Rotten business between Al-Thani, Kaupthing and Olafur Olafsson

Olafur Olafsson and Finnur Ingolfsson drive away after securing Bunadarbankinn from the Progressive Party

Olafur Olafsson and Finnur Ingolfsson drive away after securing Bunadarbankinn from the Progressive Party

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.

Al-Thani with president Olafur Ragnar Grimsson and Minister of Industry Össur Skarphedinsson

Why are these deals put together and who does them? Lets rewind the clock until September.

Qatari company buys a stake in Kaupthing Bank

Gulf Times

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.


5 Responses to “Rotten business between Al-Thani, Kaupthing and Olafur Olafsson”

  1. 1 Vilhjalm A. January 19, 2009 at 3:46 am

    The bank only lost 300-400 million euros on this deal. That’s small coins.
    Who can tell me where the rest of the $15-30 billion lost by the banks went?

    Maybe the Sheik needed a boat to get back to Qatar from the Caymans. Boats cost money and it’s a long way to the Gulf, so he would have needed a big boat.

  2. 2 Roy January 19, 2009 at 8:37 am

    A den of thieves!

  3. 3 Einar Jón January 21, 2009 at 6:15 am

    But this all just seems to have been a “fake” transaction to fluff up the share price – I’ve been over this a few times but still can’t see how Kaupthing “lost” 37.5B.

    They buy their own bond for 25B – essentially giving Ólafur 12.5B.
    Then they sell that shares to Al-Thani, paid for with a loan from Kaupthing and Ólafur – but no money actually changes hands and Ólafur’s 12.5B presumably go back to the bank.

    Al-Thani owes Ólafur and KB 12.5B each, but has a 25B share. Bank owns a 25B bond. All assets (loan/bonds/shares) are now worth 0.
    Net cash flow change for the bank seems to be 0. Same goes for Al-Thani, and probably Ólafur as well since he lent his ill-gotten earnings to Al-Thani.

    Now the bond, shares and loan are all worth 0 – but why is there money lost* if the net cash flow change for bank is 0?
    Did Ólafur somehow use this to fleece the bank and/or sheikh of billions? If so – how?

    *) not counting the “if the sheikh would have paid with real money we would have gained 25B, so we have now lost 25B”, or “if we would have paid only 12.5B for the bond we would have saved 12.5B, so we have now lost 12.5B” – I mean money lost compared to this bullshit never happening in the first place.

  4. 4 Vilhjalm A. January 21, 2009 at 8:52 am

    Maybe the bank had to issue a 25B bond to begin with (i.e it was not a pre-existing issued bond), and perhaps they had to borrow money from other parties to do so. So they issued a bond, and got a bond in return, now worthless. But they paid real money for that bond. Or maybe the * explanation applies. By issuing the bond and keeping it, the bank lost money by not selling the bond to someone who might have bought it. In other words, issuing this bond reduced their bonding capacity, i.e. the ability to sell debt to some other fool who might buy it.
    The other 12.5 might be the difference between the Olafur Olafsson buy and sell prices. How do you know he returned the money to the bank? Maybe he kept it as compensation for himself. Or maybe Olafur never put up real money when he bought the bond, he just borrowed from the bank, and then never repaid them.

  5. 5 Einar Jón January 21, 2009 at 4:55 pm

    This case really smells, but saying one party lost 150% of the transaction amount while all the others came out even sounds a bit fishy to me.
    Lost “viðskiptavild” might have been debited by 37.5B but that’s a drop in the bucket compared to everything else lost by the banks in the past months…

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