What is known about this loan is that there is no proper documentation in the CBI regarding it. The only tangible evidence of the loan having been issued is apparently a recording of a phone call between the then governor of the CBI David Oddsson and Haarde. Kaupthing held some sort of “receipts” (but nothing resembling a loan agreement or any other formal documentation) for this amount having been paid to the bank. The loan had maturity four days later – i.e. it was a bridge loan but yes, an awfully short bridge. The collateral was nothing less than Kaupthing’s Danish subsidiary FIH Bank, at the time reckoned to be worth €670m and the interest rates set at 9%.
That Monday in the late afternoon, the loan was paid from a CBI account abroad into Kaupthing’s account with Deutsche Bank in Frankfurt in three instalments, totalling €500m. If or how it left Deutsche is not known. The €500m might have been enough to salvage Kaupthing Singer & Friedlander – the preceding week the FSA had demanded that £400m be paid as a guarantee since money was flowing fast out of the bank – but the €500m never seemed to reach the UK authorities.
The loan was not repaid four days later. Eventually, the CBI sold the collateral but the sale only brought in around half of the loan and less, if interest rates are taken into account. Consequently, this undocumented loan has caused the Icelandic state a huge loss of about €250m.
All this is now known – but it is still unknown why CBI and the prime minister thought it was necessary, let alone a good idea, to issue a loan of ca 4% of the bank’s total foreign currency reserve to a bank, which by the time the loan was issued hardly seemed a going concern. When and why the Kaupthing managers secured this loan is not known. It is not clear why the CBI issued a loan without any proper documentation or why, if there was no time right on the Monday, this was not put in place in the following days. And if the CBI really intended the loan to shore up the Kaupthing UK operations why did the bank not pay the money directly to the UK authorities?
A year ago, an Icelandic parliamentary committee started enquiring about this loan, which had caused the state such a loss. When it transpired that the only documentation regarding the loan is to be found in the recording of the phone conversation of the CBI governor and the prime minister the committee asked for a transcript. So far, the CBI has procrastinated. Last week, when the committee was finally going to publish a report on its findings, obviously pointing out the CBI’s lack of answer, the CBI sent a letter to the committee saying it was considering its options. It hinted at the possibility of inviting the committee to read the transcript but then backtracked and has since been quiet on the issue.
Thus stands this intriguing story, so far without an ending. The report by the parliamentary committee might now be published in the coming days but apparently without information from the transcript.
There is however no lack of rumours and guesses as to why this loan was issued and what it was bridging. The most persistent rumours regard Kaupthing’s alleged Russian clients but it should be stressed that nothing has ever surfaced to corroborate the rumours. There is however a Russian element in the collapse saga: on October 7, the prime minister announced Russia was lending Iceland €4bn to strengthen its foreign reserve. This loan never materialised and it was never clear how this “offer” was made or by whom.“
