From the outside, the courthouse in Reykjavik’s cobbled main square looks more like a small Lutheran church than a house of justice. Its wooden doors are usually shut, but you are free to enter without knocking. Inside, the atmosphere is quiet, befitting a city that is so law-abiding mothers leave their babies in prams on the street to take fresh air. The courthouse rarely attracts attention, but on one day in August its marble hall was crowded with journalists awaiting the opening of a once-in-a-generation court case. During the long, insomniac days of summer, the case, with its intriguing insinuations about politics and wealth, had kept Iceland’s conspiratorial society - with a population so small its telephone directory is listed by first name - talking around the communal “hot pots” where Icelanders bathe. The focus of attention was Jon Asgeir Johannesson, who at 37 has already made a name for himself within Iceland as a dashing 21st century Rockefeller, and abroad as a retailing magnate involved in a number of buy-out deals on the British high street in the past two years.
As he walked into that crowded courtroom on his arraignment, his appearance reminded me of the first line of that Carly Simon song. He looked more like he was walking on to a yacht than into the jaws of justice. His long hair was swept back from a tanned face, his shirt was open at the neck and he wore a white Make Poverty History wristband that stood out against his black suit. Behind him strode his graceful girlfriend, Ingibjorg Palmadottir, running her hand through ringlets of blonde hair and looking shyly at the cameras. Like Jon Asgeir, as everyone calls him, she has piercing blue eyes.
Across the room sat Jon Snorrason, head of the Economic Crimes department of the Icelandic police. Dressed in blue robes, Snorrason had the stern features you might expect from a man of the law. By his side was a box of files, containing some of the 20,000 documents the investigators have amassed during a three-year investigation into alleged embezzlement by Jon Asgeir and five co-defendants, including his father and sister. When the judge asked the court to rise, Jon Asgeir banged his head on the low-hanging lampshade above his seat and blushed a dark red, his eyes watering. He couldn’t have looked less villainous. Spectators giggled in the gallery.
Iceland Diary
Read Henry Tricks’ online journal as he tracks down the Viking entrepreneurs invading foreign markets
The case itself was no laughing matter. There were 40 charges of breach of trust and embezzlement involving some £25m. It concerned events between 1998 and 2002 when Jon Asgeir’s retail holding company, Baugur, was a listed group involved in frenetic deal-making at home, in the UK and in Scandinavia that two years later would turn it into a company with £7bn of sales - only £900m less than those of Marks and Spencer. It centred on a man who in a 16-year business career had raised the country’s international profile more than anyone since the pop singer Bjork. His success has helped open doors for a tightly knit group of young Icelandic entrepreneurs who have moved across Europe and Scandinavia, using billions of dollars of borrowings to buy out businesses in retail, food, telecommunications, banks and drug manufacturing.
But the case thwarted Jon Asgeir’s overseas expansions at critical moments. The initial police raid in August 2002 came on the eve of a daring £770m bid he was planning with Philip Green, the British retailer, on brands such as Top Shop and Miss Selfridge. He was forced to withdraw, leaving Green furious at the time that he had placed such trust in a comparatively little-known Icelander. And in July the indictment caused Jon Asgeir to pull out of a bidding consortium for Somerfield, Britain’s fifth-largest supermarket.
On the morning of Jon Asgeir’s arraignment, I sat with a group of journalists through a three-hour lecture from Deirdre Lo, a young former investment banker from London. Lo was hired by Baugur to make sense of the allegations - and refute them in a way we might be able to understand. I took 15 pages of notes, and though I was left cross-eyed by the obscure inter-company transactions the prosecutors had sought to penetrate, not to mention all those umlauts, there was something more mystifying: on the face of it, there appeared to be little more in it than the mildly titillating aspects of a jet-set lifestyle.
So it did not come entirely as a surprise when in September the Reykjavik District Court threw out all 40 charges because of flaws in the way they were worded. After a prosecution appeal to the Supreme Court, eight charges against Jon Asgeir and his family were reinstated last month and a special prosecutor has been appointed to decide whether these should be pursued. Three of the charges related to book-keeping questions. The auditors, KPMG, have said that they stand by their assessment. The others involve alleged tax fiddling on the importation of four vehicles, amounts so insignificant, according to Lo, that they were no more than Jon Asgeir “would merrily spend on a suit at Giorgio Armani”.
But the case has opened a wound in Icelandic society. The bungled three-year investigation, a charge sheet littered with flaws, and subsequent associated allegations of political high-jinks have tested Iceland’s belief in itself. Remarkable as it may sound in a barren outcrop of rock in the North Atlantic, many Icelanders are asking whether their country has become a “banana republic” - the equivalent of a tropical plantation economy, where the police are in the pay of politicians or businessmen rule like overlords.
In photographs, Jon Asgeir may look like a Viking prince, but when you talk to him he has little of the polished swagger you expect from a young man whose name opens doors across the financial capitals of Europe. When I interviewed him in his Reykjavik offices on the day of his arraignment, he skipped up the stairs singing to himself and threw himself down on the sofa as if dying to open up. But the words came out haltingly. It was, he says, “a black day in my history. I have aged one year in a day today.” Come off it, I say incredulously, you look extremely relaxed. If he was, he said, it was only because he was convinced of his innocence. There was “no chance in hell” that he would go to jail.
Later, I met him at his office in Renoir House, on London’s New Bond Street, flanked by jewellery stores and the fashion brand names he wears. The office from which Baugur’s chief executive controls £6bn of UK sales is surprisingly modest. The only hint of his shopping empire of 50,000 employees is a handful of retailing awards, including a miniature silver shopping trolley, and a few shelves of ring binders marked with hand-written names of the companies he owns, including Hamleys, the toy store, Booker, the cash-and-carry chain, Iceland, the frozen food chain, and Goldsmiths, the jewellers. It is a place where he feels at home, far from the intrigues in Iceland, and he says he is spending more time now in the UK. He spoke with sadness of how he felt the last time I saw him. The day after that, he embarked on a six-week holiday with Ingibjorg in the US, “to try and regain my spirits”. He told colleagues he would not have his mobile phone switched on and would only respond to e-mails. It was a long time away for a man who can name few interests besides business, but he was very bitter, and felt betrayed by his country. “My feelings have gone colder on Iceland,” he says.
Within weeks of his return the case had been dismissed and subsequently sent to the supreme court. Meanwhile, a new public row had erupted, stoked by Baugur’s newspapers and television station, with a menacing hint of revenge about it. In September, one of his papers, Frettabladid, published excerpts from e-mails that purported to show links between the editor of a rival newspaper, a bitter ex-lover of Jon Asgeir’s father, and a former business associate whose accusations triggered the embezzlement investigation. Jon Asgeir believes the content of those e-mails proves they conspired to bring charges against him with the support of “powerful members” of the Independence party, the dominant partner in the ruling coalition. That party was led at the time by David Oddsson, the then prime minister and now central bank governor, who has since waged a high-profile battle to limit Baugur’s power. Those close to the people concerned say that the e-mails have been taken out of context and deny any conspiracy. Jon Asgeir is acutely aware of the political stakes involved, but is unapologetic. “The country has been more or less turned upside down because of the case, and all the transactions and spin doctoring afterwards.”
It is only when you travel to Iceland that you really grasp how intimate the community of 290,000 people is, and how close to the bone the whole affair has been. You don’t have to search hard to find old school companions, employees or business associates of Jon Asgeir, or those who bear him a grudge. It quickly becomes clear that this island nation, which in previous generations was supported principally by fishing, still has a fishwife’s capacity for gossip. People have a delicious trait of making even humdrum conversations sound conspiratorial, because before they speak, they draw in breath through their teeth, as if about to say something shocking. They talk about their compatriots as if discussing intimate details about members of their family. In a country whose gene pool is so homogenous it can be mined for cures for cancer, there is a level of pop psychology about each other’s more personal traits - love affairs, alcoholism, dyslexia - that most cultures would regard as indiscreet.
The long bus ride from the airport into Reykjavik, the capital, takes you through miles of barren volcanic rock, with the odd wisp of steam from a geyser in the distance. The city is a random collage of building styles. In the centre, the quaint timber houses protected from the elements by painted corrugated tin preserve the flavour of the fishing village that it once was. Outside the city, you see more wild horses than people and though the country is fast shedding its dependence on farming and fishing, it still marches to the rhythm of the seasons. It has to, because the weather is harsh, and long, dark winters encourage hibernation. Then comes summer, when the older generation retreat to their summer houses, plant trees and watch birds, and the young become feverishly active. Even the birds take to the routine. They force-feed their chicks around the clock in summer, so that they can fly far away when winter comes.
But Reykjavik’s unworldly appearance is deceptive. Take the head office of Baugur. It is in a small yellow house in one of the city’s oldest districts, and looks like an English village tea shop. Yet from here Baugur’s retail empire stretches from Iceland to the UK and across Scandinavia. And Baugur is not alone. Thanks to a credit boom, a surge in the Icelandic stock market and a seize-the-moment spirit, Iceland’s businessmen have in the past five years invaded foreign markets with Viking vigour. They have created half a dozen multinational conglomerates and three internationally rated banks - all from a population smaller than the 350,000 tourists who travel there each year.
The self-confidence behind this expansion is palpable. A century ago, Iceland was the poorest country in Europe - its farmers lived in holes in the ground, topped with stone and earth. Now its citizens are among the highest earners per capita in the world. Boardrooms are full of snappily dressed thirtysomethings, with the latest technology at their fingertips. They liken themselves to the cadres of young businessmen who seized control of Russia and eastern Europe after the fall of the Berlin Wall. It is a generation that works and plays as if the sun never sets, which - during the summer - it almost doesn’t. There is something refreshing about meeting its entrepreneurs. They have little of the buttoned-up reserve of their British counterparts and eschew the anodyne language of business school. They are in business because it is fun.
They have also made their fortunes with lightning speed, using a web of inter-company loans, cross shareholdings and incestuous borrowing. According to Jon Asgeir, Baugur alone has controlling stakes in 24 companies and he has investments in 81 others. As much as two-thirds of its buy-outs are funded by debt, much of it provided by Icelandic banks that also invest in the companies Baugur does. There is little transparency and this has fuelled rumours about where the money comes from. Jon Asgeir has no qualms about this. “As long as my banks don’t question me, I feel I don’t need to be more transparent. That’s why we went private.” One Icelander who has advised on more than £1bn of his countrymen’s deals says: “Iceland is an over-leveraged hedge fund with all bets going in one direction - outside the country.” The destination of choice is London.
Any canny investor wanting to pick up useful information should take the first class Icelandair flight from Reykjavik’s Keflavik airport to London Heathrow. Those who do so say business is discussed in loud voices. The airline itself reflects the clubbiness of Icelandic capitalism. It is controlled by FL Group, a recent entry into the top tier of Icelandic business, which is co-owned by investors with stakes in Baugur. Baugur, too, has a stake in FL Group. When I met him, Hannes Smarason, the young, Ivy League-educated chairman of FL, revelled in the sense of excitement generated by this kind of deal-making, which has enabled him to grab a 16 per cent stake in EasyJet, the UK airline. In a moment of unabashed hubris, he likened the Icelandic business community to the Medici family in Renaissance Florence. “Their approach to business was about relationships and trust. Here, there are a lot of close relationships. It’s a sense we’re all in it together.”
But like the rest of the Icelandic business elite, he was deeply worried about the unwelcome attention the court case against Jon Asgeir has brought the country. It was “detrimental to the reputation of Iceland”, he said, and confessed he was sick of discussing it whenever he travelled abroad.
I heard a more confrontational assessment in London some weeks later when discussing it with Iceland’s richest man, Bjorgolfur Thor Bjorgolfsson, who this year made it on to Forbes magazine’s billionaire list, Iceland’s first. At 38, he is a year older than Jon Asgeir and with his unshaven, tanned face and a pink handkerchief in his breast pocket, is equally photogenic. His business exploits are less well chronicled in Britain, largely because they have been focused on Russia and eastern Europe. But they are every bit as plucky. Suffice to say, he created a brewery in St Petersburg in the 1990s, when the Russian mafia was running amok, and a telecommunications business around the Balkans, still reeling from the war in Kosovo. He has a generics drug business that has profited from a stunning oversight by international drugs companies - those who forgot to patent their medicines in Iceland. Last year, he flew six jumbo jets full of generic medicines into Germany on the very morning they went off patent. Such exploits have become the stuff of latter-day legend in Iceland.
Thor is particularly concerned about the political slant Jon Asgeir has given the court case against him and the bad publicity it has generated. “I think the politics have been overstated,” he says. “Iceland is not a banana republic and you shouldn’t trivialise Icelandic society.” He continues: “The court case worries me. Even if it turns out to be a storm in a teacup, it’s going to be very bad for Iceland. It’s a lose-lose situation.”
In some ways, the genesis of the case goes back to a time when Jon Asgeir and Thor were mere boys, growing up in the shadow of Mount Esja, across the estuary from Reykjavik. It was a time when the economy bore more resemblance to eastern rather than western Europe, and Iceland straddled an uneasy line between the two. Today’s entrepreneurs recall their spartan youth when beer was banned and there were no television transmissions on Thursday - to allow staff to take time off. They had to queue up at the bank for a foreign currency allowance to travel abroad. Banks were run by cronies of the ruling coalition parties and the country’s economy rose and fell on the fickle fortunes of the island’s fishermen, whose industry accounted for more than half the economy.
In the 1990s, a cadre of young politicians, led by Oddsson and calling themselves the Libertarians, clashed with the socialist-minded old guard and won. In 1994, Iceland entered the European Economic Area, giving it access to the internal market of the European Union without surrendering its valuable fishing rights as full EU membership would have required. From there, Iceland quickly grew into a market economy. Currency controls were scrapped and a stock market, deregulation and privatisation followed. Oddsson became prime minister and stayed in the post until a year ago.
Long before this, in the late 1980s, Jon Asgeir, who drove a second-hand Mercedes while still in his teens, employed fellow students to help him run his first businesses - selling popcorn and renting ride-on toys that he would place outside shops. In 1989 he hatched a business plan with his father, Johannes Jonsson, that would revolutionise Iceland. They set up a tiny supermarket, called Bonus, on the edge of the Reykjavik docks. It is still there, a little tatty now and dwarfed by an Ikea store. It is painted bright yellow, with a gaudy pink piggy bank as an emblem. It is surprising how many Icelanders I spoke to fondly recall that store.
From there, Jon Asgeir and his father set out to wrest control of the Icelandic retail sector from a number of companies who they believed had too much control over prices and had close ties to Oddsson’s ruling Independence party. Jon Asgeir had a take-no-prisoners approach to business. He often incensed - but usually outflanked - his competitors. Icelanders suddenly found foreign goods available on their doorstep, but at a price. A decade and a half later, Jon Asgeir’s empire encompasses almost half of food retailing in Iceland. By 2002, parliamentarians, including Oddsson, had grown fearful of the power their reforms had bequeathed men like Jon Asgeir. Illugi Gunnarsson, a long-standing political adviser to Oddsson, told me: “What David Oddsson is worried about is that a small country like ours needs a free market economy. You have to worry about a player with a dominant position. Imagine if Tesco had control of half the English media. There would be an outcry.” Baugur, he said, has double the market power in Iceland that Tesco has in Britain.
But Jon Asgeir’s private life, too, has caused controversy. Court documents in June 2003 revealed an occasion when he spent $19,260 hiring members of a female escort agency in Florida. At that time, he was inviting prominent Icelandic businessmen to party on a pleasure cruiser in Florida. Pictures of his boat made it into a sensationalist Icelandic magazine, as did the black Hummer limousine that was used to drive guests to the jetty. These were awkward images of extravagance by a man who had become popular for selling Icelanders cheap groceries. It was tittle-tattle, but Iceland - which is a resolutely egalitarian society - was shocked by the conduct.
These days his profile is lower. Though he flies in Baugur’s private jet, he has a modest-looking house in Reykjavik, and among a collection of half a dozen cars, pride of place goes to the green Range Rover outside his door. If he has made enemies in Iceland, in the UK few who have dealt with him have a bad word to say. As one friend puts it, “Jon Asgeir is famous for always leaving enough money on the table for everyone.”
Kevin Stanford, a British retailer who sold his fashion business, Karen Millen, to Baugur for £120m last year, knows him as well as most. Stanford’s Elizabethan mansion in Kent, with manicured lawns and a perfect eye for decorative detail - his living room is wall-papered with fading copies of France’s Le Figaro - is testimony to his own self-made success in business. But he has hitched his star to Jon Asgeir’s, and to Iceland’s, with the tenacity of a betting man. He has a 9 per cent stake in Baugur, and also co-invests with it in a number of other big Icelandic companies, such as Kaupthing, the largest bank, and FL Group. This year both he and Baugur made a series of smartly timed investments in Marks and Spencer, a company that Jon Asgeir makes no secret that he would love to buy - though not yet. “The public perception of Jon Asgeir is very different to how he is,” Stanford says. “He’s an extremely modest guy. It’s not often that you sell your business to someone and go back to work for them.”
But in Iceland there are still those who want to rein in Jon Asgeir. In his new post at the central bank Oddsson has other concerns. They include the safety of the country’s financial institutions. “We are worried about how much of the growth is sustainable and whether there is a bubble,” says Gunnarsson, the adviser. “I don’t think Icelanders suddenly became incredibly clever overnight. This often happens in economies that are liberalised. People are willing to take bigger risks than you would in a more mature economy.”
Jon Asgeir shrugs it off. He believes his opponent, now without political power, is finally vanquished. “It’s going to be safer now. As these people go away, so will the problems. The businessman in Iceland can lead a normal life.” But he expects to spend much of the future outside the country. “I cannot spend too much time there any more. It gets annoying.”
Henry Tricks is the FT’s senior corporate reporter.
Read Henry Tricks’ online journal as he tracks down the Viking entrepreneurs invading foreign markets www.ft.com/icelanddiary
