A report on behalf of Iceland’s Special Prosecutor into the banking crisis says that the Icesave debt upon the Icelandic state would have been massively lower had PricewaterhouseCoopers, Landsbanki’s external auditing company, done its job properly.
According to the report’s Norwegian main author, if PricewaterhouseCoopers had been honest in its reporting of Landsbanki, the bank would have lost its operating licence no later than the end of 2007.
Among other things, the report criticises the auditors for not having flagged up the so-called Icelandic Affair. The Icelandic Group took massive loans from Landsbanki and was allowed to continue borrowing after it became apparent the company would have difficulty servicing its debts. Icelandic Group was saved from being put on Landsbanki’s defaulters’ list by a EUR 40 million loan from Grettir ehf. Grettir ehf. in fact got the 40 million directly from Landsbanki and all three companies involved were owned by Bjorgolfur Gudmundsson.
The theme of the report is that the lines between debtor, creditor and owner were extremely vague at Landsbanki — as with the other banks. For example, loans from Landsbanki to Bjorgolfur Thor Bjorgolfsson (Bjorgolfur Gudmundsson’s son and also a major owner of Landsbanki) were up to ISK 97 billion (USD 839.2 million at today’s rate) between 2007 and the crash in autumn 2008 — 20 billion of that was a loan to refinance foreign debts.
PricewaterhouseCoopers is criticised in the report for not taking the signs of pressure seriously enough — especially the fact that the bank’s director, Einar Thor Haraldsson, had told the auditors personally that he felt under pressure from the bank’s owners. Neverthelass, the company’s annual report on Landsbanki stated in no uncertain terms that PricewaterhouseCoopers had found no evidence to suggest any interferance by the owners in the running of the bank.
The auditors could potentially face up to two years in prison. PricewaterhouseCoopers Iceland has declined to comment until reading the report; but a spokesman said that the company works under strict and professional procedures at all times.