To continue where we left off on that story about Quatari Sheikh Al-Thani’s amazing deal in Kaupthing, it was revealed by Channel 2 that the bank lost 44 billion ISK in the deal that saw Al-Thani purchase 5% for money borrowed from the bank with collateral in the shares themselves.
The sources of Channel 2 say that Al-Thani borrowed 12,5 billion from Kaupthing without collateral other than the shares, the rest he borrowed from a company registered to Olafur Olafsson in the Caribbean. Just before Olafur lent Al-Thani said amount he bought bonds in Kaupthing for 25 billion from foreign parties. He got the bonds for 50% discount, only paying 12,5 billion for them but soon afterwards the bank bought them from him for 25 billion, made a profit of 12,5 which he promptly lent Al-Thani.
So the Quatari never staked a single krona of his own on Kaupthing shares. Neither him or Olafur lose any of that money but the bank ended up with collateral in worthless shares and a bond that is worthless. The bank’s loss amounts to 37,5 billion.
Why are these deals put together and who does them? Lets rewind the clock until September.
Qatari company buys a stake in Kaupthing Bank
Kaupthing Bank, Iceland’s largest bank by market capitalisation, said yesterday that Q Iceland Finance, a company controlled by Qatar’s Sheikh Mohamed bin Khalifa al-Thani, had bought a 5.01% stake in the bank. Q Iceland Finance has acquired 37.1mn existing shares in Kaupthing at a price of 690 Icelandic kroner ($7.61) a share, thus becoming its third-largest shareholder, it said. The investment is worth $283mn. Kaupthing has a market capitalisation of 528.7bn kroner ($5.84bn). Kaupthing shares closed on Friday at 714 kroner.
“We view our stake in Kaupthing as a long-term investment and look forward to a close relationship with the bank in the future,” Sheikh Mohamed said. He owns Q Iceland Finance through his unit Q Iceland Holding Sigurdur Einarsson, chairman of Kaupthing, said that his bank was “continually focused on attracting new investors to the bank, and we are happy to see that our strategy of increasing the diversity of our shareholder base has proven fruitful.”
Kaupthing chief executive Hreidar Mar Sigurdsson said the bank’s planned expansion in the Middle East would be easier the Qatari stake purchase. He said Kaupthing, which was the first Nordic bank to be granted an operating licence in Qatar in September 2007 and had only six employees in the Middle East by the end of the year, wanted to ramp up its presence in the region. He said Sheikh Mohamed could help out through developing strategy as well as personal relations, and that he regarded the 5.01% stake as a long-term investment.
The fact that Kaupthing is already present in the Middle East strongly contributed to Sheikh Mohamed’s interest in the bank, he added, and said the deal was preceded by some months of discussions between the parties. State-controlled Qatar Investment Authority has previously built significant positions in Western financial groups, including a 15% stake in the London Stock Exchange Group. However, Sigurdsson said Sheikh Mohamed bought the shares in Kaupthing on his own behalf rather than acting for the Qatari state.
Landsbanki analyst Benedikt Stefansson said the Middle East had surged to the top as a favourite growth market among Western banks looking to bolster revenue streams on capital-heavy energy investors. The capital injection also signals foreign investors are willing to put their money in Iceland’s small-but-volatile economy, which has been hit by a weakening kroner, slowing economic growth and double-digit inflation. Sheikh Mohamed is the second foreign investor to build a stake in Kaupthing since June, when wealthy British property investors Mendi and Moises Gertner bought a 2.5% stake for 14bn kroner ($176mn). The sheikh also has a pending acquisition for a 12% stake, worth roughly 40mn euros, in Icelandic seafood producer Alfesca, whose chairman Olafur Olafsson also owns shares in Kaupthing.