Reykjavík Grapevine - 05.06.2009, Qupperneq 6

6
The Reykjavík Grapevine
Issue 7 — 2009 Irina Domurath
Our awesome German scribe spends
her time delving into Icelandic cor-
ruption - much to our advantage...
Article | Bank Privatisation
Icelandic Banks: Sold To Party Friends
In the years 2002 and 2003, under the PM reign of Davíð Oddson, two Icelandic banks were privatized.
The first was Landsbanki, the second
Búnaðarbanki, a relatively small “farm-
er’s bank.” Since the government was
especially interested in acquiring foreign
capital, the banks were to be sold off to
foreign investors with experience in the
banking sector and in possession of for-
eign assets. Consequently, the amount of
the purchase price was crucial. But it all
ended quite differently: Icelandic inves-
tors with no experience in the banking
sector bought the banks. Landsbanki
was sold to a group of investors forming
the Samson Holding ehf, which didn’t
even bid the highest purchase price.
But the leader of the group, Björgólfur
Guðmundsson, was not only a member
of the Independence Party, just like Davið
Oddson and Geir Haarde, the latter being
the Minister of Finance at that time, but
obviously also had strong ties to the Party
leadership. In contrast, Búnaðarbanki –
being the “farmers’ bank” – was almost
inevitably tied to the Progressive Party,
which traditionally represents farmers’
interests and was hence sold to an assem-
bly of Icelandic investors who were close
to the party: the so-called S-Group.
An inexperienced
and convicted buyer
In 2002, the government created a gov-
ernmental privatization committee that
had the task of finding potential foreign
buyers. In June of that year, however,
politicians became actively involved in
the privatization process. Davíð Oddsson
came together with then-Ministers Geir
Haarde (Independence Party – Finance),
Halldór Ásgrímsson (Progressive Party
– Foreign Affairs) and Valgerður Sverris-
dóttir (P – Business Affairs) in an ad-hoc
meeting to discuss the privatization pro-
cess without notifying the governmental
privatization committee.
Subsequently, the bidding was only
advertised in Iceland, and not in any for-
eign countries. Samson Holding ehf. put
in a bid together with two other investor
groups and bought Landsbanki. Their bid
was not the highest offered, and they even
received a nine million-Euro discount on
the original sales-price. Moreover, the
three owners of Samson Holding were
neither foreign investors nor were they
experienced in the banking business.
Björgólfur Guðmundsson founded the
Samson Holding ehf. together with his
son Björgólfur Björgófsson – once one
of the supposedly most handsome bil-
lionaires in the world – and a common
business partner. The three investors
made their fortune with the Bravo-brew-
ery in Russia, which they sold for about
400 Million USD to Heineken in the
Netherlands. Guðmundsson was also
the owner of an Icelandic shipping com-
pany, which went bankrupt in the 1980s.
He was charged with fraud and defalca-
tion, amongst others, and sentenced to 12
months suspended sentence.
Former journalist Sigríður Dögg
Auðunsdóttir, who worked on an exten-
sive coverage on the privatization process
for Iceland’s free newspaper Fréttablaðið
some years back, learned from a source
involved in the privatization process that
Davíð Oddsson received a phone call
from his party-colleague Guðmundsson
just prior to the ad-hoc- meeting. In this
call, Guðmundsson told Oddsson that he
was very interested in buying a bank.
Consequently, says Auðunsdóttir, the
original criteria for selling the banks was
adjusted to the offer made by Samson, so
that Samson could buy the bank. Instead
of selling Landsbanki to experienced
foreign investors, or the highest bidder,
Davíð Oddsson praised Guðmundsson’s
“vision” for the bank and pointed out that
Samson Holding (at least) possessed for-
eign currency.
Búnaðarbanki and
the Progressive Party
Búnaðarbanki was sold to the so-called S-
group. This group of investors was close
to the Progressive Party and consisted of
several companies: Egla ehf., two insur-
ance companies and one pension fund.
Originally, Guðmundsson declared inter-
est in buying Búnaðarbanki, but Odds-
son and the Minister of Foreign Affairs,
Ásgrimsson, had allegedly agreed that
Landsbanki would be sold to business-
men close to the Independence Party
and Búnaðarbanki to investors close to
the Progressive Party. In Auðunsdóttir’s
opinion, the S-group was meant to buy
Búnaðarbanki from the start, whereas
Samson Holding was chosen to get Lands-
banki. She claims knowledge that all par-
ties of the privatization were in constant
talks throughout the process and that the
ministers were directly involved with the
parties bidding for both banks. Oddsson
thus explained to Guðmundsson that he
would not get to buy Búnaðarbanki, just
Landsbanki. The bidders were convinced
and the deals were closed. Like the own-
ers of Samson Holding, the members
of the S-group had no experience in the
banking sector. Moreover, they received a
75 to 100 million Euro loan from Lands-
banki just before the government sold the
bank, which means that Búnaðarbanki
was actually bought with a governmental
loan.
This of course means that any of us
could have bought it, given we had some
friends in the government. Seriously.
German private bank
incognito for Kaupþing
Since the key to the purchase of Búnaðar-
banki was foreign capital, the S-group
went searching for a foreign investor. Ac-
cording to Auðundsdóttir, this – at that
time secret – investor was won over only
shortly before the deal was closed. After
the purchase was sealed, the identity of the
investor was revealed to be the German
private bank Hauck & Aufhäuser. Inter-
estingly, this small and traditional retail
bank sold off its shares in Búnaðarbanki
only 13 months after the acquirement. In
contrast, the purchase agreement stated
that no shares in Búnaðarbanki could be
sold before 21 months after the date of
the agreement. The buyer was Iceland’s
youngest bank. Since Kaupþing oper-
ated solely as an investment bank at that
time, it was highly interested to acquire
Búnaðarbanki to expand the operations.
But the Ministry of Business Affairs, un-
der Sverrisdóttir, did not allow a merger
because it would have led to a restraint in
competition. Right after Búnaðarbanki
was sold to the S-group close to Sverris-
dóttir’s Progressive Party, the merger was
approved.
Financial expert and lector at the
University of Iceland, Vilhjálmur Bjar-
nason, examined the balance sheet of
Hauck & Aufhäuser. He surmised that
the German private bank never really
acquired Búnaðarbanki and that the pur-
chase was a pure undercover deal for
Kaupþing. “Hauck & Aufhäuser is a very
small bank, which was simply not able to
handle the purchase of 30 Million Euro
shares in Búnaðarbanki and to integrate
the bank into its system,” he says, assum-
ing that the merger of the two banks was
already a closed deal before the actual
privatization of Búnaðarbanki. Moreover,
the merger did not appear on the balance
sheet of Hauck & Aufhäuser in the year
2003. On inquiry, KPMG Germany sim-
ply announced “that in 2004 Hauck &
Aufhäuser had the relevant assets in the
accounts of the bank, not in the invest-
ment-portfolio,” says Bjarnason. “This
statement was more than unclear. It also
referred to the wrong year, which in my
opinion means that it is not true.”
“Extraordinary practices”
After a dispute with the ministers over
the criteria for the sale, Steingrímur Ari
Arason resigned as a member of the
governmental privatization committee.
He stated that “prospective buyers were
turned away in spite of their better of-
fers,” and that he had never experienced
such “extraordinary practices.” Arason
was replaced with a member of the Inde-
pendence Party. An investigation of his
allegations did not take place. It became
clear that the governmental privatization
committee did not perform its task to
survey the privatization process. Auðun-
sdóttir confirms that “no one in the gov-
ernmental privatization committee was
independent. Everyone was appointed
by the Ministers they were supposed to
watch over”, she says.
No investigation
When Auðunsdóttir’s article was pub-
lished in 2005, rumours of corruption
spread for the first time. Oddsson and
Haarde were not available for comments
at that time. Neither was Sverrisdóttir;
she referred to a statement on her website.
Ásgrímsson was faced with the allegation
of a conflict of interests, since he was not
only a member of the privatization com-
mittee but also the owner of a company
with ties to the S-group. When the call
for public investigation became louder,
the Icelandic Accounting Office investi-
gated the matter and concluded that there
was no interest of conflict whatsoever.
Ásgrímsson stated that his feelings were
hurt by the allegations and, apart from
Jóhanna Sigurðardóttir, the former chair
of the Alliance Party, not a single party
expressed doubts regarding the General
Accounting Office ś expertise in matters
like these. No further investigations were
undertaken. Again.
Oddsson in denial of mistakes
At the Independence Party’s party confer-
ence in March of this year, Haarde was
the first of the politicians involved to ac-
knowledge mistakes in the privatization
process. He apologized for the u-turn in
the government’s plans from selling the
banks to many foreign investors to just a
few, local ones. In contrast, Davíð Odds-
son did not admit any mistakes, even
though he was also responsible for the
undeniably fatal interest policy in Iceland
as the chairman of the Icelandic Central
Bank. When Jóhanna Sigurðardóttir, as
this winter’s temporary minority govern-
ment Prime Minister, asked him to resign
from his post, he refused to do so and de-
clined any responsibility or complicity in
the privatization of the banks and collapse
of the financial system. After the govern-
ment passed a law that forced Oddsson
out of office, he compared his dismissal
to the crucifixion of Jesus Christ. Seri-
ously.
Words
Irina Domurath
There has been a lot of talk lately
about the privatization of the
Icelandic banks at the dawn of the
century. It is said that the buyers
did not have any experience in the
banking business, and that better
offers from more experienced
candidates were turned down.
This leads us to wonder:
will there finally be a public
investigation about the
responsibility of politicians in the
crash of the banking system, or
will this scandal just be swept
under the rug once more, as per
usual?
“No one in the
governmental
privatization committee
was independent.
Everyone was appointed
by the Ministers they
were supposed to watch
over.”
Tel +354 577 60 50
www.sixt.is
1. Landsbankinn at Austurstræti. It
actually took bank security over
half an our to get suspicious at
our photographer and kick her
out.