Ivar Kreuger - Tentative Conclusions

Tentative Conclusions

One biographer called him a genius and swindler. John Kenneth Galbraith wrote “Boiler-room operators, peddlers of stocks in the imaginary Canadian mines, mutual-fund managers whose genius and imagination are unconstrained by integrity, as well as less exotic larcenists, should read about Kreuger. He was the Leonardo of their craft.” Ivar himself admitted to some extent that not all was above board when he said, "I've built my enterprise on the firmest ground that can be found – the foolishness of people." Perhaps Andrew Beattie summed it up best: “Ivar Kreuger is still a bit of an enigma in history. ... At times it seemed that he was a solid, if ruthless, businessman, and at other times he appeared every inch a scam artist. Between those times, he either built a match monopoly that overreached or orchestrated one of the biggest pyramid schemes in history.”

Many of his financial schemes did indeed have some parallels with a Ponzi scheme in as much as he needed to raise more and more funds in order to finance the loans he extended to governments in exchange for match monopolies. It's obvious that it's impossible to have earnings in single digits (as these sovereign loans typically paid) and continue paying dividends in double digits. Dividends were as high as 20%. However, while paying high dividends was definitely one of the attractions of Kreuger's companies, paying dividends to his investors did not come exclusively from new investors, which is the case in Ponzi schemes.

Balance sheets and Profit and Loss statements served one major purpose, if not the only one, for Ivar and that was they had to be helpful in his fund raising efforts. Often they were just pure fantasy to be revised at will to please investors. He also frequently treated the assets of corporations he controlled as if they were his own. However, things should be seen in the context of the time. IBM, for example, consolidated all its accounts in one named Plant, Property, Equipment, Machines, Patents and Goodwill. American Can doubled its reported net earnings in 1913 by claiming only $1 million of depreciation after having claimed $ 2.5 million the previous year. Many companies set up arbitrary reserves in good times to be used in bad years and few holding companies published consolidated financial statements.

Accounting standards and auditors' responsibility for the accuracy of financial statements evolved over time. Corporations resisted publishing audited financial statements. US Steel defied convention when it published its first audited financial statements in 1903. Indeed accountants in the early 1900s “fiercely resisted efforts to impose strict accounting standards”. It was not until the US Securities Acts of 1933 and 1934 - both heavily influenced by Kreuger's actions - that generally accepted accounting principles began to be established. Only in the 1970s and 1980s were auditors forced to accept more responsibility for the veracity of financial statements but loopholes continued to exist (and probably still do).

Dishonesty was part of Ivar's behaviour almost from the beginning of his career. In the first loan for a match monopoly, Ivar's brother Torsten negotiated with Dr. Marjam Glowacki, a senior Polish finance ministry official. After the documents were signed Ivar decided that it might be useful in the future to replicate Dr. Glowacki's signature. He ordered a rubber stamp that would produce a facsimile should he need it in the future. He did not use it; however, from then on he had rubber stamps made of official signatures of almost all his match deals. “Mostly, Ivar had been skirting the edges of legal rules, to preserve his own flexibility.” But the forgery of Italian bonds was outright fraud. A lithographer who had printed share certificates for Ivar made 42 Italian bills, which Ivar signed with the names of G. Boselli (an official in the Ministry of Finance) and A. Mosconi, (the Minister of Finance). It has never been explained why these forgeries were so crude. He even misspelled Boselli's name several times. Ivar kept them in his safe for almost two years. They would have been worth between ca. 100 to 140 million dollars, if they had not been forged. (About 1.5 to 2.1 billion in today's money) When he was desperate for funds, Ivar tried to use them claiming that they were genuine.

Yet it would be a mistake to conclude that Ivar was nothing but a crook. Reality was more nuanced. For one thing disclosure rules in his days were much less stringent. Many corporations refused to reveal details for fear competitors would gain an advantage. (At least that was the claim often made.) Some firms did not even publish quarterly results. Ivar, too, was very secretive and not only with investors. When he was on the verge of hiring somebody he usually asked: “Can he keep a secret?” He was also very fond of quoting his motto for success: “Silence, more silence, and still more silence.” Also one cannot fault him for the speculative fever in the 1920s. Without the hunger for ever larger profits many of Ivar's schemes would not have been possible. Incidentally this facilitated a transfer of capital from the USA to Europe where it was, often desperately, needed. He sold shares in the USA worth 250 million dollars (equivalent to ca. 3.75 billion today) and transferred almost all of it to his holding company in Liechtenstein, Continental Investment Corporation. Shareholders of International Match had given him authority to do this so there was nothing wrong with it. There was also a tax advantage because of the advantageous deal he had negotiated with Liechtenstein. But Ivar did it above all to have the flexibility to manipulate balance sheets and financial statements so they would look more attractive to investors as well as helping him – to some extent - pay the high dividends of Swedish Match and Kreuger & Toll. He got the nickname "Saviour of Europe" by lending about $400 million (equivalent to ca. 6 billion today) to rebuild their shattered economies after World War I. He invented new financial instruments to help him raise funds and, of course, make him money. Indeed, many consider Ivar to be the father of modern financial schemes . Oscar Rydbeck, his Swedish banker, said Ivar was the third richest man in the world. He, however, claimed “money as such means nothing to me”. Ivar was also a successful speculator for much of his life making lots of money until shortly before the end. Trying to support the collapsing share prices of many of his companies (including ways which were - if not illegal - questionable, e.g. using straw men for share transactions. In the case of his acquisition of Diamond Match shares it was clearly illegal because of anti-trust laws.)

He controlled many legitimate, profitable businesses, some of which still exist to this day. (Examples include Swedish Match, Ericsson, Boliden AB, - Europe's largest gold mine -, Skandinaviska Banken and SKF.) “Kreuger & Toll kept few accounting records despite the fact that it was a multibillion-dollar international conglomerate with over 400 subsidiaries.”

The total of bank loans and proceeds of the sale of securities was about $650 million (almost $10 billion in today's money). At the time of his death in 1932, assets were worth about $200 million, which was half of what Kreuger claimed in financial statements. Some of the shrinkage was due to depressed prices but much went into paying dividends from capital over the years. Swedish Match's bankruptcy cost American investors over $250 million ($3.75 billion today).