A spokesperson for Deutsche Bank rejects claims made by former Kaupthing chairman Sigurdur Einarsson in a letter from January 2009 that the bank had advised Kaupthing to purchase credit default swaps in itself, as reported last week.
The headquarters of Kaupthing in Reykjavík. Copyright: Icelandic Photo Agency.
“They came to us and asked us to prepare this trade. It wasn’t our idea,” an unnamed spokesperson for Deutsche Bank said in an interview with Morgunbladid yesterday. According to the spokesperson, this was a common type of trade and did not have a significant impact on the price with Kaupthing’s credit default swaps.
As reported in Morgunbladid last week, Trenvis LTD, a company founded by Kaupthing in August 2008 and later registered to Kevin Stanford—the fourth largest shareholder in Kaupthing at the time—was granted a EUR 41.7 million (USD 59.3 million) loan to purchase credit default swaps in the bank itself.
The price of credit default swaps is used as a measurement tool of the trust that banks have in international markets. In the summer of 2008 the price determination with credit default swaps in Kaupthing was extremely unfavorable because of negative media coverage of the bank.
“At the suggestion of Deutsche Bank we decided to see what would happen if the bank itself would buy credit default swaps. It wasn’t easy since the bank couldn’t buy credit default swaps in itself. Therefore we asked trusted clients with whom we had a long business history based on trust and loyalty to undertake this trade on behalf of the bank,” Einarsson wrote in the letter in January, addressed to his friends and family.
“Of course we would never have undertaken this trade except for the special circumstances. The trade was undertaken with the bank’s best interests in mind and in complete consistency with laws and regulations,” Einarsson stated in the letter.
This case, among others, is currently being investigated by Iceland’s special prosecutor, responsible for investigating the banking collapse.
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