Nikulas Einarsson rubs his hands over a brazier outside Iceland’s modest
parliament building. Two years ago the electrician was always busy, thanks
to the construction boom in the capital, Reykjavik. Iceland’s spectacular
financial collapse means he now works only one day a week.
Although he is part of a group that congregates daily to hurl abuse at passing
ministers, they are not the ones he really blames for the disaster. “The
first people we have to look at are our bankers, and the people who owned
our banks,” he said.
There are calls for bankers to be locked up around the world. In Iceland,
which suffered the biggest banking collapse of all, one that nearly
bankrupted the country, it may well happen.
Those in the frame are the same people who transformed the tiny country into a
hub for jet-setting high finance. Tycoons such as Jon Asgeir Johannesson and
Bjorgolfur Thor Bjorgolfsson, working with the banks Kaupthing, Landsbanki
and Glitnir, cut a swathe through Europe in a five-year-long buying spree.
They made London their base for an international deal bonanza, buying up
household names on a mountain of debt. When the credit bubble burst, so did
theirs — and Iceland’s.
Now it’s payback time. Allegations of market manipulation and fraud have been
levelled against big-name bankers and entrepreneurs. A special prosecutor
appointed to investigate the claims has launched more than 50 cases. His
team has raided scores of houses and offices, including those of KPMG and
Price Waterhouse Coopers, the accounting giants.
Sigurdur Einarsson, the former executive chairman of Kaupthing who lives in
Chelsea and bankrolled Robert Tchenguiz, the entrepreneur, and the Candy
brothers, the property developers, has already been made a formal suspect in
one investigation.
The investigators’ net extends to Britain. Kevin Stanford, the retail
entrepreneur who built up the Karen Millen and All Saints chains, has been
caught on the fringes of the inquiry, along with Moises and Mendi Gertner,
the property and mining entrepreneurs, and even a member of Qatar’s royal
family. The Serious Fraud Office has a list of suspects.
“There’s a lot of anxiety as to why nobody has been arrested but there are
dozens and dozens of cases now being investigated,” said Steingrimur
Sigfusson, Iceland’s finance minister. “Some of those guys are already
suspected of criminal activity.”
Gylfi Magnusson, a former university professor parachuted into government as
minister of business and economics, believes that Iceland had “the world’s
worst bankers”.
He said: “They managed to take a banking system and first let it grow to 10
times its size, then let it collapse — all over a period of six years. It’s
a monumental achievement, in one sense. Other bankers all over the world are
being scolded, but I don’t think anyone comes close to these people.”
ARMANN THORVALDSSON was one of those bankers. He was chief executive of
Kaupthing Singer & Friedlander, the London arm of Iceland’s biggest
bank, when it was placed into administration in September last year. Before
that he ran its investment-banking business, devising some of the
extraordinary debt structures that allowed a nation of 300,000 people to
become international business pioneers.
He has just published a book, Frozen Assets, recounting his journey from a
small house on the wrong side of the tracks in Reykjavik to drinking
champagne on yachts with Joe Lewis, the currency trading billionaire, and
Sir Tom Hunter, the Scottish tycoon.
In 2007, one-third of the members of The Sunday Times Rich List were
Thorvaldsson’s clients, he boasts. He took Gordon Ramsay on fishing trips to
Iceland, hung out at the Monaco Grand Prix with Mike Ashley, the owner of
Newcastle United, and was invited to parties at Sir Elton John’s house,
where he mingled with Sir Michael Caine, Elle Macpherson, Sting and Ivanka
Trump.
In 2006 Thorvaldsson threw a party at the Natural History Museum, hiring Tom
Jones as the entertainment — a drunken rendition of Delilah was
Thorvaldsson’s party piece.
He and the senior management at Kaupthing were clearly good friends to have. A
leaked copy of the bank’s loan documents from September 2008 — immediately
before its collapse — reveals how good.
A few Kaupthing customers received huge loans, often with little or no
collateral and deferred interest payments.
Robert Tchenguiz borrowed £1.25 billion from the bank to fund his stakes in J
Sainsbury, the supermarket chain, and Mitchells & Butlers, the pubs
group. At that time the loan to value across the portfolio of loans was a
whopping 98.7%, according to the leaked file.
The security was shares in other Tchenguiz investment vehicles, including a
holding company that held his stake in Somerfield, the supermarket group.
Tchenguiz was also one of the biggest shareholders in Exista, an Icelandic
investment firm that was the biggest shareholder in Kaupthing.
Similar deals with Baugur, Stanford, the Candys, Simon Halabi, the property
investor, and all of Iceland’s top entrepreneurs are littered across the
loan book, along with cash lent to Saudi princes to buy super-yachts. It
also points to dozens of instances where credit had been extended after
deals ran into trouble.
Some sources suggest that the file, which was presented to the board, did not
reveal the full extent of the problems. “I’m not sure the market ever had a
true picture of the state of things at these banks,” said one of Kaupthing’s
top customers.
“When someone asks if you want to borrow £100m, you don’t ask if that
represents his entire capital base. Now it looks like some of these banks
may have been technically insolvent for quite some time before they actually
collapsed.”
Last weekend, Iceland’s financial regulator passed a file to the criminal
prosecutor alleging that Kaupthing had been involved in widespread market
manipulation of its share price.
Many of Kaupthing’s biggest exposures were to companies created to buy shares
— and many appeared to use the cash to buy Kaupthing shares.
On September 25 last year Sheik Mohamed bin Khalifa al-Thani of Qatar bought a
5% stake in Kaupthing. Einarsson, Kaupthing’s chairman, hailed the Qatari
investment as a sign of the bank’s financial health. What he failed to
mention was that the stake had been financed by Kaupthing itself through
loans to companies in the British Virgin Islands.
Einarsson denies the charges of market manipulation.
Stanford and his Icelandic business partner, Skuli Thorvaldsson, are alleged
to have received a similar loan, which was used to buy Kaupthing shares, the
Gertners likewise.
Stanford declined to comment on the allegations but said he had not been
contacted by investigators. A spokesman for the Gertners said: “There was an
understanding that if these shares were taken up, the [buyer] would be in a
beneficial position to secure funding from Kaupthing.”
Kaupthing’s directors also received big loans to buy the bank’s shares.
Shortly before it collapsed, the Kaupthing board removed all personal
liability on the loans. This was never disclosed to the market.
“A lot of people in Iceland think the special prosecutor is looking to see if
any laws were broken that caused the crash,” said Thorvaldsson. “Most of the
cases I have seen are probably where they are looking to see if laws were
broken while people were trying to avoid the crash. None of these cases is
the real reason why the banking system crashed. It’s more looking at whether
people made mistakes when they were trying to keep the system together.”
Kaupthing was not the only bank trying to keep the system together. Three days
before Landsbanki was nationalised, a holding company controlled by Magnus
Armann, a business partner of Baugur boss Johannesson, bought about £25m of
shares in the bank. The money had been lent by Landsbanki and was secured on
the shares themselves. The special prosecutor is investigating the deal —
and who benefited.
Allegations of other share-loan schemes have emerged, involving Glitnir and FL
Group, the company that used to own Icelandair and big stakes in Easyjet and
American Airlines.
Many of these shares were then used as security on other loans around the
world, according to investigators.
A number of strange deals are being investigated — such as repeated
transactions involving Sterling Airways, a Danish airline that saw its value
spiral ever higher before it crashed. Sources close to the deal insist there
was no wrongdoing.
Questions are also being raised about the network of hundreds of offshore
companies set up by Icelandic banks and their customers in Luxembourg, the
British Virgin Islands, Gibraltar, Liechtenstein, Cyprus and Malta.
“Iceland is a tax haven anyway,” said one Icelandic businessman. “It’s
difficult to see why you would go to all that bother to avoid tax.”
Investigators are liaising with authorities all over the world to work out the
elaborate network of cross-shareholdings and family relationships.
Already, there are clear connections between the people who ran the banks and
the borrowers. Details emerged last week of huge loans from Glitnir to
Baugur’s Johannesson and his associates, who took control of the bank in
early 2007. Landsbanki itself was acquired through a leveraged share
transaction, funded by Kaupthing.
Bjorgolfsson and his family, who owned West Ham Football Club, bought a
controlling stake in Landsbanki after borrowing almost half the money —
which was never paid back.
Bjorgolfsson, 307th in Forbes magazine’s list of international billionaires
for 2008, offered to pay back half the money owed for the Landsbanki loan.
The government saw it as a slap in the face. “This is probably the last loan
under the sun that should be written off,” said Sigfusson, the finance
minister.
AT THE seafront hotdog stand in Reykjavik, business is booming. Devaluation of
the kronur has led to a surge in tourists.
The collapse in the currency is bad news for Icelanders, though. Almost
everyone who borrowed did so in Swiss francs, Japanese yen or other low
interest-rate currencies — because bankers told them to.
Iceland’s politicians all know they have but a short time to secure a big
conviction or they will face riots — as they did in September last year
after the banks collapsed.
Magnusson, the business minister, added: “We are fully expecting that these
cases will lead to court cases, and one would expect convictions.”
‘The bank let him down’
IN 2003 Robert Tchenguiz was on his way to becoming a City superstar, writes
Jenny Davey. His tipple was a 50-year-old Dalmore whisky (£4,500 a bottle).
His summers were spent on a yacht in the south of France, and his friends
included the biggest names in business, such as Sir Philip Green and Sir Tom
Hunter.
Along with his brother Vincent, Tchenguiz had amassed a £4 billion property
portfolio and the banks were queuing up to lend. He obliged and borrowed big
— first on real estate and then on shares as he moved into companies such as
J Sainsbury and Mitchells & Butlers, which had many property assets.
He bought a £20m frescoed mansion in Kensington next to the Royal Albert Hall
and threw a Louis XIVth party, one of many celebrations.
At first Tchenguiz borrowed from mainstream banks such as RBS but then became
one of Kaupthing’s biggest customers, even featuring in the Icelandic bank’s
brochures.
When Kaupthing fell and Iceland’s banking system with it, so went control of
the stakes in Sainsbury and M&B. Tchenguiz, 48, had lost £1.5 billion of
his fortune and his empire was on its knees. Accounts from his R20
investment vehicle last week revealed a £31m loss and carried a going
concern warning from the auditors.
He was devastated by what happened, according to friends. “He went into
business with a bank that let him down. He did whatever he had to do, he
paid every possible commitment. But he didn’t have the bank going bust in
his business plan,” said one.
Tchenguiz hasn’t, of course, been left penniless. His brother Vincent said
this weekend: “Robert’s okay.
I don’t have to support Robert. Not yet,” he laughed.
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