Icelandic bank Landsbanki has suffered a setback after its Luxembourg branch lost an appeal against French authorities seizing debts of clients who lost funds in an initiative that saw them mortgage their properties to bet on the stock market.
France has been entangled in a legal battle with Landsbanki’s Luxembourg branch about the bank’s efforts to take over properties used as loan guarantees for the clients, some of whom, including musician Enrico Macias, were French.
Before the onset of the financial crisis in 2008, Landsbanki’s Luxembourg branch offered clients the chance to mortgage their homes in return for a loan, which Landsbanki then invested in stock markets. However, when the stock markets crashed in 2008, many clients went bankrupt when the investments’ values plunged, which also resulted in Iceland’s three biggest banks collapsing.
Courts in Luxembourg have ruled that the borrowers, including Macias, must repay their loans. Macias was told in February that he had to reimburse 30 million euros; however, he has since appealed.
After many of the borrowers complained that the bank loaned them the funds without verifying that it could repay them, a French prosecutor launched a criminal investigation. Landsbanki’s Luxembourg branch and three of its former employees face fraud charges, and in 2011 it was instructed to post a record 50m euro guarantee.
When Luxembourg refused to pay the guarantee, prosecutors ordered the seizure of the debts of a number of borrowers. The Luxembourg branch’s liquidator appealed, but the move was rejected on Thursday, revealed a court source and lawyers.
Meanwhile, lawyer Bernard Dartevelle explained that Landsbanki’s liquidator is attempting to recover funds that were “improperly received”, adding that many borrowers have accepted repayment deals in exchange for abandoning legal action. He noted that he has never before seen a case where the fraudster is expropriated.