Saga - 2011, Page 136

The state-owned Landsbanki bank loaned the S-group ISK 7 billion to buy
shares in Búnaðarbanki, at that time an almost unprecedented sum in Icelandic
business; moreover, information about this loan was kept secret from the public.
In the process, many norms set by the government were violated outright. For
instance, the S-group did not import any foreign capital into the country, even
though that was purported to be a leading reason for choosing the S-group over
Kaldbak, which had also sought to purchase the state shares in Búnaðarbanki.
Whereas Íslandsbanki bank had been excluded from the purchase from the start,
on grounds that its having an interest would conflict with the aim of fostering
competition, Búnaðarbanki and Kaupþing bank were permitted to merge just a
few months after privatisation. Indeed, representatives of the S-group and
Kaupþing had agreed to such a merger long before.
The Búnaðarbanki privatisation marked the beginning of a sharp division of
the Icelandic financial sector into three main blocs. In fact, the governing politi-
cians were dictating the creation of two fairly balanced blocs centred on the
Búnaðarbanki on the one hand and the Landsbanki on the other, it being consid-
ered inevitable that an additional bloc would eventually coalesce around the third
bank, the Íslandsbanki.
Upon the privatisation of Búnaðarbanki, its buyers, who derived from the
century-old Federation of Icelandic Cooperatives, joined with the leaders of the
young investment bank Kaupþing to form the country’s largest financial compa-
ny. The S-group purchase of Búnaðarbanki set the stage for the economic excess-
es of the following years, when the Icelandic financial system would throw mod-
eration to the winds and liabilities would become unmanageable. As the tidal-
wave of the international financial crisis struck Icelandic shores in the autumn of
2008, the newly born S-group/Kaupþing financial colossus would collapse into
bits.
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