A year on, Iceland's vilified bankers keep their distance

16th October 2009, Comments 0 comments

A year ago, the small North Atlantic nation saw its oversized financial sector crumble amid the global credit crisis, as the government took over the three biggest banks and the stock market suspended all financial shares.

Reykjavik -- A year after Iceland's stunning economic collapse, most of the directors of its failed banks have fled abroad, tired of angry verbal attacks and the red paint daubed on their homes and cars.

A year ago, the small North Atlantic nation saw its oversized financial sector crumble amid the global credit crisis, as the government took over the three biggest banks and the stock market suspended all financial shares.

With the country on the brink of bankruptcy, Icelanders took to the streets to vent their fury over having lost their savings and their jobs -- while inflation soared and the currency plunged -- all because of the actions of what they saw as a few overly-aggressive and out-of-control bankers.

According to Iceland's special prosecutor investigating the collapse of the banks, 50 to 60 people from the banks' top layers of management have been taken in for questioning so far -- but no charges have been pressed to date.

Up to the crash, Iceland had experienced more than a decade of prosperity as its financial groups invested heavily abroad and those who ran the banks were seen as wizards.

Now, a year later, with the economy expected to shrink 9.0 percent this year and household consumption down by 20 percent, most of the bank directors have moved abroad to work as financial consultants for undisclosed employers.

Birgitta Jonsdottir, a frontline protester turned MP, is surprised the bankers' personal wealth has not been frozen.

"It would have been very normal to freeze their assets," she said, predicting a return of last year's weekly protests and describing the situation as a "ticking bomb."

A group called "Skapofsi", or "Rage" in English, has taken it upon itself to remind the former heroes that they are no longer welcome in Iceland, splashing red paint on their houses and cars.

In interviews AFP conducted with bankers ahead of the one-year anniversary, most requested anonymity and were hesitant to describe the effect the financial and economic collapse has had on their personal lives.

They refused to discuss the threats they are subjected to, the risk of lawsuits they face and their fears that their new employers will be inundated with angry emails if anyone finds out where they are working.

But they were more willing to discuss what lay behind the collapse.

The bankers agree that Iceland's financial system had grown too big, at 11 times annual gross domestic product, which meant the central bank and the government had limited options when it came to helping save the banks.

The government took control of the first bank, Glitnir, on September 29, 2008.

"Once Glitnir was nationalised, the situation was pretty much hopeless. I see that now, even though I did not realise it at the time," Armann Thorvaldsson, the former CEO of Kaupthing Singer & Friedlander, a London subsidiary of Iceland's biggest bank Kaupthing, told AFP.

The bankers at the time accused the government, and the US and Europe, of turning their backs on the banks.

"Almost every country was supporting its banks with liquidity and capital," London-based Thorvaldsson said.

Yet, he acknowledged, it was uncertain whether Iceland's central bank would have had the financial means to help.

"Looking back, I also question whether it would have been justifiable to pour such large amounts into the financial system."

Halldor J. Kristjansson, the former chief executive of the second-biggest bank Landsbanki and who now works as a consultant abroad, agreed.

"Just like banks everywhere else needed liquidity support, the Icelandic banks could not survive such a deep and unprecedented liquidity crisis without the assistance of the central bank or government," he said.

The lack of trust between the few key players in Iceland's small society of just 320,000, where complex cross-ownership links between the banks were commonplace, was also a problem.

Ex-business affairs minister Bjorgvin G. Sigurdsson told AFP his ministry was not informed of the government's decision to take over Glitnir, a procedure he termed "unacceptable."

Former central bank governor David Oddsson has said Sigurdsson could not be trusted with the information.

A year on, the bankers remain optimistic about Iceland's future, pointing to its vast natural resources and high level of education.

"The emphasis must be on looking forward and not just looking in the rear-view mirror," Thorvaldsson said.

That future includes the euro, he said.

Sigurdsson concurred. "Specialists claim that 80 percent of the total damage to Iceland in the economic crisis is because of the collapse of the krona."

Iceland officially applied to join the EU at the end of July, with supporters citing euro adoption as one of the main benefits.

Svanborg Sigmarsdottir/AFP/Expatica

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