Property tycoons Robert and Vincent Tchenguiz are among nine detained in connection with the collapse of the Icelandic bank
Simon Bowers guardian.co.uk, Wednesday 9 March 2011
Nine people, including property tycoons Robert and Vincent Tchenguiz, have been arrested over the collapse of the Icelandic bank Kaupthing.
More than 130 police swooped on two business properties and eight residential addresses in a series of dawn raids on Wednesday, arresting seven men aged between 42 and 54. They are being interviewed at police stations in central London. Two further arrests were made in Reykjavik.
Robert and Vincent Tchenguiz issued a joint statement, confirming that they had been detained.
"We were arrested earlier this morning and are being questioned with regard to matters relating to our relationship with Kaupthing Bank. Both of us are co-operating fully with the investigation and are confident that, once concluded, we will be cleared of any allegation of wrongdoing," they said.
The brothers had been expected to host a party on board a yacht in Cannes on Thursday evening, at the MIPIM property trade show. Vincent owns a 40-metre luxury yacht named Veni, Vidi, Vici, while his younger brother owns a 45-metre vessel called My Little Violet.
It is understood that Armann Thorvaldsson, who was head of Kaupthing's UK business, Kaupthing Singer & Friedlander, and Sigurdur Einarsson, Kaupthing's London-based former executive chairman and chief executive, have also been arrested along with the Tchenguiz brothers. Both are also believed to deny wrongdoing.
Einarsson was last year named as a wanted man by Interpol before agreeing to travel from London to Iceland to answer questions in a separate inquiry into allegations of market manipulation at Kaupthing that is being conducted by Icelandic special prosecutor Olafur Hauksson. Einarsson denies these allegations.
Two years ago Thorvaldsson published a book, called Frozen Assets, which promised to explain "how one man, one bank and one country experienced and affected the course of world economic history".
Privately, Thorvaldsson accepts that Kaupthing took big bets on Robert Tchenguiz operations but insists at no point was the Mayfair tycoon treated as anything more than a valued client.
Banking collapse
The Serious Fraud Office has been investigating the collapse of Kaupthing since December 2009, amid allegations of market manipulation in the run-up to the financial crisis. The investigation has focused on relations between the bank and its largest customers.
Of the Tchenguiz brothers, Robert had the closest relationship with Kaupthing. He held a stake of 1.5% in the bank and was a 5% shareholder and director of Exista, an Icelandic holding company that was Kaupthing's largest shareholder. Moreover, the bank had been a minority equity partner in many of Robert Tchenguiz's investments.
At the same time, Robert Tchenguiz's investment empire was the largest recipient of Kaupthing loans – borrowing close to €2bn (£1.72bn) when the bank collapsed in 2008 and a further €305m from Luxembourg and UK subsidiaries.
The total value of loans to Tchenguiz firms, an Icelandic parliamentary truth commission found, had risen to the equivalent of 25% of Kaupthing's reported equity base in early 2008. Further lending helped take it to more than 40% before the bank failed months later. Icelandic banking law is supposed to bar lending to connected parties exceeding 25% of a bank's own funds. The commission concluded that it was hard to see how loans to Tchenguiz companies had been advanced "with the interest of the bank in mind".
Privately, Robert Tchenguiz and some bank executives hotly dispute this version of events. They point out that the fate of the bank and many of Tchenguiz's investment had become intertwined such that a failure to pour in further loans throughout 2008 would have precipitated the downfall not just of some Tchenguiz companies but of the bank itself.
Bank executives have told friends they were devastated by Kaupthing's collapse in 2008, losing almost all their personal wealth. One senior figure in the UK argued that it is easy now to criticise some of the bank's weaknesses with the benefit of hindsight, but insisted there was no criminality at the bank. A forensic dissection of any large financial institution at the height of the 2008 banking crisis would be unlikely to reflect well on executives, he observed.
The Tchenguizes' fortunes have been severely depleted since the Icelandic banking collapse, and the brothers have been fighting court cases to protect what is left of their former empire, which at one point included large stakes in J Sainsbury and pub chain Mitchells & Butlers, and a vast portfolio of property assets.
Kaupthing, along with fellow banks Landsbanki and Glitnir, all failed in the autumn of 2008, at the height of the financial crisis. Robert Tchenguiz subsequently revealed that the financial collapse cost him £1bn. Several local councils in the UK found their savings had also been swallowed up, while the British government guaranteed the deposits of UK savers.
Court proceedings in Reykjavik revealed in February 2009 that Kaupthing liquidators were looking to recover an unpaid overdraft of £643m from companies previously controlled by Robert Tchenguiz. It emerged last month that the bank's liquidators had taken control of some of Vincent Tchenguiz's shares in his property empire.
Both brothers have launched separate legal claims in Iceland and London against Kaupthing liquidators for damages totalling £1.8bn – Vincent through the Tchenguiz Family Trust (TFT) and Robert through the Tchenguiz Discretionary Trust (TDT). In his lawsuit, Vincent relies on findings contained in an Icelandic parliamentary report that suggest Kaupthing had lent too much money to companies controlled by his brother, and that it had extended these loans in a way that was not in the interest of the bank itself.
