On Saturday October 19, the Icelandic
government's executive committee on privatization, which
operates out of the prime minister's office in Reykjavik,
announced its decision to sell 45.8% of Landsbanki.
The stake in the country's second-largest commercial bank is set
to go to Samson Holding, an investor group whose board comprises
three wealthy Icelanders who made their fortune in brewing in
Russia: Björgólfur Thor Bjorgolfsson, his father Björgólfur
Gudmundsson and their long-standing business partner, Magnus
Thorsteinsson.
There are a small number of people in Iceland who question -
quietly, given their wealth and influence - whether the father and
son are suitable choices to control such a big stake in such an
important component of the Icelandic economy.
Outside Iceland, Landsbanki is mainly familiar to international
bond investors and banks that have helped fund its loan growth in
recent years.
It has an operation in Guernsey. And its biggest international
move was the purchase in 2000 of a 70% stake in Heritable Bank, a
London-based bank specializing in property. Landsbanki increased
its holding to 95% earlier this year and intends to use Heritable
to extend its private-banking business.
The Heritable acquisition appears to intrigue Björgólfur Thor
Bjorgolfsson. "Landsbanki is a tiny bank by international standards
but nevertheless a footprint to grow from," he says. "Its
management might be able to identify more such opportunities."
Heritable's senior management is scouting now for niche
acquisitions in the UK and Scandinavia.
If Björgólfur Thor has any more specific plans for the bank,
other than to increase what he says has been an unsatisfactory
return on equity, he isn't giving them away.
In Iceland, Landsbanki, is a big, almost iconic institution.
Following this sale, the government will retain a token holding of
2.5%. The remainder of the bank's shares are widely held mainly by
institutional investors, following earlier sell-offs.
Though its market capitalization is less than that of the much
more efficient Islandsbanki, which emerged ahead of it from state
ownership, Landsbanki is still renowned as the National Bank of
Iceland. It operated as the country's central bank from 1937 to
1956. One in three Icelanders bank with it.
Is it a good idea for such a large stake in the bank to be
controlled by individuals with no track record in banking? And
what's the background of these people who apparently earned their
fortune in the beverages business in Russia? Indeed the validity of
one of their first, key acquisitions in Russia - a soft-drinks
bottler in St Petersburg - has been challenged vigorously in
Russian and Icelandic courts by the original owners.
Several judgments have gone against the father and son. Even
within Iceland this does not seem to be well known.
There's another question. Why is it that the prime minister's
office, the privatization committee, the finance ministry and the
central bank seem so unconcerned by Björgólfur Gudmundsson's
contribution to bringing a bank in Iceland to the point of
insolvency in the 1980s?
For his part in this episode, which involved misrepresentation
of the soundness of an Icelandic shipping line, Björgólfur
Gudmundsson was given a 12-month suspended prison sentence by the
Supreme Court of Iceland in 1991.
Björgólfur Thor Bjorgolfsson and Björgólfur Gudmundsson enjoy an
extraordinary status in Iceland, partly because of the father's
role in the financial scandal surrounding the shipping line Hafskip
in 1985. Its collapse, and the connected near failure of the
state-owned Utvegsbanki, the Fisheries Bank of Iceland, which had
to be rescued by two other Icelandic banks, rocked the country's
business, political and judicial elite.
But mostly Icelanders are fascinated by these men's now
exceptional - by Icelandic standards - personal net worth.
This February, Heineken agreed to buy Bravo International. This
is the Russian brewery the Icelandic entrepreneurs founded in 1999
with the proceeds of the sale to PepsiCo of a bottling plant they
had earlier set up in St Petersburg and with the further backing of
some venture capitalists.
The Icelanders had stepped in when the world's leading brewers
held back for fear of the lawlessness of business in Russia. The
entrepreneurs established themselves as low-cost producers with
smart marketing, often using second-hand equipment that they
upgraded. They developed a flair for working their way around the
vipers' nest of customs, regulatory and tax authorities. And they
developed good contacts in St Petersburg, including its powerful
governor Vladimir Jakovlev, who has shown his support with public
visits to their plants dating back to his time as deputy mayor.
Apparently coming from nowhere, Bravo had carved out a
substantial share of the world's fastest-growing beer market by
2001, with large positions in St Petersburg and Moscow. For this,
Heineken agreed to pay up to $400 million, the precise amount
depending on the business meeting specified volume and price
targets in the year to February 2003.
Icelanders are acutely conscious of their country's natural
limitations. "It's always been my belief that we're on a rock in
the north Atlantic and that the only way to grow is to find
opportunities outside Iceland," says Björgólfur Thor Bjorgolfsson.
"There are limited opportunities for wealth creation amid such a
small population."
Looking outside was what he did himself. After studying at New
York University's Leonard N Stern School of Business and working as
marketing manager of the Viking Brewery in his native Iceland, he
struck out for the wilds of St Petersburg in 1993 and didn't look
back until his fortune was made. By going abroad and becoming a
huge success he lived out the fantasy self-image of many of his
countrymen: that of the Viking raider, an image that he himself
brings up in conversation.
Now still only 35, Björgólfur Thor has returned in triumph as
the archetype of a new breed of Icelandic businessman - an
internationalist, an arbitrageur motivated purely by profit and not
political ambition. So he appears to stand outside the old
Icelandic circles of influence where politics and business closely
mix.
Though still not a resident of his native country (he lives in
London), Björgólfur Thor is chairman of the board of one of its
biggest public companies, Pharmaco. On any given day this runs neck
and neck with Islandsbanki in having the largest market
capitalization of any publicly traded Icelandic stock.