Straumur

"Extracting myself from my misplaced investments in Icelandic banks was much more difficult. I knew that I could not sell the 40 per cent stake in Landsbanki or the 38 per cent holding in Straumur, the Icelandic investment bank of which I was chairman. I held both stakes jointly with my father but realised that they were simply too large a piece of the financial infrastructure for them to be allowed to be sold without a great deal of time-consuming regulatory scrutiny. And I had grave concerns about the strength of the krona, the management of the Central Bank and Iceland’s financial system. I kept thinking of what had happened in Russia ten years earlier. The Icelandic krona was being artificially strengthened by the government, which was offering foreign investors krona-denominated bonds at excessive rates of interest."

"When I wanted to radically change Straumur to de-risk it and bring in professional management from abroad, I got into a major debate with two fellow shareholders and board members who in different ways were products of the kind of false thinking prevalent in Iceland at the time. One of them had an old Icelandic money background and the other had inherited a fishing business. Thordur Mar Johannesson, Straumur’s CEO, had advised both of them to leverage up their family companies through the bank. To them, he was incredibly smart but they didn’t have a clue about what they were doing. When I said: ‘We have got to change management,’ they said: ‘Why? This guy is brilliant.’ I replied: ‘He’s brilliant now but the amount of risk we have in the company by always betting on local bank shares rising is crazy. We could go pop just like that.’ He had built up a large position in Glitnir, managed to sell it profitably and now wanted to do the same again with Kaupthing shares. It was a one trick show and lacked any vision to build a diversified business. They didn’t see the danger signs. They had maybe €100 million to their name but it was all done through Johannesson, who had leveraged them up and put them into various businesses and instruments. They were sky high on monopoly money and just wanted to take more and more turns. They had no sense that this was not a game."

"I refuse to be classed alongside such operators. I have lived abroad for 26 years, more than half my life. I don’t have Icelandic funds to invest abroad. I earned my capital abroad and made the mistake of ploughing much of it back into Iceland. Others started businesses in Iceland and leveraged their local assets to acquire businesses abroad. I did things the other way around, bringing money into the country. When I sold my companies in Russia, Bulgaria and the Czech Republic, I was paid in cash, not in paper, and that cash paid for Actavis and was pumped into Iceland’s financial system. I did not sell a single share in Landsbanki, Actavis or Straumur, the investment bank of which I was chairman."

"Extracting myself from my misplaced investments in Icelandic banks was much more difficult. I knew that I could not sell the 40 per cent stake in Landsbanki or the 38 per cent holding in Straumur, the Icelandic investment bank of which I was chairman. I held both stakes jointly with my father but realised that they were simply too large a piece of the financial infrastructure for them to be allowed to be sold without a great deal of time-consuming regulatory scrutiny. And I had grave concerns about the strength of the krona, the management of the Central Bank and Iceland’s financial system. I kept thinking of what had happened in Russia ten years earlier. The Icelandic krona was being artificially strengthened by the government, which was offering foreign investors krona-denominated bonds at excessive rates of interest. As the coupon on the bonds went from 10 per cent to 12 per cent then 14 per cent and 16 per cent, my forebodings grew. More and more it seemed like Russia all over again, with a government boosting interest rates to get cash so it could fund itself; and the krona exchange rate was just as artificial as that of the rouble in 1998. But this time it was happening in my own country where I was heavily exposed to the economy. I needed an exit plan."

"How much did I have to liquidate? Almost everything. All the assets in publicly quoted shares went, and my investment in Landsbanki went from being worth €1.7 billion at the beginning of the year to €600 million by 4 pm on Friday 3 October before ultimately falling to zero on the Monday, the following business day. Straumur survived but had to write down its assets by 50 per cent; its shares then plummeted, trading at less than a third of book value. It’s amazing that so much value could be lost over a single weekend, and now of course the sceptics say: ‘Did you ever make all that money? Was it ever there?’ or: ‘How could you lose it so fast?’ But it just went, destroyed by the international financial bomb that had hit Iceland. As with the blast effect of any bomb, the damage spreads ever further from the initial point of impact to reach buildings on the periphery so that they eventually collapse or become so unsafe that they have to be pulled down."