no collateral.

4) Enjoy yourself. These guys are willing to pay higher prices than most other people for businesses.

5) Come visit Bessastadir for a photo op. You ain’t seen nothing yet.

Short and sweet and without the nationalistic huffing and puffing.

And like Armann repeats throughout the book, then it was time to bring out the champagne.

Bankers Bonuses And Perspectives

Dadi — Tue, 16 Mar 2010 15:35:06 +0000

How are they trying to cook this up?

The banks are now agitating for re installing bonus systems for the employees of their private banking and corporate banking divisions.

Now it is great if bonus systems are available for employees, but when implementing those some basic questions must be answered. What are we rewarding?

Remember, these are the banks whose collective bankruptcies put them in third place over the largest corporate bankruptcies in the US according to Jared Bibler of the Financial Authority!

Anywhere in the US! Ever!

Just Kaupthing manages fifth place on that list, above such luminaries as Enron, Texaco, Chrysler and Pacific Gas. Landsbankinn is in ninth place and Glitnir tenth.

The result from Iceland’s heady experiment with becoming a global financial player is three Icelandic businesses which would make the US top ten bankruptcy list!

Three!

For a country with just over 300.000 inhabitants that must be some sort of galactic record.

Those bankruptcies can hardly be blamed on the staff of the banks’ retail branches who were lending mortgages, overdrafts and credit cards. No the problems must have really started at a higher level. Like private banking and corporate banking.

And the staff is much the same as before the crash. And now they want bonuses again.

How does that work? A successful private banking employee works the phone and his contact list again and again to make money for his division. Do Stefan and Anna really pick up the phone and say, “Hey remember that 100 million you entrusted me with in 2006-2007? Yeah, shame about that. But let me tell you about the great opportunities our asset management team has discovered for you now”.

What on earth are their customers thinking?

There shouldn’t be any reason for any customers to continue banking with the same people and the same banks…unless.

Unless those same customers have benefited somehow from handsome write-offs. And that would especially make sense at the corporate level, and to a lesser extent in private banking.

Anyhow, what is going to happen if these bonuses are not approved of? Are these employees just going to stand up and leave?

And so what? Where are they going to go? Are they really sought after in the City, Wall Street, Dubai or Copenhagen? The management should at least not worry about finding enough talent to fill their shoes at this moment in time. With close to 10% unemployment and a highly educated workforce, that shouldn’t be a problem.

Social Democratic MP Robert Marshall today said that if these bonuses would become reality then they should be taxed to the hilt. A welcome sign that there still is life in that party. But would the Social Dems really dare? Or are old habits really just too hard to break?

Foreign Creditors Take Over Arion/Kaupthing – We Who Are Supposed To Pay Everything Have The Right To Know Everything

Dadi — Wed, 02 Dec 2009 09:55:14 +0000

At the end of the news article summarizing the details of the proposed transfer of Arion/Kaupthing, we find the following statement of Steingrimur J. Sigfusson, the Minister of Finance:

“The Government is satisfied that Kaupthing Bank’s creditors have acquired the majority of the share capital in Arion Bank, and it is important for the development of the Icelandic economy as a whole that the Government contributes less than originally estimated. The bank is fully capitalized and has solid financial foundations and is an important part of the new Icelandic economy. Arion Bank should be in a position to achieve the financial restructuring of companies and offer viable solutions to indebted individuals and Icelandic households.”

In other words – thanks for taking this smelly piece of garbage off of our hands, so that the government doesn’t have to pay for all that debt to the creditors – the money that Sigurdur Einarsson and friends stole from various foreigners. The bank is not officially insolvent. But the only way for you to get any money from your new investment is if the country doesn’t go down the toilet. Now it’s your decision whether or not to write off the debt to Icelandic businesses and to write down Icelandic mortgages.”

So here we have proof that the Icelandic government did not want to do anything to help Icelandic mortgage-holders because they are the bait – the insect at the end of the fishing line – used to lure the foreign creditors to take over the remnants of the banks.

The foreign creditors’ main purpose is to maximize revenue. So does anyone think they will willingly write-off any more than is absolutely necessary? Or course not. They will try to squeeze every last kronur from the struggling Icelandic homeowners, and the Icelandic government will do nothing to stop them.

There is some logic in the actions of the government, after all it is absolutely necessary for the government to avoid having to pay off the Kaupthing debt by giving the bank assets to the foreign creditors. But the whole process is very cynical, and made worse by the secrecy and lack of explanation for the government’s strategy. Why doesn’t the government simply say what is obvious now, “sorry homeowners, we can’t help you, you belong to the foreign creditors now”?Vilhjalm A. with an interesting comment:

Vilhjalm A with an interesting comment:

At the end of the news article summarizing the details of the proposed transfer of Arion/Kaupthing, we find the following statement of Steingrimur J. Sigfusson, the Minister of Finance:

My few cents:

- Who are the “foreign creditors”? A detailed list please. Like a blogger said yesterday, “we who are supposed to pay everything have the right to know everything”.

- How many of the foreign creditors are “recent investors”, i.e. hedge funds or investment vehicles who have bought their share at discount in the last 11 months?

- How large were those discounts?

- How do they intend to run the bank in the future?

On the write offs issue, I was on the radio show Harmageddon on Radio X yesterday where I said I don’t really have a preference for the banks being government owned or privately owned. Ultimately the government leads the way through legislation and there is work to be done there, for example installing a separation between investment banks and retail banks and removing the price indexation.

I think this “re-privatization” of the banks proves what I have been talking about regarding the government household debt solution, that it was just done to buy some time. I sure hope the creditors aren’t building their business model on expecting everyone to pay their debts as they stand because then they’ll end up with a bunch of property on their hands and bankrupt debtors leaving the country.

I for one am not going to take kindly to a smiling bank employee telling me next year that “this is now a new and different bank”, while expecting me to continue to pay my “same old loan”. So far I have paid four million to the bank in three years onto a 16 million ISK loan. The captial has not decreased, it has increased to 19.5 million ISK. What kind of society is going to stand for that kind of unfair business?

Small Fish Small Society

Dadi — Mon, 23 Nov 2009 10:53:51 +0000

An female employee who’s been with Kaupthing’s asset management division for years, probably in the private banking division, was let go and her case is now with the police. She is accused of having stolen tens if not hundreds of millions ISK from her customers, something which was not discovered until the bank went bust.

The affair is wholly unpleasant in Iceland’s small society as her name has not been released, and there were not many female private bankers who worked for years in Kaupthing. So the few women are all under suspicion right now, unless those not guilty start posting “not guilty” status’ on their Facebook profiles.

Meanwhile the big fish are still swimming around, starting up new ventures with the government’s permit.

Update: DV has named the woman, Anna Heiddal who claims the story is not true. She says she was let go because she was lending money to relatives and individuals connected to her, but the news came out as if she had been stealing the money.

Sinking Pawns

Dadi — Fri, 13 Nov 2009 09:13:34 +0000

So the courts are finally nailing someone from the banks, in this case Kaupthing. But so far it is just the pawns that have been sacrificed. The real criminals have so far been protected.

Two young men, a fund manager and a broker are accused of having put in false offers for shares in Exista, to keep the share price artificially high. This was done so that the fund manager’s fund did not lose value and is of course highly illegal.

These guys were under incredible pressure to perform. And as one of them said, he had been put in charge of tens of billions, barely thirty years old without any training.

When I got my job at Kaupthing, I asked what kind of training new employees would receive. The answer was a reassuring nothing and a challenge to a ambitious, young man, “we like to throw people into the deep end and see if they can swim. We keep the ones that swim.”

Arman Thorvaldsson’s Frozen Assets (Video)

Dadi — Thu, 29 Oct 2009 22:06:01 +0000

Observer: Kaupthing chief named as suspect in fraud investigation

Dadi — Sun, 11 Oct 2009 10:21:53 +0000

Iceland’s most controversial banker, Sigurdur Einarsson, the former executive chairman of failed bank Kaupthing, has been made an official suspect by fraud prosecutors examining alleged market manipulation relating to an investment in the bank by Qatari royal Sheikh Mohammed Bin Khalifa al-Thani weeks before its collapse a year ago.

Einarsson, who lives in Chelsea, west London, is thought to be the first head of a major European bank to be formally classed as a criminal suspect since the onset of the credit crisis.

Hauksson’s investigators are understood to have eight other suspects who are connected to the failed bank official. Central figures include the bank’s chief executive Hreidar Mar Sigurdsson, and shipping and oil entrepreneur Olafur Olafsson, a major Kaupthing customer and shareholder with contacts in Qatar.

The list is also believed to include Halldor Bjarkar Ludvigsson, who worked in Kaupthing’s loan department and now oversees the failed bank’s Nordic assets on behalf of creditors. Ludvigsson may later be reclassified as a witness, but his involvement is embarrassing for the bankruptcy protection committee that has responsibility for Kaupthing assets.

From the Observer

What was the saying about the guilty (or in this case suspects) cleaning up the mess?

Strange Coke?

Dadi — Sun, 04 Oct 2009 21:13:06 +0000

According to the State Broadcastin Channel’s evening news, the Nordic management of Coca Cola Company has threatened Kaupthing with the revoking of the production licence if current owner Thorsteinn M. Jonsson does not keep the company.

Thorsteinn who has been a close business partner of Jon Asgeir Johannesson has sat on the boards of several companies linked with the Icelandic fairy-tale economy of recent years, including FL Group and Glitnir Bank. He has highly leveraged the soft drink company Vifilfell, which holds the licence from the Coca Cola Company, and under normal circumstances he should be losing the business.

Why on earth Coca Cola is protecting one of Iceland’s largest business failures is beyond reason? But similar stories are told of Toyota protecting Magnus Kristinsson, the highly leveraged owner of the Toyota licence in Iceland.

Pepsi anyone?

The Banana Republic Of Iceland (Video)

Dadi — Sun, 27 Sep 2009 15:27:42 +0000

The new video from Jon Gerald Sullenberger.

New Kaupthing Reports Exista, Deloitte and Logos To Special Prosecutor

Dadi — Fri, 25 Sep 2009 21:23:24 +0000

New Kaupthing has reported the management of Exista, employees of Deloitte and the law firm Logos to the Special Prosecutor because of the sale of Exista’s shares in Bakkavor Group on September 11, 2009.

Brothers Agust and Lydur Gudmundsson financed their own 8,4 billion ISK purchase of 39,2% in Bakkavor through Exista which is mostly owned indirectly by creditors today. The brothers did not provide any equity themselves and the loan’s due date is unclear. Deloitte and Logos assisted in the deal, in spite of serious remarks by the Company Registry of Iceland.

A ray of hope in “New Iceland”. And reported by mbl.is, Morgunbladid’s website no less.

One question, what does Deloitte’s head office think of its Iceland office role in the Icelandic crash?