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MP Bank – cause for concern or optimism?

From MP bank’s web:

A contract for the sale of MP bank’s operations in Iceland and Lithuania was approved at the bank’s shareholder meeting earlier today with 99,7% of the votes. New owners will take over all domestic and Lithuanian operations of the bank, while MP bank’s assets in Ukraine will continue to be owned by the former shareholders. The new owners of MP bank will invest 5.5 billion ISK in new shares and the CAD ratio will be significantly over the minimum ratio set by the Financial Supervisory Authority in Iceland (FSA). The change in ownership will not affect current customers of the bank. Increased emphasis will be put on servicing smaller and medium sized businesses.

The group of new shareholders includes both domestic and foreign institutional investors who believe in the bank and that there are many possibilities for an independent bank in Iceland. The largest shareholders are: Títan investments (17, 5%), The Pension Fund of Commerce (9, 8%), Joseph C. Lewis – owner of Tavistock Group (9, 6%), the Rowland family (9, 6%), Guðmundur Jónsson (9, 1%), Tryggingamiðstöðin (5, 5%), VÍS (4, 5%) and Robert Raich – a Canadian investor and lawyer (3, 6%). Amongst smaller shareholders are The Confederation of Icelandic Employers and The Federation of Icelandic Industries.” View source

This could strengthen the bank but it does bring about a state of deja-vu like the privatization of the Icelandic banks that led to the “greatest banking collapse relative to economic size in history.” What appears to be happening here is a repeat of 2005 that led to the 2008 collapse, which the WSJ paraphrased very accurately: “But Iceland’s biggest foray was into banking. Almost immediately, the newly privatized banks started looking overseas for growth. There was a simple reason: The local economy is small. With only 300,000 citizens, there aren’t enough Icelanders to open new accounts.”

There is good reason to suspect a repeat performance, especially since investing in a bank in one of the world’s smallest economies makes absolutely no sense whatsoever unless, of course, the primary objective is to gain control over Iceland’s natural assets: energy (or even fisheries, although that is doubtful). Also, some of the players involved give rise to concern. Last time around, these insurance firms were run with short-term objective and there is little to indicate that this has changed. Still, focus on SMEs makes perfect sense and is much-needed. In that light, this new team (excluding the insurance firms) may prove very effective.

MP Bank did survive the economic collapse and was perfectly positioned to capture the market. “Margeir Petursson, the chairman and founder of MP Bank, the only commercial bank in Iceland that did not collapse last year when the worldwide economic crisis engulfed the country, saw the looming crisis long before others did.” Since then, various events and past decisions have undermined the bank’s trustworthiness. The bank will now change its name in order to clean up its tainted name after “the office of the Special Prosecutor, responsible for investigating the banking collapse, searched the headquarters of savings bank Byr and MP Bank.” It is a sensible marketing move and one that should work perfectly if followed by a well designed and executed marketing campaign backed by long-term strategic objectives.

If MP Bank continues to operate sensibly as it did before the collapse, it can gain solid foothold. One of the team players, Skuli Mogensen, managed to sell his firm to Nokia, which is a feat not many Icelandic entrepreneurs can boast of (the company was rescued at one point by Bjorgolfur Thor). Reading through older SEC filings dating back to 2000 involving Oz show that consistency, patience and perseverance pays off. How that translates into running a bank remains to be seen.

Still, it will take quite an effort to win back credibility for any bank whether it operate in Iceland or elsewhere. The competing banks in Iceland are running image campaigns instead of approaching the market from an entirely different direction which makes them appear rather comical and only serves to damage their image further. Who in his or her right mind buys into the image campaigns run by Islandsbanki and Landsbanki that deposits are safe with them? There are absolutely no grounds to trust them.

MP does not have a completely ruined track record. That Islandsbanki and Landsbanki are running image campaigns directed toward enticing people to trust them with their hard-earned money only proves that they are as much out of tune with the economy as they were before the crash. Their so-called image campaigns are comical and bear all the marks of college-level marketing. Deeper understanding of marketing mechanics and economics appears to be completely absent. Instead of rebuilding credibility through strategy, these banks yet again invert the sequence and place image before strategy which is the same as painting a car before BUILDING it.

Continuing on the subject of strategy, for any banking operation, focusing the strategy on profitability weakens the bank in the long-term as it weakens the customer base. A strong customer base can only be built by providing sensible, long-term financial advice that help strengthening the equity position of it customers. The stronger the financial position of each customer, the more credit can extended in the future. It is the exact reverse of what happened led to the 2008 collapse that sent half the planet into financial mayhem. A bank’s risk is in direct relationship to the risk inherent in its customer base. Hopefully this is the route MP will adopt and so contribute to bringing Iceland out of its current economic situation. Someone has to do it, why not MP?



  1. AM says:

    “The company [OZ] was rescued at one point by Bjorgolfur Thor.”

    Where is the source on that statement?

  2. It was much talked about here at the time. There seems to be very little in English covering this, but if you’re acquainted with Icelandic:

    April 10 2003: “Hugbúnaðarfyrirtækið OZ Communications Inc., OZ, hefur selt eignir fyrirtækisins til nýstofnaðs dótturfyrirtækis Landsbanka Íslands hf. í Kanada, Landsbanki Holding Canada Inc., með það fyrir augum að vinna áfram að frekari þróun og sölu á þeim vörum sem OZ framleiðir.” (

    Another reference to the sequence of events is here (also in Icelandic):

    Investigative journalists are better equipped to dig through old archives. Nokia and Landsbanki should also have records of it.

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