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Qatari Elite Linked to Icelandic Market Manipulation, Part 1: Introduction


Posted: October 18th, 2017


DE-Tenants.org is exploring the multi-billion dollar partnership between Douglas Emmett, Inc. and the Qatar Investment Authority (QIA), the sovereign wealth fund of the Middle Eastern oil and gas nation of Qatar. As part of our research effort, we are digging into the background of the QIA, along with Qatar’s ruling family, Al-Thani, which controls the nation’s sovereign wealth fund, including assets and deals unrelated to Douglas Emmett.

Today, we begin a series of posts looking into transactions between an Al-Thani family member – a longtime Qatari government official – and the Icelandic bank Kaupthing. This deal does not relate to Qatari business with Douglas Emmett.


Introduction

map of Iceland with Flag inset

During the economic meltdown of 2008, banks and financial service providers the world over were scrambling to stay afloat. In particular, the banks of the Nordic island-nation of Iceland, located in the North Atlantic Ocean, found themselves leveraged so heavily in low-grade foreign debt that they could not pay creditors as markets froze in 2008.

Since 2003, Iceland had privatized its banking sector and moved toward an economy based on international investment banking and financial services. Come 2008, the tiny nation of 300,000 was pushed to de facto bankruptcy—its currency was worthless, its debt stood at 850% of GDP, and its citizens hoarded food and cash. (SOURCE)

As the nation’s largest banks faced imminent collapse, the island’s bankers got creative, resorting to illegal behavior to try to stay afloat. This is the story of one of those banks, the country’s largest—Kaupthing.

Kaupthing Bank Logo

Three Kaupthing bankers including its CEO resorted to market manipulation in an attempt to avoid eventual insolvency. They enlisted the help of the bank’s second-largest shareholder and the younger brother of the then-Emir of Qatar.

Ultimately the three bankers and the second-largest shareholder would be sentenced to prison. The brother of the Emir was never accused of a crime by authorities. (SOURCE)


Emir’s brother buys 5% of Kaupthing Bank

In September 2008, Emir Hamad Bin Khalifa Al-Thani’s younger brother, named Mohammed Bin Khalifa Al-Thani, acquired a 5.01% stake in Kaupthing Bank valued at roughly $285 million.

His Highness Sheikh Mohammed Bin Khalifa Al-Thani, acquires 5% stake in Kaupthing Bank

Kaupthing had been deliberately courting Middle East investors before attracting Al-Thani. And the Qatari royal had a prior relationship with Kaupthing: the bank had been instrumental in Mohammed Bin Khalifa’s acquisition of a 12.6% stake in Iceland’s Alfesca food company three months prior in June 2008. Mohammed Bin Khalifa is an influential Qatari royal. He was Under Secretary for Finance and Petroleum from 1989 to 1992; he also served as Minister for Finance and Trade from 1992 to 1998; then he became and the Minister for Economy from 1996 to 1998; subsequently he was the Deputy Prime Minister from 1998 to 2007; and lastly he became an Adviser to the Emir, his elder brother, in 2007. (SOURCE)

Mohammed Bin Khalifa’s acquisition of Kaupthing shares was an attempt to bolster public confidence in the imperiled bank. As such, Kaupthing widely publicized the Qatari royal’s investment with “fanfare”. Representatives of Kaupthing appeared in the Icelandic media, insisting that the Qatari investment was indicative of the bank’s strong position and promising outlook. But the confidence-boosting representations were false because the bank had issued the Qatari a loan to purchase its own shares. A few months after the September 2008 deal, stories appeared in the Icelandic media indicating that Al-Thani was not risking his own money. (SOURCE)


Details of the Deal

According to the publicized details of the deal, Q Iceland Finance ehf., a wholly owned subsidiary of Q Iceland Holding ehf., had acquired a 5.01% stake in Kaupthing bank. Q Iceland Finance supposedly acquired 37.1 million existing shares at the price of ISK690 per share, thus becoming the third-largest shareholder of Kaupthing. Q Iceland Finance and Q Iceland Holding were both controlled by Sheikh Mohammed Bin Khalifa.

Of note, Olafur Olafsson was Kaupthing’s second-largest shareholder at the time, owning 9.88%. He was also the Chairman and a shareholder of the Alfesca food company that Mohammed Bin Khalifa had just invested in three months prior in June 2008. Olafur Olafsson would be involved in Kaupthing’s market manipulation and ultimately be sentenced to four and a half years in prison.

A Kaupthing press release about the 5.01% acquisition quoted Mohammed Bin Khalifa as saying: “We have followed Kaupthing closely for some time and consider this to be a good investment. Kaupthing’s position is strong and we believe in the bank’s strategy and management team, as Kaupthing has performed well in the current market turbulence and has proven it can change and adapt to a new reality in banking. We view our stake in Kaupthing as a long-term investment and look forward to a close relationship with the bank in the future.”

The Chairman of Kaupthing, Sigurdur Einarsson, responded by stating: “We are delighted to welcome H.H. Sheikh Mohammed Bin Khalifa Al-Thani as a shareholder of Kaupthing Bank.”




Our next post in this series explores how Al-Thani’s investment into Kaupthing was actually a reinvestment of Kaupthing loans back into the bank.