Report Questions Lending of Iceland Bank

  • Share
  • Read Later
Olivier Morin / AFP / Getty

A branch of the Icelandic bank Kaupthing, now under public administration, in Rejkjavik.

(2 of 2)

These questionable lending practices and the huge amounts involved have rekindled anger among Icelanders towards the island's business elite. Former Kaupthing CEO Hreidar Már Sigurdsson's house was doused with red paint on Wednesday night, the latest in a series of similar attacks on high-flying businessmen and entrepreneurs. The new revelations are even more galling considering the nation has recently agreed to shoulder two hulking loans, $4 billion from the U.K. and $2.4 billion from the Netherlands, to cover the crippling debt owed to European savers who lost their money when Iceland's banks crumbled.

Former chairman of the board of Kaupthing, Sigurdur Einarsson, has denied any wrongdoing, claiming in an Aug. 5 editorial in the daily Morgunbladid that "anyone who has the chance to review the material in the report can see that Kaupthing was in a fine position at the end of last September." Meanwhile, former CEO Sigurdsson told state broadcaster RÚV that the loans granted to parties associated with the bank's owners were within legal guidelines.

Even so, Kaupthing's initial reaction to the leaked report gave the impression the bank had something to hide. At first, Kaupthing attempted to prevent coverage of the information in the local media with a gag order on grounds of client confidentiality. The injunction has since been retracted, as it only applied to RÚV, and other news outlets have been freely reporting on the document since it appeared online.

Prime Minister Jóhanna Sigurdardóttir condemned the gag order at an Aug. 4 press conference, stating that the principles of bank secrecy and client confidentiality may not be used to hide market manipulation in a society that demands transparency.

With the former government having folded under the public's anger over its seemingly lax attitude towards big business corruption, Sigurdardóttir took the reigns from a platform based on exposing the roots of the economic downfall and overhauling the regulatory system. The mainstay in her push to salvage the nation is Iceland's application for membership to the European Union. Many Icelanders believe that joining a larger regulatory framework and currency area will keep its financial sector on the straight and narrow — and help it avoid another devastating fall.

"These loans just serve as a nasty reminder of how corrupt things had gotten here," says Sigurdur Gudmundsson, an out-of-work engineer. "This is such a small society, so businessmen, regulators, the media and politicians all end up in bed together. We need to be part of a larger system. Otherwise we're doomed to repeat these horrible mistakes."

  1. 1
  2. 2
  3. Next