Following a prolonged silence from many of Iceland’s most-recognised businesspeople in the wake of the country’s economic collapse, the billionaire father and son duo Bjorgolfur Gudmundsson and Bjorgolfur Thor Bjorgolfsson have both given in-depth media interviews this week.
Former majority owner and chairman of Landsbanki, Bjorgolfur Gudmundsson appeared in an 11 page interview in the Morgunbladid newspaper on Sunday. Meanwhile, his son, Bjorgolfur Thor Bjorgolfsson was featured in Stod 2’s popular Kompas news programme on Monday.
Bjorgolfsson has, or had at one time or another, major investments in most of Iceland’s biggest companies. He remains chairman of Straumur Investment Bank and of Actavis. Many have accused him and his father of being key culprits in Iceland’s rapid economic decline.
In Monday’s television interview, Bjorgolfsson was not abashed. In his opinion, despite any mistakes he may have made, he should not be held responsible for the economy today.
According to Bjorgolfsson, the Landsbanki board bear a lot of responsibility for the bank’s collapse; but also the Icelandic government:
“The authorities carry a responsibility for how they tackled the issue. Icesave could have been tackled very differently so this Icesave issue would not be an issue but a part of a solution of this crisis that now has hit Iceland. And by that I mean that in a crisis like this the responses to the problems are actually more important and have greater consequences than the problem itself,” he said.
Defending Landsbanki’s decision to set up Icesave in 2006 to rescue itself from early trouble, Bjorgolfsson said:
“There were foreign rating companies, there were the banks, and there were top specialists, control organisations and others that said: you must increase deposits, you must increase deposits – you cannot just rely on foreigners to lend you money. All right, deposits must increase. Now, there are only some 300,000 Icelanders so you cannot turn to Icelandic funds, so an overseas deposit system had to be implemented. And let‘s remember that in the latter half of 2006 these deposit systems that were started did fully rescue the Icelandic banking system from that crisis. In 2007 the Icelandic banks were applauded for this and Landsbanki had done most in this respect and had acquired most deposits. It was the most highly rated bank by the international rating companies and considered the least risky of the banks because of all the deposit accounts.”
“And when (Icesave) began to grow big, people started saying ‘shouldn‘t we start examining whether this should be an Icelandic or a foreign bank’. And these talks were ongoing and transferring things over to England was being done… when in fact everything became disconnected that Monday by the nationalisation.”
Later in the interview, Bjorgolfsson reveals for the first time that the day before the Emergency Act was approved in Iceland; the British had made an about-face and offered to accept Icesave under a British guarantee in 5 days against a guarantee from the Central Bank of Iceland. This had been rejected by the Central Bank, resulting in the collapse of the remainder of the Icelandic banking system and the country plunging into a harsh international dispute. Bjorgolfur Thor asserts that the previous weekend the authorities had not even replied to offers that would have stopped the nationalisation of Glitnir and prevented the banking system‘s fateful collapse. The government and Central Bank of Iceland deny the allegations.
He also argues that the government set up a terrible chain of events right at the beginning of the crisis when the state took control of Glitnir Bank.
“This was a terrible chain of events: a terrible chain of events resulting in a disaster. It is the disaster we are in today as a nation. I was incidentally in Iceland at a wedding when I received a phone call from people telling me that Glitnir had run into trouble and that the Central Bank will probably attempt to take it over,” Bjorgolfsson recalls. “Then all kinds of discussions started and Landsbanki‘s shareholders were asked to talk with Glitnir‘s shareholders and talk with the Central Bank. (Our opinion was that) by taking over the whole bank the State is assuming the whole responsibility. This must not happen. This was the message from Landsbanki and Kaupthing that were outside this: this must not happen, this is terrible. Then private enterprise, i.e. the banks, came up with ideas and we submitted them to the PM, we submitted them to the Central Bank on that Sunday, we repeated them the following Monday and we always made changes, (but) we got no reply. I am not saying that they were rejected, we just received no answers, they were not considered worthy of reply. And our suggestions were inherently exactly the same suggestions that were made here in England, i.e. to effect the merger of all the banks, Landsbanki/Glitnir/ and Landsbanki/Glitnir/Straumur, all to be merged, to aggregate their equity to cut costs with the State also injecting capital and acquiring a majority stake, yet not become responsible. Now everybody is saying: ‘how is the State responsible?’”
Read the full interview here.
Finally (now that it has come out in the international press, and more than 3 days since it first came out in Iceland), you see fit to report this. If what Bjorgolfsson says is true, then it really does reflect very badly on Iceland’s Central Bank. If the British FSA did offer to take the whole of the £4 billion odd Icesave deposits under its wing for a mere £200million, then much of this entire debacle could have been avoided.
If sounds as if the Central bank couldn’t even come up with this paltry sum, let alone the £4billion of deposits, hence the heavyhanded actions of the UK government. Iceland would have got a very cheap deal (£200 million to pay for liabilities of £4 billion sounds pretty good to me), 230,000 odd people in the UK would not have had to go through the extreme worry of thinking their money was lost, and the Iceland people would not have had to go through the indignity of anti-terrorist legislation being used against them. Don’t you think it’s about time more anger was focused on the ignoramuses that have been running the Icelandic economy, seemingly with little or no understanding of international finance?
If the truth be told. Iceland’s banks had been in a catastrophically precarious situation for at least 6 months and, without action, it was only a matter of time the whole house of cards would collapse. Please check out this story from March 2008.
http://www.moneyweek.com/personal-finance/credit-default-swaps-how-to-spot-the-riskiest-banks.aspx
(This was way before things really got going and the CDS spreads for Kaupthing, Landsbanki and Glitnir rocketed much, much higher in the weeks leading up to to the crisis, with Kaupthing’s actually being the highest – so sorry, but despite what everyone’s been told, Kaupthing was a dead donkey even without the intervention of Brown and co.)
Brown has just happened to be a handy scapegoat that Haarde and co can use to direct attention away from their own failings as custodians of the Icelandic economy. The finger should really be being pointed at them, for it is they who have ruined Iceland. Don’t let them pull the wool over your eyes like this.
Mary, that’s a very interesting piece of information indeed. Especially this list here should make everyone think twice before one says that Kaupthing was ‘in very good shape’:
1. Kaupthing 833.3
2. Kazkommerts 766.7
3. Glitnir Bank 757.5
4. IKB 612.4
5. Landsbanki 604.6
6. Banca Italease 397.0
7. VTB Bank 332.5
8. Anglo Irish Bank 322.7
9. HBOS 236.7
10. Sberbank 221.3
11. West LB 212.5
12. UBS 209.0
13. Natixis 205.0
14. Bank of Ireland 202.5
15. Allied Irish Banks 195.8
16. Dexia 195.0
17. RBS 191.7
It’s extremely interesting because it says that the situation of Kaupthing was more precarious than that of the IKB. And the IKB was and is in a really disastrous situation and had to be bailed out by its parent company kfw with billions of euros (which is a tragedy because the kfw is meant to give to give money to small businesses and the like.
And in the transcript of the conversation between Mr Darling and Arni Mathiesen, the £200 million liquidity for Landsbanki is discussed; it is towards the end of the conversation.
Mr Darling says that (in the light of what he has already been told by Arni) that he supposes Landsbanki didn’t get the £200 million that had been promised. Arni replies that no, they didn’t get the liquidity.
So the transcript, leaked by Icelanders and first broadcast in the Icelandic media, in conjunction with what Bjorgolfur Thor Bjorgolfsson now says, indicates that the Icelandic government knew perfectly well what was on offer from the UK authorities and any assertion that they received no such offer is just telling lies.
It’s a pity that the Icelandic people, who I have found from experience to be very honest, have been let down by incompetent politicians and reckless bankers unworthy of their trust. I really thought that our politicians were in a league of their own for dissimulation, but yours run ours pretty close.
The Icelandic politicians should be ashamed of their incompetence.
Thor Bjorgolfsson & Bjorgolfur Gudmundsson are businessmen of talent & integrity. I believe their version of events over the version peddled by the bureaucrats in the Icelandic government.
I am one of the unfortunate depositor of Kaupthing Singer & Friedlander of the Isle of Man,and I can tell you that as far back as last July,I was warned by one of the top executive of one of the biggest french bank,that they had stopped any dealings with Kaupthing Hf last January!!!But,not wanting to take his warning at face value,I emailed a “so called”Senior Banking Executive at KSF IOM,who answered me back telling me that we were,depositors covered by the now unfamous “Parental Guarantee”from Kaupthing Hf,so,I somehow was convinced,only to face 2 months later this disastrous situation we are in now.I find this all thing an absolute disgrace,a mismanagment of the highest order by Kaupthing Hf,and a total disrespect for it’s customers.That bank should never,ever be able to trade again!
Peter (Germany):
Honestly lists like these are crap.
“Danske Bank” is on par with UBS, which very recently had to be bailed out by the Swiss government because the american sub-prime loans had left them insolvent. Where is the logic in that? HBOS is quite exposed to both sub prime and “alt a” loans, but scores better than Danske Bank, I see no logic in that.
There are others factors in this list, the major factor is the size of the bank.
Danske Bank: very solid + medium size= decent rating
UBS: borderline insolvent + huge bank= decent rating
Kaupting: shaky economy + small size= horrible rating
I am sure you get the picture.
Maybe Mr Billionaire will help bail his country out.
I think Iceland is a disgrace they have effected the robbery of the century and caused untold hardship on honest savers who have lost everything.
“Peter (Germany):
Honestly lists like these are crap.”
ROTFLMAO.
“Lisen to me I understand risk better that the 54 Trillion dollar risk insurance market”
You rally did sell sandwich’s in Canary Wharf, didn’t you??
That list is the PRICE you have to pay to lend to those banks. Its a value in cold hard cash, not an OPINION.
Look at later figures
Update 20/10/08
Worst CDS ratings
BTA Bank 3083.3
Glitnir 2425.0
Kaupthing 2100.0
FCE Bank plc 1900.8
Landsbanki Islands 1700.0
Glitnir at 2425 means a 24.25% upfront insurance fee on any loans to that bank.
On 3rd of October Kaupthing had a rating of 6250, 62.5%
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/creditors_call_time_on_iceland.html
for a bank that depended on being able to constantly roll over its short term debt, that was fatal, even before the UK finished it off.
Peter if you care to read the facts I write which you never do.
This article was about wether that number could be used to determine the risk banks are taking. and that is not so.
There is no point in argueing with you since you are how you are, a fine example of everything that is defective about England. Ignor
GreatDane, I can see your point. I still think it speaks volumes that Kaupthing features in the same list as IKB and WestLB – both banks are virtually broke weren’t it for the extremely generous and speedy help by their parent companies. The German saving banks had to support WestLB with billions of Euros to avoid bankruptcy, and it now appears that the WestLB will have to turn to the rescue fond of the federal government.
As for the IKB, this bank has burned something like ten billion euros something which the kfw had to pay for.
No good company for Kaupthing, I suppose.
You’re slipping back into racism/nationalism again GD :) .
I know Peter started it with the sandwich thing, but that’s a personal attack and not an attack on the entire Swedish nation.
Peter (Germany):
In world of Banking the worst things you can be is a: small, because then a central bank is less likely to bail you out.
And
b: backed by a small(weak) central bank which doesn’t have the reources absorb the full economic impact of a given banks collapse.
This chart can’t really be used to determine how carefull a given bank is, since a small bank from a small country will always get a bad rating no matter how conservative they are.
Kaupting managed to completely avoid the american sub prime market and the alt a loans, but still when things got rough in the markets and a sacrifice was demanded Icelandic banks were first in row.
Bromley I really try to keep it personal between Peter and me. But he somehow come across as a stereotype you meet every day in London, you know; Ignorant, full of himself, refuses to see other peoples perspective since he by definition is always right.
As for racism I don’t know? somehow I get the feeling he is white, and so am I, so it can’t really be racism can it?
On Oct 30, 2008, GreatDane said:
>Honestly lists like these are crap.
>
>“Danske Bank” is on par with UBS, which very recently had to be bailed out by the Swiss government because the american sub-prime loans had left them insolvent. Where is the logic in that? HBOS is quite exposed to both sub prime and “alt a” loans, but scores better than Danske Bank, I see no logic in that.
>
>There are others factors in this list, the major factor is the size of the bank.
>Danske Bank: very solid + medium size= decent rating
>UBS: borderline insolvent + huge bank= decent rating
>Kaupting: shaky economy + small size= horrible rating
>
>I am sure you get the picture.
Further to this accurate analysis by GreatDane, I would like to reinforce that market prices do not always reflect the value of underlying assets.
That’s why some people get rich buying undervalued assets when things reach their bottom and then holding onto them until markets recover.
We are going to hear a lot more about Credit Default Swap liabilities *of *banks in the near future. Many huge liabilities are currently hidden.
When the issuer of insurance is going through troubles themselves, premiums go up on all, and astronomically on those who are perceived having any sort of risk, regardless of the risk in reality.
You will find that to be particularly true when a historical analysis of Credit Default Swaps is done for the period we are now living through.
On Oct 31, 2008, Peter – London wrote:
>for a bank that depended on being able to constantly roll over its short term debt, that was
>fatal, even before the UK finished it off.
No, it wasn’t fatal. What was fatal was Darling and Brown ordering the seizure of all the assets of Kaupthing, Singer and Friedlander they could find and giving them to ING at a nice discount.
On Oct 31, 2008, GreatDane said:
>Peter…[comes across] as a stereotype you meet every day in you know; Ignorant, full of himself, refuses to see other peoples perspective since he by definition is always right.
>As for racism I don’t know? somehow I get the feeling he is white, and so am I, so it can’t really be racism can it?
Peter (like certain others here) post nationalist slurs only to try and get a rise out of you and other posters to and distract from the issues and facts posted. As if you hadn’t noticed :)
Be sure that he has a government job.
William Wallace:
>>Be sure that he has a government job.
LOL. I am a director in a US consultancy in specialised industry that I can’t identify (~business risk analysis).
Just about as accurate as your other comments though.. keep it up.
GD. That’s why I said racism/nationalism – it’s all pretty much the same. Two whites can still be racist towards each other if *they* decide that they’re different races (especially as race is a scientifically questionable concept).
“Firstly, during the first half of the year there were no indications that Landsbanki and all the Icelandic banks would be hit by the blows”
Not true, alarm bells were at that time being rung loud and clear. Does Bjorgolfur say now that by ignoring the relevance of such warnings that there were no such indications?
“that there were more than enough assets against all these deposits”
What kind of assets?
“So it is a general misconception that as a large shareholder in a bank you can exert much influence, you have less influence than usual”
Here he denies involvement and responsibility for Bank policy.
But as a shareholder he later claims he was a central part of the offered perfect solution.
Yes well as someone who stands to lose their life savings for thinking that Icelanders were honest people and who were talked into NOT taking my money out by a whole load of Irish Blarney I ask.
What is Iceland going to do about the honest people it has in effect STOLEN money from?
Not only has it stolen their money but in many cases their dreams and their very livelihood
Bloomberg keep referring to a comment by an analyst at S&P that the Icelandic government is “‘ring-fencing’ the domestic interests and ‘probably abandoning’ external liabilities”. Interestingly that comment was made back on 9th October but they keep bringing it up in their current articles, so it might be reasonable to assume it’s S&P’s current opinion.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avKoJORlPS4g
That gels with comments I’ve read/heard by Oddsson, Haarde & Matthiensen. I really wouldn’t hold out much hope of any significant compensation from Iceland for one of the offshore banks given that even the EEA guarantee is in question.