Arnar Sigmundsson, chairman of the National Association of Pension Funds (LL), said banks had been granting both individuals and companies loans in foreign currencies while they were speculating on the depreciation of the Icelandic króna.
Banking in Iceland; inside the headquarters of Kaupthing Bank in Reykjavík. The picture is unrelated to the story. Copyright: Icelandic Photo Agency.
“That has to be investigated and especially the part of the large shareholders,” Sigmundsson told Morgunbladid.
Páll Hreinsson, chairman of the Althingi parliament’s investigation committee, said the committee will look into whether there is a systematic pattern of such practice and unnatural conduct involved in the banks’ operations. “The special district attorney will probably look into individual cases.” Hreinsson said.
Before the collapse, some companies and associations had made investments with the appreciation of the ISK in mind, including the pension funds and various export companies, while others, such as the investment companies Exista and Kjalar, had speculated that the ISK would depreciate.
Kjalar was a large shareholder in the old Kaupthing Bank. CEO of Kjalar, Hjörleifur Jakobsson, told Morgunbladid that in 2007 the company had invested in Icelandic companies with loans in foreign currencies and taken a risk by betting on a strong ISK.
However, at the beginning of 2008, Kjalar executives had feared a harsh landing for the Icelandic economy because the ISK was depreciating and had therefore made forward currency exchange contracts with Kaupthing.
Jakobsson said neither speculation nor shorting in the ISK had been involved. Kjalar executives now claim that they suffered financial damage because of old Kaupthing’s defaults and are demanding high compensatory payments.
When the Icelandic banking system collapsed in October 2008, the banks had made forward currency exchange contracts worth between ISK 600 and 700 billion (USD 4.9 and 5.7 billion, EUR 3.4 and 4.0 billion).
