Iceland’s richest man defends economic record

thorbjorgolfssonFollowing 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.

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