Can you explain to a foreigner what exactly is going on with the banking scandal regarding privatization of Icelandic banks? Why were the foreign and prime ministers and the cover of Fréttablaðið every day for a week?
If you want to use the word scandal, even though we never used that word in our piece. What we did in those four pieces is go through the story of the privatization of the two banks from when it was first brought up in 1997 in parliament and what actually happened until they were sold.
The government first tried to sell Landsbankinn in 2001 and hired [British Investment Bank] HSBC to contact some foreign banks and investment banks to see if they were interested in buying at least 25 or 33% or up to a 45% share in Landsbankinn. This happened just after 9/11, when the world economy was put on hold for a few months, and nothing really happened. No one was really interested.
So early 2002, the deal gets put on hold. And what has never been made public until these pieces was that the privatization committee was preparing to sell the shares on a public market on the stock exchange. And they had made all necessary preparations until Björgólfur Guðmundsson of Samson contacted Prime Minister Davíð Oddsson and said they were interested in buying one of the banks. Björgólfur’s son, Björgólfur Thor, had met someone at HSBC in London at a party and found out that they were no longer trying to sell the banks. The plan had just been thwarted. So he thought there were two banks up for grabs, he might just try to get one of them. And when Björgólfur Guðmundsson contacted Davíð Oddsson, Oddsson spoke to the three other ministers in the Ministerial Committee on Privatization.
He did contact the other ministers? It’s not a case of acting unilaterally?
Yeah, they had a meeting. The four ministers decided that they were no longer going to sell the banks to the public but try to sell to the most interested public party.
Were the other ministers in the Independence Party?
The other ministers were Halldór Ásgrímsson [now Prime Minister of the Progressive Party], Geir H. Haarde [Finance Minister of the Independence Party], and [Minister of Industry] Valgerður Sverrisdóttir of the Progressive Party. They made the political decision on the privatization. Then there was a privatization committee that was supposed to be an independent committee to make sure the ministers obeyed the rules and that kind of thing, but obviously that didn’t happen.
Dumb it down for me. Two privatization committees? Is one like a watchdog?
Yes, the other privatization committee is made up of people the ministers appoint.
But if you’re appointed by the people you’re supposed to check?
No one in the privatization committee was independent. All were appointed by government ministers.
Of course. So did they verify that this was a good idea?
They thought this was an interesting offer. So Mr. Oddsson told Björgólfur Guðmundsson to send the privatization committee a letter of interest, which he did, so they could discuss this letter without being told to do so by the ministers’ committee. Still, this offer was interesting. The money was coming from abroad, which at this point was important. The profit from the sale was to pay down foreign debt, and the deal was to be done in dollars. That was a big issue.
But what has never been made public was that at that point the decision to sell the bank to the public was aborted without telling anyone that it had been the plan. The ministers decided to sell both of the banks without even discussing this with the privatization committee.
What I’ve learned since I published the feature, and I have very solid insider information, is that Davið Oddsson just wanted to sell Landsbankinn to Björgólfur Guðmundsson; the Progressive Party has told me this, someone very much in the know, a source close to Halldór Ásgrímsson told me that Davíð Oddsson wanted to sell Landsbankinn to Björgólfur, announcing it afterwards.
Halldór Ásgrímsson and Valgerður Sverrisdóttir, both Progressive members, had to force Oddsson not to do it. Had to force him to advertise the banks locally. It’s interesting that despite the government wanting to sell the banks to foreign investors, the banks were never advertised abroad. Only in Iceland.
That might hurt foreign interest. So the banks were being sold to private companies in Iceland?
There were five investment groups that showed interest. The three that were short-listed were Samson, the S-Group and Kaldbakur, an investment group. Very shortly after the list was made public, Kaldbakur and the S-Group were getting messages from the privatization committee that they should join together and put an offer on Búnaðarbankinn, not Landsbankinn. From the start it was obvious to some of the investors that Samson was going to get Landsbankinn. Halldór Ásgrímsson himself coordinated a telephone meeting, in which he participated, between S-Group and Kaldbakur to get them to work together. He has since admitted that this happened.
But he was essentially saying they had no chance at Landsbankinn, the largest bank?
That was after it was announced that Samson would buy Landsbankinn. The deal between the government and Samson took place 31st of December 2002. In June 2003 S-Group alone buys Búnaðarbankinn. Samson, the S-Group and Kaldbakur were all in the running for Landsbankinn, all along. The two that didn’t get Landsbankinn were going to get Búnaðarbankinn. Samson had the lowest offer. But still got it.
Why would that happen? Why would the lowest bid win? Were the offers public?
At the time I don’t think the offers were made public. No one really knew what the difference was.
But Björgólfur and Samson had foreign capital.
Yes, that was the explanation, that Samson had foreign capital. Plus future plans, future vision. Number three priority was the price. They did a scheme where they broke down the priorities.
It seems like they could have gone reverse. 1) Price, 2) Vision, 3) Foreign Capital.
Well the assessment, the claim of the privatization committee is that the assessment was made to fit the purchase.
The privatization committee openly stated this?
No. All off the record. But they told me that. And there was a very intense debate within the committee when they were deciding on how to evaluate the categories. It’s stated in reports from the government auditing office that the debate was heated, which resulted in one of the members of the privatization committee resigning in protest. Steingrímur Ári Árason. And that was a huge blow at the time.
But this is a meeting going on after the deal has been made?
No, it was when they were deciding to go to talks with Samson. It was about how we can explain why we are dealing with Samson when their bid is the lowest one. In early September 2003.
I can’t help thinking in the back of my head about the recent news that all parties opened their books to show who donates to them except the Independence Party.
Yeah.
If they opened their books, would we see a significant contribution from Iceland’s richest man?
I don’t know. There is a side story to this about Landsbankinn. Landsbankinn and the S-Group each owned 50% share in the insurance group VÍS. The Progressive Party, which has significant ties to the S-Group, was not going to allow half its share in VÍS to go to Samson. So there was a period just after Samson was chosen that the S-Group calls the Six Day War over VÍS. Both Halldór Ásgrímsson and Davið Oddsson took part in this war over VÍS. I’ve been told that Ásgrímsson threatened to abort the privatization process if VÍS was sold with Landsbankinn, which would result in Davið Oddsson having to break up the government. The result was that the S-Group bought the shares from Landsbankinn.
Why fight over a smaller asset like an insurance company?
The S-Group needed VÍS to have the credit to buy Búnaðarbankinn.
Okay, so where are the other problems?
What’s now being investigated by the government auditor is Halldór Ásgrímsson’s direct involvement in the S-Group. He and his family own a significant share in a fishing company, which owns a share in Hesteyri, which owns a share in Ker, which is the main investor in Búnaðarbankinn.
Not until now did the main auditor think it might be a good idea to see if Halldór should have abstained from the deal because of his direct ownership of one of the investment groups, at least until the 12th of November 2002 when his company sold its share of Ker in exchange for VÍS, which is still an investor in Búnaðarbankinn.
No one until now has seen a reason to question this connection. Ongoing discussion within the opposition. It has been dismissed as rumour.
How can that be dismissed? Isn’t it in the numbers?
He claims it’s because people are out to get him. The auditor will release a report soon that says whether Ásgrímsson should have withdrawn himself due to conflict of interest. The auditor has already written two reports on these sales without having found anything controversial.
How is that possible?
The reports never even said that the privatization committee had prepared to sell the banks to the public.
So where’d you get that information?
From the privatization committee. Someone told me accidentally and I had it confirmed.
Any idea on how much could have been made on the stock market?
The market value was higher per share than what Samson got it for. He bought it for 3.70 a share.
Maybe the public didn’t have the money or interest in stocks?
In early 2002, they sold 25% to the public and it went very well.
So they could have made money on the market. I’m curious, you said Samson was the third lowest. What were the other offers?
4.10 per share from the S-Group and 4.16 from Kaldbakur. Samson offered 3.90 which totalled 12.3 billion, but they got a 700 million ISK write off. 11.6 billion was paid.
So Samson got a remarkable deal?
Yes, a good deal less than market value. And nobody else would have received the 700 million ISK write off.
And then the next bank?
Then the S-Group had the highest offer and bought Búnaðarbankinn for about 11.2 billion.
Hey, all right. Sounds legitimate.
But an interesting thing there is the involvement of a foreign investor Hauck & Aufhauser, which was their main asset and part of the reason they got the deal.
At the time S-Group went into negotiations, no one knew who the foreign investor was, including the privatization committee. The foreign investor refused to make himself known. So they arranged a deal the HSBC to research the investor without revealing the name.
I have been denied access to the HSBC official reports, but I know that the privatization committee got a report that stated there was an international investment group, which sounds an awful lot like the Société Générale, the French investment bank. Some within the privatization committee have claimed the S-Group gave HSBC the name of Société Générale despite the fact that they hadn’t secured an investor. And not until the deal was signed in mid-January 2003 was the name made public, and it was Hauck & Aufhauser, a small private bank in Germany.
So international investment group wouldn’t be an accurate description?
S-Group’s key to get Búnaðarbankinn was to have a foreign investor and some people say that it wasn’t until a few days before the deal was signed that they managed to secure Hauck & Aufhauser. In the contract with the government it says none of the buyers can sell any of the shares within the next 21 months. After 13 months Hauck & Aufhauser sold half of their shares to Ker. And Valgerður Sverrisdóttir, the Minister of Industry, allowed it. But that was not made public.
Another interesting thing is that when Samson got the books, was given access to the banks after they bought Landsbankinn, one of the first things that they noticed was a 6 to 8 billion krónur loan to the S-Group. Obviously given when the government still owned the bank. So half of Búnaðarbankinn was paid for with a loan the government gave the S-Group with a very competitive rates of 1.4 over liber.
S-Group paid in two payments: the first payment was 6.7 billion, about the same as the loan. They merged with Kaupthing when the valuation of the bank was up 9 billion from when it was bought.
They bought the bank for 11 billion and it was valued at 20 billion months later? Well, I just can’t see what the problem could be. Buy a bank with a loan from the government, when you are the government. Get a bank that is severely undervalued. Good business.
Yes, well they eventually paid the rest off and the loan off. But they were worth a lot more at the end of 2003.
Okay. So are we caught up? What are the errors?
The whole privatisation wasn’t transparent enough. It leaves too many unanswered questions. Such as why weren’t the banks advertised abroad? Why was no one ever told about the possibility of public sale? Why was the price the third most important factor in selling Landsbankinn? Why was Halldór Ásgrímsson interfering? Why didn’t Ásgrímsson make it clear from the start that he and his family were involved in the S-Group? And why was all the information on the deal kept secret? This happened three years ago. I think we have the right to know.
Let’s go back to the investigation, then. How did you get at this information without banking or government documents?
It’s all from sources; I can’t give you names but they’re very close to the process.
How many did you have to use for this story?
Twenty. And all of the information was double and triple checked. There were lots of stories that I couldn’t get verified that weren’t in the reporting.
What time commitment did you spend on this?
About five weeks doing nothing else.
What happens if people challenge you for the sources?
They won’t. But already when the first piece came out I got phone calls from people close to Ásgrímsson and Oddsson saying they were searching for who the sources were. All the sources asked me to change the way they phrased words, their language, to make sure they couldn’t be recognized. Which I don’t think is positive. Why can’t people just say what happened?
On the other hand, you have to use people off the record, because these people have to do business with each other again. I have to stress though that all of the information in the article was verified and double and triple checked.
Do you think your reporting will change government policies?
The result is primarily that now people know what happened. We haven’t judged anyone. I just made sure I told the story fact by fact in chronological order by the people involved. What happens after is for politicians and the public to decide.
But the whole discussion about the banks has been going on for three years. It’s common knowledge that people close to the Independence Party got Landsbankinn and that people close to the Progressive Party got Búnaðarbankinn.
How can people accept this?
I don’t want to criticize the auditor, but he’s already done two reports without saying anything. What are we to do? I mean parliament can’t do anything, I mean the opposition parties have been trying but they’ve been criticized by the government for doing so.
But now Síminn [the national phone company] is being sold. The discussion of the banking privatization for the last three years will at least make sure that the sale of Síminn is more transparent.
Fool me twice, right?
No.
What has been the reaction to you as a reporter? This is a big story, one of the biggest to come out in local journalism?
My phone didn’t stop for three days. The readers were calling and thanking me for making this public information and telling a story and documenting instead of just rumours.
Obviously the government immediately started diminishing both the story and me. From both parties. People came and did interviews on television and radio, talking about how badly this was researched and written. But it was completely untrue. One was even forced to apologize after a really harsh unfounded criticism on television, Björn Ingihrafnsson, the assistant to the Prime Minister.
Is there any precedent for this kind of investigative piece in Icelandic journalism?
Not on this scale. Agnes Ragnardóttir at Morgunblaðið wrote in 2003 a story about the battle behind Íslandsbanki, but that was more about the business sector. This was about the government.
Was it a difficulty that this story came out in Fréttablaðið?
To the majority of people it doesn’t matter where it was published, only to those who dislike Fréttablaðið. No one can ever claim that the piece would have been any different if it had been printed in Morgunblaðið, because there was nothing in there that wasn’t correct. But government spokespeople were very quick to point out the connection between Fréttablaðið and the Social Democrats, saying we were just trying to jumpstart their campaign. They even pointed out how quickly [Social Democratic Chairperson] Ingibjörg Sólrún reacted to the piece, though no one mentioned how quickly everyone else did as well.
This is a tactic you were familiar with, I gather?
In early January, when I was covering Iraq, criticizing the government, they started a story that the new CEO of [Fréttablaðið parent company] 365 was writing for me. Valgerður Sverrisdóttir wrote on her website a piece about how I was a member of the Social Democrats and I was bullying the Progressive Party. But still, I couldn’t write it myself, so they claimed [365 CEO] Gunnar Smári wrote it.
The sad thing is these campaigns seem to work. The government can always control how the discussion develops.
Yes, it seems that the opposition here is more reactive than anything.
Day one, the Social Democrats and Ingibjörg Sólrún said they would look into the investigation. Then the rumours started that Fréttablaðið was kickstarting the Social Democrat campaign, and I don’t think I’ve heard a word from her since about this.
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