Iceland President Defends Pre-Crisis Tours Promoting Bank Model
Iceland’s President Olafur R. Grimsson
Alexander Natruskin/AFP/Getty Images
Iceland’s President Olafur R. Grimsson.
Iceland’s President Olafur R. Grimsson. Photographer: Alexander Natruskin/AFP/Getty Images
April 11 (Bloomberg) -- Icelandic President Olafur Grimsson talks about the depositor claims accord with the U.K. and the Netherlands following a referendum in which Icelandic voters rejected a proposal to pay back foreign depositors. Grimsson speaks from Reykjavik with Maryam Nemazee on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)
Iceland’s President Olafur R. Grimsson defended his efforts to promote the island’s banking model in the years that led up to the crisis, arguing it was his duty to talk up an industry that was creating jobs.
“It’s always the mandate of the President to support the economy of the country and those three banks were the biggest companies,” he said in an April 12 interview in Copenhagen, before speaking at the Institute for Corporate Governance about lessons from the crisis. “They were providing thousands of young Icelanders with job opportunities, both in Iceland and in other parts of the world.”
The former executives of Iceland’s biggest banks, which collapsed in 2008 after amassing debts more than 10 times the size of the economy, are now being probed for financial crimes that prosecutors allege spurred the economic meltdown. Grimsson, 67, in a May 2005 speech attributed the banking growth to the nation’s “business culture” and a tendency to “challenge prevailing theories taught in respected business schools.”
Now, Grimsson says “it would have been strange if the president during those years hadn’t participated in promoting the biggest companies of Iceland.” The island’s financial industry employed 4.3 percent of the country’s workforce in 2006, or 7,300 people, Statistics Iceland data show. The industry accounted for 5.1 percent of workers in 2008, the office estimates.
Icelandic Defender
The President in February blocked government efforts to settle foreign depositor claims stemming from Landsbanki Islands hf, once the country’s second-biggest lender, arguing taxpayers shouldn’t cover losses from mismanaged private banks. That triggered a referendum, in which 59.7 percent of voters on April 9 rejected a government accord with the U.K. and Netherlands.
According to Hannes Holmsteinn Gissurarson, a professor of political science at the University of Iceland, the President’s recent performance is in character.
“He certainly overdid his strong support for the Icelandic businessmen,” Gissurarson said in an interview today. “They were regular visitors at the President’s residence before the collapse. But then Olafur realized after the collapse that he had to regain his popularity and this he did by using his rhetorical skills to become the best spokesman for Icelandic interests.”
The depositor dispute will now be settled at the European Free Trade Association’s court in Luxembourg, where proceedings are likely to take about a year, Finance Minister Steingrimur J. Sigfusson said on April 10.
Rating Downgrade?
Moody’s Investors Service on Feb. 23 warned that failure to resolve the depositor dispute, known as Icesave, would trigger a rating downgrade to junk. Fitch Ratings Ltd. has ranked Iceland’s debt non-investment grade since Grimsson’s January 2010 veto of an earlier depositor accord. The companies said Iceland will face difficulties tapping international debt markets unless the depositor claims are resolved.
Grimsson blames the rating firms for misleading Iceland’s policy makers before the crisis by giving the banks high credit grades. He says he toured the world praising Iceland’s lenders “especially since they were given very positive remarks by international rating authorities.”
‘Abysmal’
In an April 11 Bloomberg Television interview, he called Moody’s track record on assessing Iceland's credit risk “abysmal.”
Iceland’s Special Investigative Commission, which last April published about 3,000 pages of findings on the causes of the banking crisis, said Grimsson’s role in the meltdown was “especially interesting,” according to the report.
“It cannot be avoided probing the Office of the President especially in this regard, due to his servitude to the voyage and the individuals in the forefront,” the report concluded. Grimsson bears “moral responsibility for the theatrical play,” according to the report. He “forcefully drew a beautified, arrogant and nationalistic picture of the superiority of Icelanders, based on old heritage. It’s noteworthy that some of the qualities that the President thought were admirable were exactly the characteristics that eventually led to their and the nation’s demise.”
Grimsson said his support of the industry was also based on assessments by Iceland’s Financial Supervisory Authority. The Special Investigative Commission has since found the regulator failed to monitor the banks appropriately.
‘Warning Signs’
“Although there were a number of warning signs, the regulatory authorities and the international rating agencies continued to give the banks very good remarks,” Grimsson said. “Like my colleague heads of states promote the biggest companies of their countries, it has for a long time been part of the presidency of Iceland,” he said. “In previous decades it was primarily the fishing industry and agricultural companies but 10 years ago the banks became the biggest companies.”
Moody’s, which rated Iceland’s sovereign debt Aaa until five months before its financial sector collapsed in October 2008, said in an April 2006 report written by analyst Joan Feldbaum-Vidra that concerns “of risks that may accompany increased leverage in the economy” have “recently been exaggerated.”
Grimsson, who became president in 1996, is now touring the world promoting Iceland’s geothermal knowhow, which he in a Jan. 28 interview in Davos, Switzerland, called “a very important global mission for Iceland.”
Financial Crimes
Olafur Hauksson, Iceland’s special prosecutor, has investigated 112 cases relating to the banking crisis. The Supreme Court on March 24 sentenced brokers at failed Kaupthing Bank hf, once Iceland’s biggest lender, to six months in jail after finding they manipulated bond deals. The Reykjavik District Court on April 7 sentenced Baldur Gudlaugsson, a former permanent secretary at the Finance Ministry, to two years in jail for insider trading with Landsbanki shares. Haukur Thor Haraldsson, a former manager with Landsbanki, was indicted for illegally transferring money from a subsidiary to his personal account.
The full investigation of financial crimes that led to Iceland’s banking collapse will be completed by 2014, Hauksson said.
To contact the reporters on this story: Christian Wienberg at cwienberg@bloomberg.net Omar Valdimarsson in London at valdimarsson@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
Rate this Page