Back from the dead: Iceland's Pied Piper restores reputation, rejoins billionaires' list

Image: Michael Austen for Forbes

The president of Iceland, Olafur Ragnar Grímsson, was in a panic on Friday, October 3, 2008,  as the burgeoning global financial crisis quickly threatened to subsume his small island nation.

His government had already seized one of Iceland’s top banks, and now, with the economy heaving, the country’s second-largest, Landsbanki, was showing signs of trouble. Grímsson phoned the richest person in the country and the man who controlled the bank, Thor Bjorgolfsson, in London, with a simple message: Come home. Now.

Bjorgolfsson had every reason to think he could help fix the mess. It took him less than 10 years to become one of the 250 richest people on the planet, with businesses stretching from Bulgaria to the US. He gave rides on his Challenger 600 to people like Mikhail Gorbachev. For his 40th birthday the previous year he flew 120 friends on a chartered 767 to Jamaica, where Ziggy Marley and 50 Cent serenaded them on the white sand beaches. With the Challenger ominously stuck in the shop, Bjorgolfsson chartered another jet and before lunch the next day had arrived in Reykjavik in what he now describes as “firefighting” mode.

Unfortunately, he faced an inferno. Within 72 hours the government had taken over his bank. By week’s end Iceland was bankrupt, its currency worthless, its stock exchange temporarily shuttered. Thousands of regular Icelanders lost their jobs and savings. And the person once revered as an economic Pied Piper, whose bank “guaranteed” high interest rates, suddenly was one of the most hated men in Iceland, who many blamed personally for the disaster.

When your homeland is a small island of only 320,000, there’s nowhere to hide. His Reykjavik home was crudely grafitied with his image and “2008”—the year of his “death”. Others doused his Hummer with red paint. “I almost thought of going off to sit under a rock and coming back when the storm was over,” says Bjorgolfsson. “I felt so bad about everything.”

Bjorgolfsson’s creditors were equally furious. His companies owed $10 billion, nearly $1 billion of which he’d personally guaranteed. His net worth plummeted from an estimated $3.5 billion into negative territory.

But while the global recovery has proven one of the slowest and most tepid in modern history, Iceland, as with the US, has started a proper comeback. GDP has been chugging forward at a 3 percent rate in recent years, inflation is lower and unemployment has dropped.

More surprisingly, Bjorgolfsson is back. Just ask him. His new autobiography Billions to Bust—and Back is incredibly self-serving, an attempt to control his narrative, rather than let others control it (this marks his first extensive interview since the meltdown). But the title is inherently true: Now 48, he rejoins the Forbes World’s Billionaires list this year and seems out to restore something more valuable than his fortune: His reputation.

Bjorgolfsson boasts a colourful lineage. His great grandfather, Thor Jensen, was an entrepreneur who survived bankruptcy twice and ended up as one of Iceland’s largest landowners. One of his sons became prime minister, and another was ambassador to the US. A son-in-law ran the country’s largest shipping line; yet another, Thor’s grandfather, headed Shell Iceland. Thor’s mother married thrice, showing dubious taste. Her first husband was an Olympic athlete, but her second was the odious George Lincoln Rockwell, founder of the American Nazi party. The third, Thor’s father, overcame his working class background to run Iceland’s second-largest shipping firm, Hafskip, until he was arrested on charges of fraud and embezzlement. He was detained for five weeks and eventually found guilty on five minor counts, earning 12 months’ probation. He was, says his son, also an alcoholic.

Intensely proud, Bjorgolfsson wanted to redeem his father’s reputation and earn his own place in the history books. He was willing to take a lot of risks to achieve this. He moved to Russia in the 1990s, spending a decade building a soft drink and later beer business amid the collapse of the Soviet Empire. He succeeded in a tough field in exceedingly tough times, leading to never-ending allegations that he has ties to Russian mafia—something he denies. He sold the company to Heineken in 2002, netting $100 million.

He came back to Iceland that year and, with his father, who had been his partner in the beer business, bought a 46 percent stake in Landsbanki. Everyone thought they used the cash from Russia, but it turns out that they’d also borrowed money from a rival bank. Bjorgolfsson, who at one point operated more than 40 LLCs, was a debt junkie who borrowed liberally against his equity to construct a house of cards. “I kept doing what worked until I got burnt,” Bjorgolfsson now says.

Image: Getty Images

Once the Pied Piper of Iceland, Bjorgolfsson became one of its most hated men overnight

In 2007 he orchestrated the biggest deal of his life, the $6.5 billion leveraged buyout of the then-Icelandic generic drug firm, Actavis. In those heady weeks at the peak of the credit bubble, bankers were competing to lend him money. Deutsche Bank, which had worked with Bjorgolfsson in eastern Europe and whose managing director Wilder Fulford was Bjorgolfsson’s neighbour in London, wanted to finance all $5.4 billion of the Actavis debt. The plan was to pocket all the fees, and then quickly turn around and syndicate the loan. But then the music stopped. The debt markets snapped shut before the German bank could sell off the loan, and it was stuck. Exacerbating the problems was the fact that Actavis simultaneously ran into regulatory troubles with the FDA, which forced it to recall all the drugs from a plant in New Jersey in 2008. Actavis CEO Robert Wessman, who once was the third-biggest individual shareholder in the company and has a terrible relationship with Bjorgolfsson, stepped down. (Wessman claims he was later squeezed out of his shares. Bjorgolfsson denies it. The two sued each other for millions and each won, but only Bjorgolfsson got any money.) In extremis, Deutsche forced the equity holders to put in more cash. To meet the margin call, Bjorgolfsson borrowed $230 million from his own bank, Landsbanki. He got the last of the cash on September 30, 2008, a few days before Iceland’s collapse. The loan enabled Bjorgolfsson to hold onto his Actavis stake, but it is widely perceived as having weakened Landsbanki in its final days.

It’s hard to exaggerate how important the loan was to save Bjorgolfsson from bankruptcy and eventually put him back onto the path of riches. “I was so angry being crushed under all that debt, but it saved me,” says Bjorgolfsson. “If Actavis had been liquid when Landsbanki fell, I would have had to give [my stake] up. The fact that [Actavis owed so much money] worked in my favour.” And as anyone who has studied the career of Donald Trump could tell you: Owe a bank $1 million, it’s your problem; owe them $1 billion and it’s theirs. “They didn’t say great. In fact, there were times they called up and yelled at me,” says Bjorgolfsson. “But they had to work with me. Either we all get out or no one gets out.”

Bjorgolfsson’s stakes in his public companies were quickly obliterated, as two holdings collapsed, and he was forced to give up other stakes to meet margin calls. In the end he lost holdings that had been valued at some $1.8 billion before the crisis in four companies, including Finnish telecom Elisa and sportswear firm Amer Sports. He also lost 25 percent of Play, an up and coming telecom in Poland, but held onto 25 percent in a trust for his three-year-old son. On top of it all, he was stuck with $350 million of his father’s debts that he’d personally guaranteed after the dad, who’d also briefly been a billionaire, filed for bankruptcy in 2009. “Thor’s situation was very unique. He had taken debts and gave personal guarantees,” says Ian Bagshaw, a partner at White & Case, who later represented him. “He had turned himself into a walking LBO.”

The extremity of the crisis, ultimately, worked in his favour. Reluctant to sell assets into the panic for a fraction of their underlying value, his creditors didn’t force a liquidation. During the worst times, he still lived in his fancy home in Notting Hill and also had access to cash.

Still the pressure to extract something from such a high-profile creditor was enormous. “We were always scared the creditors were not necessarily driven by maximising recovery but rather were after blood,” says Andri Sveinsson, Bjorgolfsson’s longtime business partner.

Bjorgolfsson, whose great-grandfather and father had both been bankrupted, was determined not to fall victim to that same fate. It all came to a head in July 2010 when 100 lawyers, consultants, bankers and restructuring experts representing all of Bjorgolfsson’s seven creditors gathered in London. The group’s aim was to restructure his personal debts. But some creditors had a deep distrust of him. In November 2009 David Lovett, a restructuring expert working for Bjorgolfsson, sent them a list of assets. A month later one representative phoned Lovett to say he could not work with Bjorgolfsson: “We know he has an asset he’s not telling you about because we lent him the money.” It turned out there was a Ferrari sitting in a garage that he later claimed he forgot about. Lovett, who says he believed Bjorgolfsson, convinced them not to walk away. “He is swashbuckling and a believer in his immortality,” Lovett says. “[But] underneath it all he knew what was right and what was wrong.”

A similar incident occurred in the middle of July 2010. Bjorgolfsson suddenly remembered an apartment he owned in St Petersburg. His team woke up an appraiser to value the asset in the middle of the night. The creditors from what remained of Landsbanki meanwhile refused to sign the papers without a clause stipulating that additional forensic work be done to trace all of his assets. Any new discoveries of undeclared assets or criminal behaviour tied back to the events leading to the crisis would void the settlement. Bjorgolfsson also agreed not to borrow any money until he’d paid off the $1 billion he owed. Fifty-six hours after negotiations began, shortly before midnight on July 19, with Engelbert Humperdinck’s ‘Release Me’ playing on his iPhone, Bjorgolfsson signed the papers.

The banks took possession of a house in Reykjavik and a summer cottage at Thingvellir. He was told to sell his yacht, plane and Ferrari. It didn’t add up to much, maybe $15 million, for a man who owed $1 billion, but it meant the bankers were serious. The bigger money would come from Actavis and Play. Bjorgolfsson’s creditors would get dividends from these holdings, plus the bulk of proceeds in case of a sale. But, critically, Bjorgolfsson negotiated that he, too, would get a piece.

Just as a single phone call, from the president, marked Bjorgolfsson’s implosion, another phone call, from fellow Icelander Siggi Olafsson in 2011, put him back on track. Olafsson served as Actavis CEO from 2008 to 2010 but had moved to Watson Pharmaceuticals, an American generic drug maker. Olafsson and his boss, CEO Paul Bisaro, wanted to explore a merger with Actavis and thought he could help navigate the parties, including the creditors. For Bjorgolfsson, it was a call to action.

“He became the cheerleader behind the scenes. He might not have had pom-poms in both hands, but he was really pushing on all parties,” recalls Olafsson. “He was the master of ceremonies. You can’t underestimate how personal this was and how much he wanted this to happen.”

In October 2012 Watson closed on its nearly $6 billion purchase of Actavis. Deutsche got roughly $5.4 billion in cash, just about what it put in five years earlier. The Icelandic lenders got a first installment of $230 million. At the last hour Bjorgolfsson essentially doubled down, giving up whatever cash he was entitled to in return for up to 4.3 million shares, contingent on Actavis making certain goals. He received the maximum shares—worth some $700 million today—and repaid the rest of the $330 million debt to the Icelandic creditors in 2014 (he put a collar on a portion of the shares so he could pay them without selling anything). By mid-2014 he had repaid everything. Voila! Without anything more than some shrewd poker playing, Bjorgolfsson was back. Today he’s worth $1.3 billion.

There’s still a hangover. “I personally lost over $100,000, all of my savings,” says Olafur Kristinsson, an Icelandic lawyer who plans to file a class action suit on behalf of 350 small investors against Bjorgolfsson. But otherwise, the London-based billionaire can look forward. Play, still held in trust, is now the second-most-valuable holding he controls, worth at least $450 million.

Bjorgolfsson swears billionaire-hood will be different the second time around. “Like an animal who learns in the jungle,” says Bjorgolfsson, “I really am trying to learn something from this.” He says he won’t use as much debt, he’ll stick to sectors he knows well like telecom and generic pharmaceuticals, and he’ll try to invest with partners.

There’s perhaps a more telling lesson of the jungle, though—leopards don’t change their spots. Bubble watchers, take note: Bjorgolfsson says he’s again getting lots of calls from lenders, including Deutsche, proving, if nothing else, that Mammon has a very short-term memory.

And he’s answering the phone. In January, Bjorgolfsson acquired a 92 percent stake in Chile’s smallest mobile operator, Nextel Chile. And true to form, he financed it by borrowing $60 million against his Actavis stake. He claims he is willing to invest another half-billion dollars in the concern, more than half of it debt.

“I am still young,” he said at a dinner celebrating the Acatvis sale. “I could do this all again. I could make a billion, lose it all and still have time to make it once more.”