Iceland government falls

[Jan Klimkowski]

Glitnir recruits Kroll to probe fresh £670m hole in accounts
Glitnir, one of the three collapsed Icelandic banks, has launched an investigation into a missing £670m liability that was not recorded on its balance sheet when it failed last year.

By Rowena Mason
Published: 6:50PM GMT 08 Nov 2009

The bank, which owes £160m to local councils in the UK, plus hundreds of millions more to British charities, universities and private companies, has now asked the financial investigation firm Kroll to begin tracing the money. It is more than a year since the implosion of the Icelandic financial system, but Glitnir has only just discovered the hole in its balance sheet after a single new creditor filed the huge claim against the bank.

The discovery makes it possible that Glitnir's other known creditors, such as Nottingham City Council with £11m and Kent County Council with £14.5m in the collapsed bank, will receive less cash back when claims are eventually settled.

Glitnir refused to disclose the identity of the new creditor, but it is thought to be a claim by a foreign entity. Royal Bank of Scotland, the bank majority-owned by the Government, is understood to be one of its major creditors.

Glitnir already owes an estimated £13bn, suggesting that the extra liability will add 5pc to its overall debt levels. However, the deadline for claims has not yet passed, making it possible that more off-balance-sheet liabilities could come to light. A spokesman for Glitnir's winding-up committee, said the bank does not appear to have recorded the fact that it owed £670m to a single source in a transaction "not conducted in the open market".

He added that it was "not impossible" the amount may ultimately be accounted for, but that it was prudent to launch a full investigation into the circumstances of the liability.

Kroll, which is known for tracing the hidden assets of Saddam Hussain, the Iraqi dictator, was hired by Glitnir earlier this year to start looking into "potential irregularities" in the months before the bank collapsed. The accounting problem comes as Glitnir faced domestic controversy in Iceland over revelations that it had lent money to children to buy shares in one of its units, a small savings bank called Byr.

Glitnir, along with bigger collapsed rivals Landsbanki and Kaupthing, are all under investigation by the Icelandic authorities looking into "suspicions of criminal activity" in the banking sector. The Serious Fraud Office in the UK is also probing links between the Icelandic banks and London, although it has not launched a formal investigation.

Last month, the Icelandic government agreed to hand 95pc of Islandsbanki, a domestic bank created from the ashes of Glitnir, to the old banks's creditors, keeping a 5pc stake for the state.

http://www.telegraph.co.uk/finance/finan...ounts.html

So, there's a £670m liability that was not recorded on Glitner's balance sheet when it failed.

Rumours suggest that the liability may be owed to RBS, a bank now largely owned by British taxpayers.

Icelandic officials hire Kroll, oft described as the "CIA of Wall Street", to investigate.

This could get interesting...