The new chief executive of Iceland’s recently nationalised Kaupthing Bank, Finnur Sveinbjörnsson, spoke to Charlie Corbett about what lies ahead for the nation’s crippled banking sector and how the government can restore its credibility.

Kaupthing Bank’s gleaming Icelandic headquarters was built in happier times. Nestling in a bed of thick snow on the outskirts of Reykjavik, the sleek exterior, with its mirrored glass and sharp angles, resembles more the bridge of an elegant ocean-going liner than a recently defunct Icelandic bank.

Comparisons between ocean-going liners and Icelandic banks inevitably lead to clichés about the doomed ship Titanic, but there is another nautical metaphor that appears to irk Icelandic bankers more – that of the sea-bound Viking raider.

Finnur Sveinbjörnsson, the recently appointed chief executive of New Kaupthing bank, does not resemble a Viking. In fact, he refutes all suggestions made in the international media that Icelandic bankers behaved like financial Vikings, raiding and plundering assets across the world until their small state could support them no longer.

He claims, as do many others in Reykjavik’s financial centre, that their bankers played the same game as their counterparts everywhere else. “They were making the most of the fact that money was unusually cheap, and there was an asset bubble,” he says. “There are only so many companies in Iceland you can buy – so it was only natural for them to look abroad.” Kaupthing Bank was no exception. It acquired businesses across the world in the good times, using cheap debt to generate large profits. Its then chief executive, the youthful Hreidar Már Sigurdsson, seemed to epitomise a new generation of ambitious Icelanders who were helping to create a so-called arc of prosperity, which stretched from the Scandinavian countries in the north down to Ireland in the south-west of Europe.

Fast-forward to today and that arc has proved to be a gigantic myth. The older, wiser Mr Sveinbjörnsson will now have to deal with court cases across Europe that stemmed from the bank’s formerly aggressive expansionist policies – in particular, its 2005 takeover of UK boutique bank Singer and Friedlander.

Kaupthing Bank’s collapse and subsequent nationalisation left thousands of depositors out of pocket and angry. For Mr Sveinbjörnsson, it is crucial that such disputes are resolved as soon as possible. “If the government doesn’t settle with [foreign creditors] it will take much longer for the new banks to enter the international banking community,” he says.

Already, the government has carved up its three leading banks into ‘good banks’ and ‘bad banks’ – although in Iceland they are referred to by the more sanitary labels of ‘new banks’ and ‘old banks’. The so-called new banks [including Kaupthing] are 100% government-owned and have taken on all of the domestic liabilities and assets from the old banks.

The remaining carcass of international liabilities and assets will remain with the old banks and be independently valued and, at some point, sold off to pay the banks’ legion of creditors.

Mr Sveinbjörnsson believes that this situation – whereby the government effectively owns the entire financial system – cannot last. The government has three banks that all have nationwide retail networks, and it is about to take a large stake in the savings bank system, which also has a nationwide network.

“Running three to four nationwide retail banks is not sustainable in country of just 300,000 people,” he says. “The country is over-banked and there will have to be consolidation. I think we will end up with two retail banks that will cover the whole country.” Looking ahead, Mr Sveinbjörnsson says that one option for the government would be to re-merge the old and new banks and leave the resultant entities in the hands of the creditors. He even suggests that Kaupthing Bank could be bought by one if its former bank subsidiaries in Denmark, FIH Erhvervsbank, making Kaupthing a foreign-owned bank.

All this is conjecture. It will take some time before Iceland sorts out its manifold disputes with foreign creditors and begins to claw back some international credibility. Mr Sveinbjörnsson is fully aware of the challenges that lie ahead. “A lot of distrust remains. Many people lost large parts of their savings and living standards have dropped,” he says. “We will have to be modest, talk to our clients more and show that we are able to solve the financial difficulties of households and companies and work through the economic downturn with them.” Who ever heard of a modest Viking?


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