Ivar Kreuger
Encyclopedia
Ivar Kreuger (ˌiːvar ˈkryːgær, March 2, 1880 – March 12, 1932) was a Swedish
civil engineer, financier, entrepreneur and industrialist. In 1908 Kreuger co-founded the construction company Kreuger & Toll Byggnads AB which specialized in new building techniques. By aggressive investments and innovative financial instruments he built a global match
and financial empire. Between the two world wars, he negotiated match monopolies
with Europe
an and Central
and South America
n governments, and finally controlled between two thirds and three quarters of the worldwide match
production, and became known as the "Match King". Kreuger's financial empire was described by one biographer as a Ponzi scheme
, based on the supposedly fantastic profitability of Kreuger's match monopolies. But this is not quite correct since in a Ponzi Scheme early investors are paid dividends from their own money or that of subsequent investors. Although Ivar Kreuger did this to some extent, he also controlled many legitimate often very profitable businesses and also owned banks, real estate, a rich mine, pulp and industrial companies, besides his many match companies. Some of them have survived to this day. Kreuger & Toll, for example, was composed of bona fide businesses and there were others like it. Another biographer called him a "genius and swindler", John Kenneth Galbraith
wrote he was the "Leonardo of larcenists". His financial empire collapsed during the Great Depression
, and in March 1932, he shot himself dead.
Kreuger was born in Kalmar
, the eldest son of an industrialist in the match industry in Kalmar, Ernst August Kreuger (1852–1946) and his wife Jenny Emelie Kreuger (1856–1949) (nee Forssman). He had five siblings: Ingrid (born 1877), Helga (born 1878), Torsten (born 1884), Greta (born 1889) and Britta (born 1891). The Kreuger family owned several match factories in the Kalmar area. At school, Ivar skipped ahead two classes by taking private lessons, graduating at age 16. He continued his studies at the Royal Institute of Technology
in Stockholm
, where he graduated with a combined master's degree
s covering both the faculties of mechanical
and civil engineering
, at the age of 20.
Ivar Kreuger never married but lived for many years in different periods with Ingeborg Eberth (1889–1977), family name Hässler, born in Stockholm, who worked as a physical therapist
in Stockholm.
They met the first time in Stockholm, 1913. According to the book she wrote in 1932 after Krueger's death, he was not interested in a marriage and having children, and very much focused on his business. She broke off the relationship in 1917 and moved to Denmark
, where she married a Danish engineer with the name Eberth. They had a daughter in 1919, Grete Eberth (later to be an actress in Stockholm, married name Mac Laury 1919–2002). After some years however, she divorced Eberth and moved back to Stockholm with her daughter, reuniting with Kreuger. Mr. Eberth once kidnapped the daughter in Stockholm and brought her back to Denmark. Shortly thereafter Ingeborg, without notifying the authorities or police, went down to Denmark and brought the daughter back to Sweden by hiring a private fishing boat in Denmark that took them over Øresund to Sweden. The new period with Kreuger lasted until around 1928; after that they just met occasionally. The last time they met was in November 1931, just before Kreuger started on his final trip to America. Eberth received the news about his death in Paris
on March 12, 1932 from newspaper headlines the day after.
Kreuger had private apartments in Stockholm, New York, Paris, and Warsaw
, and a country place used during the summer season on the private island Ängsholmen in the archipelago of Stockholm. On business tours in Europe, he preferred to meet his business associates in Paris and then stayed in his flat at 5, Av. Victor Emanuel III (today named Avenue Franklin D. Roosevelt). He owned several specially designed motor yachts, among them Elsa built in 1906, Loris (1913), Tärnan (1925), and the most famous, Svalan (Swallow), built at Lidingö
in 1928, a 37 ft, 4.9 ton motor yacht, equipped with a V12, 31.9 liter Hispano-Suiza engine from the US company Wright, with 650 HP output, capable of more than 50 knots. A replica of the boat has been built.
He had a large private library in both his apartments in Stockholm and New York and quite a large art collection. The paintings were sold at different auctions held in September 1932, as all of Kreuger's private assets were incorporated into the bankruptcy. The collection in Stockholm comprised 88 original paintings, among them 19 by Anders Zorn
and a great number by old master
s from the Netherlands
. The New York collection included original paintings by Rembrandt and Anthony van Dyck
.
Kreuger became the major shareholder when the Swedish film company AB Svensk Filmindustri
(SF) was founded in 1919 and because of that, sometimes met celebrities from the film industry. In June 1924, Mary Pickford
and Douglas Fairbanks
were invited by SF to Stockholm and were guided around the Stockholm archipelago in Kreuger's motor yacht Loris. A five-minute film sequence of this occasion is stored in SF's film archive. Pickford, Fairbanks, Kreuger, Charles Magnusson (the manager for SF), Greta Garbo
and various SF employees appear in the film.
, but they soon sold the restaurant. At an early stage he came in contact with the patented Julius Kahn system for concrete-steel constructions that was exploited by the company Trussed Concrete Steel Co., when working for different engineering companies, among them The Consolidated Engineering & Construction Co. and Purdy & Henderson in New York. This new technique had not been introduced in Sweden at that time. In 1907 he managed to get the representative rights for the system for both the Swedish and the German markets, and at the end of 1907 he returned to Sweden with the goal of introducing the new methods in both countries at the same time. At that time one of the experts in Sweden in concrete-steel constructions was his cousin Henrik Kreüger
working at KTH
in Stockholm.
In May 1908, Kreuger formed the construction firm Kreuger & Toll
in Sweden with the engineer Paul Toll
, at that time working for the construction company Kasper Höglund AB, and his cousin Henrik Kreüger
, working at the faculty of civil engineering at KTH, as a consulting engineer for the company. In Germany, he formed the company Deutsche Kahneisengesellschaft together with a colleague from his time in America, Anders Jordahl.
The new way of constructing buildings was not fully accepted in Sweden at that time and in order to market the new technique, Kreuger held several lectures and wrote an illustrated article on the subject in a leading engineering magazine, Teknisk Tidskrift.
This new technology of constructing buildings was a success and the firm won several prestigious contracts, such as the construction of the Stockholm Olympic Stadium (1911–12); the foundation work for the new Stockholm City Hall
(1912–13) and the department store NK
(1913–14) in Stockholm. The chief engineer behind these advanced projects was Henrik Kreüger.
Innovation in the construction business also included a definite commitment to finish the building on time. Hitherto the financial risk of delays were assumed by the clients. Kreuger & Toll was the first firm in Europe to commit to finish projects by a fixed date, thus shifting the risk to the builder, who after all was in the best position to reduce delays. When Kreuger won the contract to build a six-story "skyscraper," he promised that if construction wasn't finished by a particular date Kreuger & Toll would give the client a partial refund of $1,200 (about $18,000 in today's currency http://commons.wikimedia.org/w/index.php?title=File:US_Historical_Inflation.svg&action=edit§ion=1)for each late day. It is noteworthy that Kreuger & Toll's entire capital would have covered just two days of being late. The client, in turn, agreed to pay a bonus for every day the building was finished before the due date. Kreuger & Toll finished early and subsequently earned completion bonuses for every project. Within a few years Kreuger & Toll was seen as the best building company in Sweden and one of the top firms in all of Europe.
Within six years after its incorporation, Kreuger & Toll earned annual profits of around $200,000 and was paying a substantial dividend of 15 %. In 1917 the company was split into two separate companies: Kreuger & Toll Construction AB, with the majority of shares owned by Paul Toll. Ivar Kreuger was not among the board members in the construction company. How much of Paul Toll's company Ivar Kreuger owned has not been revealed—just that Paul Toll owned 60% in 1917 and, around 1930, 66% of the construction company. Kreuger & Toll Construction Co. has never shown up in any Kreuger & Toll Holding organisation charts.
Kreuger & Toll Holding became his financial holding company, with Ivar Kreuger as the general manager and major share holder. He controlled it with a tight grip. The board of directors consisted of Ivar, his father, Paul Toll and two very close colleagues.
After Ivar got involved in his father's match factories in Kalmar, he became more focused on “constructing” new companies or taking control of other corporations - usually paying with his own securities instead of cash - rather than buildings and bridges. Thus by 1927 Ivar had bought banks, mining companies, railways, timber and paper firms, film distributors, real estate in several European cities as well as a controlling stake in L.M. Ericsson
& Co., Sweden's leading phone company. He controlled about 50% of the world market in iron ore and cellulose. He owned mines all over the world including the Boliden
mine in Sweden, which had one of the richest gold deposits outside South Africa in addition to other minerals.
Kreuger formed Swedish Match
by merging his father's business with other match factories he had quietly bought during World War I
. Its initial capital was around $10 million (ca. $150 million in today's currency http://commons.wikimedia.org/w/index.php?title=File:US_Historical_Inflation.svg&action=edit§ion=1) and Ivar owned about half of it, held all senior positions and controlled the board of directors.
The Swedish banker Oscar Rydbeck (1878–1951) became a close associate and an important teacher for Ivar in the financing business. He worked for Kreuger & Toll as a consultant from around 1912 until the Kreuger Crash in 1932 and was a member of its board of directors. For not having carried out his duties as a director he went to jail for 10 months after Ivar's death.
In 1911-12 the Kreuger family match factories in Kalmar
, Fredriksdal
and Mönsterås
run by his father Ernst Kreuger, uncle Fredik Kreuger and his brother Torsten Kreuger, encountered financial problems. Kreuger was then advised by his banker Oscar Rydbeck to turn the factories into a stock corporation in order to raise more capital. This was the starting point for the reformation of the Swedish match industry as well as the major match companies in Norway
and Finland
. The goal was to get control of the entire match industry in Scandinavia.
With the family match factories as the base, Kreuger first founded the Swedish corporation AB Kalmar-Mönsterås Tändsticksfabrik in 1912. His father, Ernst, and uncle Fredrik, became the major shareholders and his brother Torsten was appointed the general manager. Ivar became a member of the board.
A merger between this company with several other small match companies in Sweden, the company AB Svenska Förenade Tändsticksfabriker was founded in 1913 with Ivar Kreuger as the general manager. Later, by merging with the largest match company in Sweden, AB Jönköping-Vulcan, Svenska Tändsticks AB (Swedish Match
) was founded in 1917. Ivar had originally tried to convince AB Jönköping-Vulcan to merge in December 1912, but they had not been interested as Vulcan was the dominating match company in Sweden. Ivar then started to acquire all of the match companies as well as most of the raw material companies he could find in and around Sweden and then finally got AB Jönköping-Vulcan to accept the merger. He had been so persuasive in arguing for the merger that he managed to overvalue his side of the deal so that it was essentially the smaller organization taking over the larger one. It was his first big venture in inflating values, which became his prime tactic thereafter.
One of the main designers behind this operation, beside Ivar, was his banker Oscar Rydbeck (1878–1951). The total number of shares in the new company was 450,000. Ivar Kreuger personally owned 223,000 shares and his new holding company, Kreuger & Toll Holding AB, 60,000.
This company group now covered the entire match industry in Sweden, including all the major companies that manufactured the production machines used in the factories. The total number of employees working in match production in Sweden in 1917 was around 9000. It also had control over major companies supplying the raw material for the match industry. During this time Kreuger also acquired the largest match manufacturing companies in Norway (Bryn
and Halden
) and in Finland (Wiborgs and Kekkola).
However, Kreuger not only "acquired" companies but also introduced a new way of thinking in the Swedish match industry with large scale production facilities, ideas to increase efficiency in production, administration, distribution, and marketing.
He managed to unite the Swedish match industry as well as the major match companies in Norway
and Finland
. With this new company structure the match industry in Scandinavia
became a major competitor to large manufacturers elsewhere. Ivar's methods resembled those John D. Rockefeller
used in the formation of the Standard Oil Trust transforming dozens of struggling factories into a strong and profitable monopoly. The methods had become illegal in the USA because of anti-trust laws, but were not against the law in Sweden at the time.
A German chemist had invented phosphorus matches in 1832 but they were dangerous because the yellow phosphorus used was poisonous and because it was in the match head and thus could easily light by accident. The Swedes improved on the design by using a safer red phosphorus, which they put on the striking surface of the match box. They called them "safety matches". They made Sweden the leading exporter of matches and made matches the most important Swedish export.
It should be remembered that in the early part of the 20th century matches were a necessity for smoking and the lighting of stoves and gas appliances among other uses and therefore demand for them was highly inelastic, meaning that a monopolist could raise prices (and hence profits) significantly without much affecting the quantity sold.
By expanding the Swedish Match company through acquisition of government-created monopolies, the Swedish company became the world's largest match manufacturer. Kreuger set up an affiliate to Kreuger & Toll AB in the United States
, and together with Lee, Higginson & Co. in New York, formed the International Match Corporation
. This group eventually came to control almost 75% of the world production in matches.
s to speed up reconstruction. As a security, the governments would grant him the match monopoly in their country. This means that Kreuger gained a monopoly in match production, sales, or distribution, or a complete monopoly. The monopoly agreements differed from country to country. The capital was raised to a large extent through loans from Swedish and American banks, combined with issuing a large amount of participating debentures. Kreuger also often moved money from one corporation he controlled to another.
Kreuger did not limit himself to matches, but gained control of most of the forestry
industry in northern Sweden and planned to become head of a cellulose
cartel
. He also attempted to create a telephone phone monopoly in Sweden.
After founding the pulp manufacturer SCA
, in 1929 Kreuger was able to acquire the majority shares in the telephone company Ericsson
; the mining company Boliden
(gold); major interests in the ball bearing
manufacturer SKF
; the bank Skandinaviska Kreditaktiebolaget
and others.
Abroad he acquired Deutsche Unionsbank in Germany
and Union de Banques à Paris in France
, often with the acquired company's own money. These maneuvers were made both necessary and possible by his invention, decades ahead of his time, of Enron-style financial engineering
, which reported profits when there were none and paid out ever increasing dividends by attracting new investment and/or looting the treasury of a newly acquired company.
By 1931 Kreuger controlled some 200 companies. However, the Stock Market Crash of 1929 turned out to be a major factor in exposing his accounting that ultimately proved fatal to both him and his empire.
In the spring of 1930 he visited the United States and gave a lecture about the situation in world economics at the Industrial Club of Chicago with the title "The transfer problem and its importance to the United States". He was invited by President Hoover
to the White House
to discuss the subject and in June he was awarded the title Doctor
of Business Administration by Syracuse University
, where he had worked as a young chief engineer when Archbold Stadium
was built there in 1907.
In 1929, at the peak of his career, the Kreuger fortune was thought to be worth 30bn Swedish kronor
, equivalent to approximately US$100bn USD in 2000 , and consisting of more than 200 companies. In the same year the total loans made by Swedish banks were barely 4bn SEK.
, and the South Sea Bubble) but Ivar was very creative inventing new ways of financing business, while making sure that he kept control of his companies.
With respect to selling shares, he invented Dual Class Ownership shares
since he did not want to lose control of his companies. He called the class of shares with reduced voting power B Shares. One of Kreuger's biographers, Frank Partnoy
, called it "an ingenious piece of financial engineering." Ivar began with Swedish Match where he divided the common shares into two classes. Each class would have the same claim to dividends and profits, but the B Shares would carry only 1/1000 of a vote, compared to one vote for each A Share. In this way Ivar could double the size of his capital, while diluting his control by just a fraction of a percent.
Presently such shares are sometimes called A Shares with the B Shares having more voting power, as is the case with Google for instance where they carry ten times more voting power than the A Shares.
As already stated, these types of shares are used to this day although, unlike in Kreuger's time, there are often restrictions in some markets and/or jurisdictions nowadays. The New York Stock Exchange, for example, allows companies to list dual-class voting shares. Once shares are listed, however, companies are not allowed to reduce the voting rights of the existing shares or issue a new class of superior voting shares.
There is a wide range of dual-class share structures and their use between countries. In Canada, for example, an estimated 20% to 25% of companies currently listed on the TSX make use of some form of dual-class share structure or special voting rights. In the United States on the other hand, where rules on dual-class shares are much more restrictive and investor opposition is more vocal, just over 2% of companies issue restricted shares.
Finally, these debentures were convertible, which meant that they could be converted into shares. If International Match performed well and the value of the shares increased, investors could switch from the debentures to the more valuable shares. The convertible feature made these securities particularly attractive: they have both downside protection (because in the case of bankruptcy the bond holders were paid before the shareholders) and upside potential. In other words, the best of both worlds. "Ivar and Lee Higginson had designed their first financial mousetrap."
Ivar's popularity helped Lee Higginson sell $15 million of International Match gold debentures, at a price of $94.50 for each $100 of principal amount. Investors paid $94.50 in return for the right to receive interest of $6.50 per year for 20 years (6.5 percent of the hundred dollars principal amount.). The deal raised a total of $14,175,000, i.e. 94.5 percent of $15 million.
s. That issue was called Kreuger & Toll "American Certificates." American investors had never seen an investment like this. It was part bond, part preferred stock, and part profit sharing option. The certificates enabled investors to gain exposure to a foreign company that had been paying dividends of 25 percent. It would be backed by the largest private loan to a foreign government (i.e. Germany) ever. Even in the midst of the growing panic investors went crazy for the issue and promised to buy 28 million dollars of the new securities. And this happened two days after Black Monday
in 1929.
To retain control of Garanta, Ivar created another innovative financial provision,
which meant that during the first four years until October 1, 1929, International Match Corporation had the right to appoint the managing director of Garanta who alone was entitled to sign for the company On or after October 1, 1929, International Match Corporation had the right to acquire 60 percent of the shares at par. This option term secured both initial control over Garanta and the right to own a majority of Garanta's shares in the future.
This invention gained rapid acceptance by others, e.g. Goldman Sachs
and Lehman Brothers
. The former issued 250 million dollars worth of complex securities (equivalent to about 3.75 billion in today's money) in 1929. Lehman issued similar obligations, which immediately rose 30 percent. Enron
used them extensively and in the recent financial crisis they played a major role in bringing down Bear Stearns
and Lehman Brothers.
companies Ivar controlled, he was fundamentally a gambler and often a very lucky one.
He speculated with his personal funds and, especially, with the money of the corporations he controlled. The preceding statement should be seen in light of the fact that Kreuger treated most of his companies as if they were exclusively his personal property. He frequently transferred funds from one corporation to another with little or no formality. A number of dummy corporations and holding companies (e.g. Garanta and Continental Investment Corporation) helped him to hide what he was doing. He also used others as front men to conceal his actions, e.g. when he acquired almost half of the outstanding shares of Diamond Match Company
so as not to raise anti-trust concerns in the USA. Towards the end, in 1932, when he frantically gambled with the securities of corporations he controlled in the vain attempt to reverse their falling prices he played the markets himself and had friends help him in the effort to prop up share prices. Between the end of February and early March 1932 he needed to make over $10 million (equivalent to more than $150 million in today's money) for payments, including Kreuger & Toll
dividends.
His speculations were in foreign currencies, equities and derivatives such as optis and he also signed loan agreements with governments not knowing where the funds would be coming from. For example the majority stake he had bought in a chemical company in Griesheim
, Germany returned 15 times his investment after two years when the company became part of I. G. Farben. Part of his attraction for investors were the high dividends Kreuger & Toll paid. Therefore he also had to make sure that he had money to pay those dividends.
It has never been established how much Kreuger lost in these frantic efforts in early 1932 but it has been estimated to be between $50 million and $100 million (ca. $750 million and $1.5 billion in today's currency).
His first sovereign loan went to Poland and when Kreuger signed the agreement he had no idea where the funds would come from.
When he made a deal with Germany for a $125million-dollar loan (almost $1.9 billion in today's currency) with the conditions that Germany sign the Young Plan
and, of course, award him a match monopoly. (He already controlled 70 % of German match production before the loan agreement.) When he signed the contract he had no idea where he would obtain the huge amount, however he was lucky. Prime Minister Aristide Briand
of France decided to repay before it was due a previous 75million-dollar loan from Ivar. Incredibly, the French agreed to pay this sum by April 1930, just before Ivar's first payment to Germany was due. That payment gave Ivar enough cash to make his first installment. Either he had negotiated a sweetheart rescue deal with Prime Minister Briand, or he was incredibly lucky. He also made $5 million (ca. $75 million in today's currency) due to the way the loan to France was structured. (It had been discounted and although France received only 70 million dollars it was obligated to pay back 75 million dollars.)
Kreuger planned to issue a loan of $75m to Italy, known as the "Italian Bond
" in 1930 but the deal was never completed.
for the second time in his life to support him in raising a large increase in his loans. At this time his total loans in Swedish banks was estimated to about half of the Swedish reserve currency that had started to give negative effects on the value of the Swedish currency in the international financial market. In order to grant him more loans, the government required that a complete statement of accounts of Kreuger's entire company group was presented, as the bank's (Sveriges Riksbank
) own calculations showed that Kreuger & Toll finances were far too weak to give him more loans.
At that time Ivar Kreuger was in the United States and was asked to return to Europe for a meeting with the chairman of the Riksbank, Ivar Rooth
. He had left Sweden for the last time on November 23, 1931 and returned to Europe on the ship Ile de France, arriving in Paris on March 11, 1932. The meeting with Ivar Rooth was scheduled to take place on March 13 or 14 in Berlin
. He met with Krister Littorin (vice president of Kreuger & Toll holding) and his own banker Oscar Rydbeck in Paris on March 11 to prepare for the Berlin meeting. But on March 12, he was found dead in bed in his apartment at Avenue Victor Emanuel III. After questioning Kreuger's servants (his French maid mademoiselle Barrault and the janitor
who had had contact with Kreuger in the morning) the French police and a physician came to the conclusion that he had shot himself some time between 10:45 a.m. and 12:10 p.m. A 9-mm semi-automatic gun was found on the bed beside the body.
He left a sealed envelope in the room, addressed to Krister Littorin, which contained three other sealed envelopes - one addressed to his sister Britta; one to Sune Schéle; and one addressed to Littorin. In the letter to Littorin (for some reason written in English although Littorin was his closest Swedish colleague), he wrote:
Ivar Kreuger was interred in Norra begravningsplatsen
in Stockholm.
scandal and Bernard Madoff
's Ponzi scheme
which occurred after the regulations were relaxed in the 1990s.
A Foreign Affairs
report from 1930 had judged that of the $630m worth of assets the company claimed to have, $200m came from the match business, $30m were in the bank, and the other $400m were merely categorized as "other investments." When the company finally went bankrupt
at the end of March 1932, claimed assets of $250m turned out to be non-existent.
Prior to the crash, Kreuger had issued thousands of participating debenture
s. These were very popular, and a firm public belief in the rising Kreuger empire convinced contemporary Swedes to invest in these "Kreuger papers". Following the Kreuger crash, both the debentures and shares became worthless, and several thousand Swedes and small banks lost their savings and investments as a result. Large investors and suppliers apart from share holders, received a total of 43% back. The banks related to the Wallenberg family
company group, Stenbeck
company group, and Handelsbanken
took over most of the companies in the Kreuger empire. Swedish Match recovered shortly after the crash as did most of the industrial companies within the Kreuger empire. Swedish Match received a large government guaranteed loan that was fully repaid after several years. IMCO in USA however did not survive. The liquidation took nine years and was eventually finished in 1941.
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). But although hints of dishonesty had always been associated with him (from pretending to be an architect
in Chicago
in 1900 to the badly forged Italian bonds), he cannot be described “as nothing but a crook” as Bernie Madoff, for example, has been called.
The 1932 film The Match King
, directed by Howard Bretherton
and William Keighley
, starring Warren William
is based on Kreuger's life.
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
civil engineer, financier, entrepreneur and industrialist. In 1908 Kreuger co-founded the construction company Kreuger & Toll Byggnads AB which specialized in new building techniques. By aggressive investments and innovative financial instruments he built a global match
Match
A match is a tool for starting a fire under controlled conditions. A typical modern match is made of a small wooden stick or stiff paper. One end is coated with a material that can be ignited by frictional heat generated by striking the match against a suitable surface...
and financial empire. Between the two world wars, he negotiated match monopolies
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
with Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an and Central
Central America
Central America is the central geographic region of the Americas. It is the southernmost, isthmian portion of the North American continent, which connects with South America on the southeast. When considered part of the unified continental model, it is considered a subcontinent...
and South America
South America
South America is a continent situated in the Western Hemisphere, mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere. The continent is also considered a subcontinent of the Americas. It is bordered on the west by the Pacific Ocean and on the north and east...
n governments, and finally controlled between two thirds and three quarters of the worldwide match
Match
A match is a tool for starting a fire under controlled conditions. A typical modern match is made of a small wooden stick or stiff paper. One end is coated with a material that can be ignited by frictional heat generated by striking the match against a suitable surface...
production, and became known as the "Match King". Kreuger's financial empire was described by one biographer as a Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
, based on the supposedly fantastic profitability of Kreuger's match monopolies. But this is not quite correct since in a Ponzi Scheme early investors are paid dividends from their own money or that of subsequent investors. Although Ivar Kreuger did this to some extent, he also controlled many legitimate often very profitable businesses and also owned banks, real estate, a rich mine, pulp and industrial companies, besides his many match companies. Some of them have survived to this day. Kreuger & Toll, for example, was composed of bona fide businesses and there were others like it. Another biographer called him a "genius and swindler", John Kenneth Galbraith
John Kenneth Galbraith
John Kenneth "Ken" Galbraith , OC was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism...
wrote he was the "Leonardo of larcenists". His financial empire collapsed during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, and in March 1932, he shot himself dead.
Early life
Kalmar
Kalmar is a city in Småland in the south-east of Sweden, situated by the Baltic Sea. It had 62,767 inhabitants in 2010 and is the seat of Kalmar Municipality. It is also the capital of Kalmar County, which comprises 12 municipalities with a total of 233,776 inhabitants .From the thirteenth to the...
, the eldest son of an industrialist in the match industry in Kalmar, Ernst August Kreuger (1852–1946) and his wife Jenny Emelie Kreuger (1856–1949) (nee Forssman). He had five siblings: Ingrid (born 1877), Helga (born 1878), Torsten (born 1884), Greta (born 1889) and Britta (born 1891). The Kreuger family owned several match factories in the Kalmar area. At school, Ivar skipped ahead two classes by taking private lessons, graduating at age 16. He continued his studies at the Royal Institute of Technology
Royal Institute of Technology
The Royal Institute of Technology is a university in Stockholm, Sweden. KTH was founded in 1827 as Sweden's first polytechnic and is one of Scandinavia's largest institutions of higher education in technology. KTH accounts for one-third of Sweden’s technical research and engineering education...
in Stockholm
Stockholm
Stockholm is the capital and the largest city of Sweden and constitutes the most populated urban area in Scandinavia. Stockholm is the most populous city in Sweden, with a population of 851,155 in the municipality , 1.37 million in the urban area , and around 2.1 million in the metropolitan area...
, where he graduated with a combined master's degree
Master's degree
A master's is an academic degree granted to individuals who have undergone study demonstrating a mastery or high-order overview of a specific field of study or area of professional practice...
s covering both the faculties of mechanical
Mechanical engineering
Mechanical engineering is a discipline of engineering that applies the principles of physics and materials science for analysis, design, manufacturing, and maintenance of mechanical systems. It is the branch of engineering that involves the production and usage of heat and mechanical power for the...
and civil engineering
Civil engineering
Civil engineering is a professional engineering discipline that deals with the design, construction, and maintenance of the physical and naturally built environment, including works like roads, bridges, canals, dams, and buildings...
, at the age of 20.
Personal life
Physical therapy
Physical therapy , often abbreviated PT, is a health care profession. Physical therapy is concerned with identifying and maximizing quality of life and movement potential within the spheres of promotion, prevention, diagnosis, treatment/intervention,and rehabilitation...
in Stockholm.
They met the first time in Stockholm, 1913. According to the book she wrote in 1932 after Krueger's death, he was not interested in a marriage and having children, and very much focused on his business. She broke off the relationship in 1917 and moved to Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
, where she married a Danish engineer with the name Eberth. They had a daughter in 1919, Grete Eberth (later to be an actress in Stockholm, married name Mac Laury 1919–2002). After some years however, she divorced Eberth and moved back to Stockholm with her daughter, reuniting with Kreuger. Mr. Eberth once kidnapped the daughter in Stockholm and brought her back to Denmark. Shortly thereafter Ingeborg, without notifying the authorities or police, went down to Denmark and brought the daughter back to Sweden by hiring a private fishing boat in Denmark that took them over Øresund to Sweden. The new period with Kreuger lasted until around 1928; after that they just met occasionally. The last time they met was in November 1931, just before Kreuger started on his final trip to America. Eberth received the news about his death in Paris
Paris
Paris is the capital and largest city in France, situated on the river Seine, in northern France, at the heart of the Île-de-France region...
on March 12, 1932 from newspaper headlines the day after.
Kreuger had private apartments in Stockholm, New York, Paris, and Warsaw
Warsaw
Warsaw is the capital and largest city of Poland. It is located on the Vistula River, roughly from the Baltic Sea and from the Carpathian Mountains. Its population in 2010 was estimated at 1,716,855 residents with a greater metropolitan area of 2,631,902 residents, making Warsaw the 10th most...
, and a country place used during the summer season on the private island Ängsholmen in the archipelago of Stockholm. On business tours in Europe, he preferred to meet his business associates in Paris and then stayed in his flat at 5, Av. Victor Emanuel III (today named Avenue Franklin D. Roosevelt). He owned several specially designed motor yachts, among them Elsa built in 1906, Loris (1913), Tärnan (1925), and the most famous, Svalan (Swallow), built at Lidingö
Lidingö
Lidingö is an island in the inner Stockholm archipelago, located north east of central Stockholm, the capital of Sweden. It is also the seat of Lidingö Municipality, Stockholm County, Sweden with 44,000 inhabitants in 2011....
in 1928, a 37 ft, 4.9 ton motor yacht, equipped with a V12, 31.9 liter Hispano-Suiza engine from the US company Wright, with 650 HP output, capable of more than 50 knots. A replica of the boat has been built.
He had a large private library in both his apartments in Stockholm and New York and quite a large art collection. The paintings were sold at different auctions held in September 1932, as all of Kreuger's private assets were incorporated into the bankruptcy. The collection in Stockholm comprised 88 original paintings, among them 19 by Anders Zorn
Anders Zorn
Anders Leonard Zorn was one of Sweden’s foremost artists who obtained international success as a painter, sculptor and printmaker in etching.-Biography:...
and a great number by old master
Old Master
"Old Master" is a term for a European painter of skill who worked before about 1800, or a painting by such an artist. An "old master print" is an original print made by an artist in the same period...
s from the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
. The New York collection included original paintings by Rembrandt and Anthony van Dyck
Anthony van Dyck
Sir Anthony van Dyck was a Flemish Baroque artist who became the leading court painter in England. He is most famous for his portraits of Charles I of England and his family and court, painted with a relaxed elegance that was to be the dominant influence on English portrait-painting for the next...
.
Kreuger became the major shareholder when the Swedish film company AB Svensk Filmindustri
AB Svensk Filmindustri
AB Svensk Filmindustri or Svensk Filmindustri is a Swedish film production company, distributor and movie theatre chain, currently owned by the Bonnier Group. It was established on December 27, 1919....
(SF) was founded in 1919 and because of that, sometimes met celebrities from the film industry. In June 1924, Mary Pickford
Mary Pickford
Mary Pickford was a Canadian-born motion picture actress, co-founder of the film studio United Artists and one of the original 36 founders of the Academy of Motion Picture Arts and Sciences...
and Douglas Fairbanks
Douglas Fairbanks
Douglas Fairbanks, Sr. was an American actor, screenwriter, director and producer. He was best known for his swashbuckling roles in silent films such as The Thief of Bagdad, Robin Hood, and The Mark of Zorro....
were invited by SF to Stockholm and were guided around the Stockholm archipelago in Kreuger's motor yacht Loris. A five-minute film sequence of this occasion is stored in SF's film archive. Pickford, Fairbanks, Kreuger, Charles Magnusson (the manager for SF), Greta Garbo
Greta Garbo
Greta Garbo , born Greta Lovisa Gustafsson, was a Swedish film actress. Garbo was an international star and icon during Hollywood's silent and classic periods. Many of Garbo's films were sensational hits, and all but three were profitable...
and various SF employees appear in the film.
Early years in America
After the turn of the century Kreuger spent seven years traveling and working abroad as an engineer in the USA, Mexico, South Africa and other countries, but spent most of the time in America. In South Africa he ran a restaurant for a short time together with his friend Anders JordahlAnders Jordahl
Anders Olson Jordahl, born 1878 in Norway and died 1969, was a famous inventor, entrepreneur, and artist.In South Africa he ran a restaurant for a short time together with his friend Ivar Kreuger, but they soon sold the restaurant. In Germany, also with Kreuger, he formed the company Deutsche...
, but they soon sold the restaurant. At an early stage he came in contact with the patented Julius Kahn system for concrete-steel constructions that was exploited by the company Trussed Concrete Steel Co., when working for different engineering companies, among them The Consolidated Engineering & Construction Co. and Purdy & Henderson in New York. This new technique had not been introduced in Sweden at that time. In 1907 he managed to get the representative rights for the system for both the Swedish and the German markets, and at the end of 1907 he returned to Sweden with the goal of introducing the new methods in both countries at the same time. At that time one of the experts in Sweden in concrete-steel constructions was his cousin Henrik Kreüger
Henrik Kreüger
Henrik Kreüger was born in Kalmar, Sweden and obtained his M.Sc. in civil engineering in 1904 at the Royal Institute of Technology in Stockholm....
working at KTH
Royal Institute of Technology
The Royal Institute of Technology is a university in Stockholm, Sweden. KTH was founded in 1827 as Sweden's first polytechnic and is one of Scandinavia's largest institutions of higher education in technology. KTH accounts for one-third of Sweden’s technical research and engineering education...
in Stockholm.
Historical cost and prices
Note: Multiplying historical U.S. prices of the period by 15 will result in an approximate value in today's prices. To appreciate the enormous sums with which he was involved and to evaluate Ivar Kreuger it is necessary to factor out inflation. This is done in the text by giving the approximate value in today's money in parentheses. Rather than showing the source used after every conversion into today's values it is provided in this section.The building contractor and his innovations
Kreuger & Toll
Kreuger & Toll was a company founded May 18, 1908 by the two Swedish engineers, Ivar Kreuger and Paul Toll, with Henrik Kreüger working as a consultant and chief engineer.-History:...
in Sweden with the engineer Paul Toll
Paul Toll
Paul Sequens Esaias Toll was a Swedish construction engineer and co-founder, together with Ivar Kreuger, of the construction company Kreuger & Toll....
, at that time working for the construction company Kasper Höglund AB, and his cousin Henrik Kreüger
Henrik Kreüger
Henrik Kreüger was born in Kalmar, Sweden and obtained his M.Sc. in civil engineering in 1904 at the Royal Institute of Technology in Stockholm....
, working at the faculty of civil engineering at KTH, as a consulting engineer for the company. In Germany, he formed the company Deutsche Kahneisengesellschaft together with a colleague from his time in America, Anders Jordahl.
The new way of constructing buildings was not fully accepted in Sweden at that time and in order to market the new technique, Kreuger held several lectures and wrote an illustrated article on the subject in a leading engineering magazine, Teknisk Tidskrift.
This new technology of constructing buildings was a success and the firm won several prestigious contracts, such as the construction of the Stockholm Olympic Stadium (1911–12); the foundation work for the new Stockholm City Hall
Stockholm City Hall
Stockholm City Hall is the building of the Municipal Council for the City of Stockholm in Sweden. It stands on the eastern tip of Kungsholmen island, next to Riddarfjärden's northern shore and facing the islands of Riddarholmen and Södermalm. It houses offices and conference rooms as well as...
(1912–13) and the department store NK
Nordiska Kompaniet
Nordiska Kompaniet is the name of two department stores located in Stockholm and Gothenburg, in Sweden....
(1913–14) in Stockholm. The chief engineer behind these advanced projects was Henrik Kreüger.
Innovation in the construction business also included a definite commitment to finish the building on time. Hitherto the financial risk of delays were assumed by the clients. Kreuger & Toll was the first firm in Europe to commit to finish projects by a fixed date, thus shifting the risk to the builder, who after all was in the best position to reduce delays. When Kreuger won the contract to build a six-story "skyscraper," he promised that if construction wasn't finished by a particular date Kreuger & Toll would give the client a partial refund of $1,200 (about $18,000 in today's currency http://commons.wikimedia.org/w/index.php?title=File:US_Historical_Inflation.svg&action=edit§ion=1)for each late day. It is noteworthy that Kreuger & Toll's entire capital would have covered just two days of being late. The client, in turn, agreed to pay a bonus for every day the building was finished before the due date. Kreuger & Toll finished early and subsequently earned completion bonuses for every project. Within a few years Kreuger & Toll was seen as the best building company in Sweden and one of the top firms in all of Europe.
Within six years after its incorporation, Kreuger & Toll earned annual profits of around $200,000 and was paying a substantial dividend of 15 %. In 1917 the company was split into two separate companies: Kreuger & Toll Construction AB, with the majority of shares owned by Paul Toll. Ivar Kreuger was not among the board members in the construction company. How much of Paul Toll's company Ivar Kreuger owned has not been revealed—just that Paul Toll owned 60% in 1917 and, around 1930, 66% of the construction company. Kreuger & Toll Construction Co. has never shown up in any Kreuger & Toll Holding organisation charts.
Kreuger & Toll Holding became his financial holding company, with Ivar Kreuger as the general manager and major share holder. He controlled it with a tight grip. The board of directors consisted of Ivar, his father, Paul Toll and two very close colleagues.
After Ivar got involved in his father's match factories in Kalmar, he became more focused on “constructing” new companies or taking control of other corporations - usually paying with his own securities instead of cash - rather than buildings and bridges. Thus by 1927 Ivar had bought banks, mining companies, railways, timber and paper firms, film distributors, real estate in several European cities as well as a controlling stake in L.M. Ericsson
Ericsson
Ericsson , one of Sweden's largest companies, is a provider of telecommunication and data communication systems, and related services, covering a range of technologies, including especially mobile networks...
& Co., Sweden's leading phone company. He controlled about 50% of the world market in iron ore and cellulose. He owned mines all over the world including the Boliden
Boliden
Boliden is a locality situated in Skellefteå Municipality, Västerbotten County, Sweden with 1,515 inhabitants in 2005. It lies 28,5 kilometers from Skellefteå City....
mine in Sweden, which had one of the richest gold deposits outside South Africa in addition to other minerals.
Kreuger formed Swedish Match
Swedish Match
Swedish Match is a Swedish company based in Stockholm that makes snus, tobacco, cigars , Red Man Chewing Tobacco, dipping tobacco, matches and lighters. It was founded as Svenska Tändsticksaktiebolaget by Ivar Kreuger in 1917 in Jönköping...
by merging his father's business with other match factories he had quietly bought during World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
. Its initial capital was around $10 million (ca. $150 million in today's currency http://commons.wikimedia.org/w/index.php?title=File:US_Historical_Inflation.svg&action=edit§ion=1) and Ivar owned about half of it, held all senior positions and controlled the board of directors.
The Swedish banker Oscar Rydbeck (1878–1951) became a close associate and an important teacher for Ivar in the financing business. He worked for Kreuger & Toll as a consultant from around 1912 until the Kreuger Crash in 1932 and was a member of its board of directors. For not having carried out his duties as a director he went to jail for 10 months after Ivar's death.
The match business
Kalmar
Kalmar is a city in Småland in the south-east of Sweden, situated by the Baltic Sea. It had 62,767 inhabitants in 2010 and is the seat of Kalmar Municipality. It is also the capital of Kalmar County, which comprises 12 municipalities with a total of 233,776 inhabitants .From the thirteenth to the...
, Fredriksdal
Fredriksdal
Fredriksdal is a locality situated in Nässjö Municipality, Jönköping County, Sweden with 318 inhabitants in 2005....
and Mönsterås
Mönsterås
Mönsterås is a locality and the seat of Mönsterås Municipality, Kalmar County, Sweden with 4,744 inhabitants in 2005.Mönsterås is associated with the Swedish poet Carl Boberg, particularly his 1885 writing of the lyrics for the eminent hymn "O Store Gud" .- References :...
run by his father Ernst Kreuger, uncle Fredik Kreuger and his brother Torsten Kreuger, encountered financial problems. Kreuger was then advised by his banker Oscar Rydbeck to turn the factories into a stock corporation in order to raise more capital. This was the starting point for the reformation of the Swedish match industry as well as the major match companies in Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
and Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
. The goal was to get control of the entire match industry in Scandinavia.
With the family match factories as the base, Kreuger first founded the Swedish corporation AB Kalmar-Mönsterås Tändsticksfabrik in 1912. His father, Ernst, and uncle Fredrik, became the major shareholders and his brother Torsten was appointed the general manager. Ivar became a member of the board.
A merger between this company with several other small match companies in Sweden, the company AB Svenska Förenade Tändsticksfabriker was founded in 1913 with Ivar Kreuger as the general manager. Later, by merging with the largest match company in Sweden, AB Jönköping-Vulcan, Svenska Tändsticks AB (Swedish Match
Swedish Match
Swedish Match is a Swedish company based in Stockholm that makes snus, tobacco, cigars , Red Man Chewing Tobacco, dipping tobacco, matches and lighters. It was founded as Svenska Tändsticksaktiebolaget by Ivar Kreuger in 1917 in Jönköping...
) was founded in 1917. Ivar had originally tried to convince AB Jönköping-Vulcan to merge in December 1912, but they had not been interested as Vulcan was the dominating match company in Sweden. Ivar then started to acquire all of the match companies as well as most of the raw material companies he could find in and around Sweden and then finally got AB Jönköping-Vulcan to accept the merger. He had been so persuasive in arguing for the merger that he managed to overvalue his side of the deal so that it was essentially the smaller organization taking over the larger one. It was his first big venture in inflating values, which became his prime tactic thereafter.
One of the main designers behind this operation, beside Ivar, was his banker Oscar Rydbeck (1878–1951). The total number of shares in the new company was 450,000. Ivar Kreuger personally owned 223,000 shares and his new holding company, Kreuger & Toll Holding AB, 60,000.
This company group now covered the entire match industry in Sweden, including all the major companies that manufactured the production machines used in the factories. The total number of employees working in match production in Sweden in 1917 was around 9000. It also had control over major companies supplying the raw material for the match industry. During this time Kreuger also acquired the largest match manufacturing companies in Norway (Bryn
Bryn (disambiguation)
Bryn can refer to:* Bryn, the Welsh word for hill or mound* Bryn, a male given name of Welsh origin* Bryn, a female given name of Welsh origin, in occasional modern use-Places:* Bryn in the Metropolitan Borough of Wigan, England...
and Halden
Halden
is a both a town and a municipality in Østfold county, Norway. The seat of the municipality, Halden is a border town located at the Tista river delta on the Iddefjord, the southernmost border crossing between Norway and Sweden.-History:...
) and in Finland (Wiborgs and Kekkola).
However, Kreuger not only "acquired" companies but also introduced a new way of thinking in the Swedish match industry with large scale production facilities, ideas to increase efficiency in production, administration, distribution, and marketing.
He managed to unite the Swedish match industry as well as the major match companies in Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
and Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
. With this new company structure the match industry in Scandinavia
Scandinavia
Scandinavia is a cultural, historical and ethno-linguistic region in northern Europe that includes the three kingdoms of Denmark, Norway and Sweden, characterized by their common ethno-cultural heritage and language. Modern Norway and Sweden proper are situated on the Scandinavian Peninsula,...
became a major competitor to large manufacturers elsewhere. Ivar's methods resembled those John D. Rockefeller
John D. Rockefeller
John Davison Rockefeller was an American oil industrialist, investor, and philanthropist. He was the founder of the Standard Oil Company, which dominated the oil industry and was the first great U.S. business trust. Rockefeller revolutionized the petroleum industry and defined the structure of...
used in the formation of the Standard Oil Trust transforming dozens of struggling factories into a strong and profitable monopoly. The methods had become illegal in the USA because of anti-trust laws, but were not against the law in Sweden at the time.
A German chemist had invented phosphorus matches in 1832 but they were dangerous because the yellow phosphorus used was poisonous and because it was in the match head and thus could easily light by accident. The Swedes improved on the design by using a safer red phosphorus, which they put on the striking surface of the match box. They called them "safety matches". They made Sweden the leading exporter of matches and made matches the most important Swedish export.
It should be remembered that in the early part of the 20th century matches were a necessity for smoking and the lighting of stoves and gas appliances among other uses and therefore demand for them was highly inelastic, meaning that a monopolist could raise prices (and hence profits) significantly without much affecting the quantity sold.
By expanding the Swedish Match company through acquisition of government-created monopolies, the Swedish company became the world's largest match manufacturer. Kreuger set up an affiliate to Kreuger & Toll AB in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, and together with Lee, Higginson & Co. in New York, formed the International Match Corporation
IMCO
IMCO may refer to:* the Intercontinental Manufacturing Company* the International Maritime Organization* the Intermountain Manufacturing Company* the Committee on the Internal Market and Consumer Protection of the European Parliament...
. This group eventually came to control almost 75% of the world production in matches.
Other business
From 1925 to 1930, years when many countries in Europe were suffering after the First World War, Kreuger's companies gave loans to governmentGovernment
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
s to speed up reconstruction. As a security, the governments would grant him the match monopoly in their country. This means that Kreuger gained a monopoly in match production, sales, or distribution, or a complete monopoly. The monopoly agreements differed from country to country. The capital was raised to a large extent through loans from Swedish and American banks, combined with issuing a large amount of participating debentures. Kreuger also often moved money from one corporation he controlled to another.
Kreuger did not limit himself to matches, but gained control of most of the forestry
Forestry
Forestry is the interdisciplinary profession embracing the science, art, and craft of creating, managing, using, and conserving forests and associated resources in a sustainable manner to meet desired goals, needs, and values for human benefit. Forestry is practiced in plantations and natural stands...
industry in northern Sweden and planned to become head of a cellulose
Cellulose
Cellulose is an organic compound with the formula , a polysaccharide consisting of a linear chain of several hundred to over ten thousand β linked D-glucose units....
cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
. He also attempted to create a telephone phone monopoly in Sweden.
After founding the pulp manufacturer SCA
Svenska Cellulosa Aktiebolaget
Svenska Cellulosa Aktiebolaget is a Swedish consumer goods company and pulp and paper manufacturer with headquarters in Stockholm. It has approximately 45,000 employees and a turnover of approximately SEK 107 billion...
, in 1929 Kreuger was able to acquire the majority shares in the telephone company Ericsson
Ericsson
Ericsson , one of Sweden's largest companies, is a provider of telecommunication and data communication systems, and related services, covering a range of technologies, including especially mobile networks...
; the mining company Boliden
Boliden
Boliden is a locality situated in Skellefteå Municipality, Västerbotten County, Sweden with 1,515 inhabitants in 2005. It lies 28,5 kilometers from Skellefteå City....
(gold); major interests in the ball bearing
Ball bearing
A ball bearing is a type of rolling-element bearing that uses balls to maintain the separation between the bearing races.The purpose of a ball bearing is to reduce rotational friction and support radial and axial loads. It achieves this by using at least two races to contain the balls and transmit...
manufacturer SKF
SKF
SKF, Svenska Kullagerfabriken AB , later AB SKF, is a Swedish bearing company founded in 1907, supplying bearings, seals, lubrication and lubrication systems, maintenance products, mechatronics products, power transmission products and related services globally.-History:The company was founded on...
; the bank Skandinaviska Kreditaktiebolaget
Skandinaviska Banken
Skandinaviska Banken, literally the Scandinavian Bank, was a Swedish bank founded in Gothenburg, 1864. Its foundation coincided with the political aspirations of the Scandinavian movement, which sought to unite Sweden, Norway and Denmark into a single kingdom...
and others.
Abroad he acquired Deutsche Unionsbank in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
and Union de Banques à Paris in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, often with the acquired company's own money. These maneuvers were made both necessary and possible by his invention, decades ahead of his time, of Enron-style financial engineering
Enron scandal
The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...
, which reported profits when there were none and paid out ever increasing dividends by attracting new investment and/or looting the treasury of a newly acquired company.
By 1931 Kreuger controlled some 200 companies. However, the Stock Market Crash of 1929 turned out to be a major factor in exposing his accounting that ultimately proved fatal to both him and his empire.
In the spring of 1930 he visited the United States and gave a lecture about the situation in world economics at the Industrial Club of Chicago with the title "The transfer problem and its importance to the United States". He was invited by President Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
to the White House
White House
The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...
to discuss the subject and in June he was awarded the title Doctor
Doctorate
A doctorate is an academic degree or professional degree that in most countries refers to a class of degrees which qualify the holder to teach in a specific field, A doctorate is an academic degree or professional degree that in most countries refers to a class of degrees which qualify the holder...
of Business Administration by Syracuse University
Syracuse University
Syracuse University is a private research university located in Syracuse, New York, United States. Its roots can be traced back to Genesee Wesleyan Seminary, founded by the Methodist Episcopal Church in 1832, which also later founded Genesee College...
, where he had worked as a young chief engineer when Archbold Stadium
Archbold Stadium
Archbold Stadium was a multi-purpose stadium in Syracuse, New York. It opened in 1907 and was home to the Syracuse University Orangemen football team prior to the Carrier Dome opening in 1980. It was the third concrete football stadium built in the country....
was built there in 1907.
In 1929, at the peak of his career, the Kreuger fortune was thought to be worth 30bn Swedish kronor
Swedish krona
The krona has been the currency of Sweden since 1873. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it, but especially in the past, it sometimes preceded the value...
, equivalent to approximately US$100bn USD in 2000 , and consisting of more than 200 companies. In the same year the total loans made by Swedish banks were barely 4bn SEK.
Financial innovations and financial engineering
Obtaining a monopoly for the production and/or sale of matches in return for loans to governments was, in its essence, not a new way of doing business. Such schemes had been around for a long time (e.g. the Mississippi Bubble of John LawJohn Law (economist)
John Law was a Scottish economist who believed that money was only a means of exchange that did not constitute wealth in itself and that national wealth depended on trade...
, and the South Sea Bubble) but Ivar was very creative inventing new ways of financing business, while making sure that he kept control of his companies.
B-Shares
Kreuger financed his activities by selling shares and bonds of his companies as well as through large bank loans, mainly the last two. The use of debt in addition to equity is called leverage and it magnifies both gains and losses.With respect to selling shares, he invented Dual Class Ownership shares
since he did not want to lose control of his companies. He called the class of shares with reduced voting power B Shares. One of Kreuger's biographers, Frank Partnoy
Frank Partnoy
Frank Partnoy is the George E. Barrett Professor of Law and Finance at the University of San Diego School of Law.-Bibliography:* F.I.A.S.C.O.: Blood in the Water on Wall Street* Infectious Greed: How Deceit and Risk Corrupted the Financial Markets...
, called it "an ingenious piece of financial engineering." Ivar began with Swedish Match where he divided the common shares into two classes. Each class would have the same claim to dividends and profits, but the B Shares would carry only 1/1000 of a vote, compared to one vote for each A Share. In this way Ivar could double the size of his capital, while diluting his control by just a fraction of a percent.
Presently such shares are sometimes called A Shares with the B Shares having more voting power, as is the case with Google for instance where they carry ten times more voting power than the A Shares.
As already stated, these types of shares are used to this day although, unlike in Kreuger's time, there are often restrictions in some markets and/or jurisdictions nowadays. The New York Stock Exchange, for example, allows companies to list dual-class voting shares. Once shares are listed, however, companies are not allowed to reduce the voting rights of the existing shares or issue a new class of superior voting shares.
There is a wide range of dual-class share structures and their use between countries. In Canada, for example, an estimated 20% to 25% of companies currently listed on the TSX make use of some form of dual-class share structure or special voting rights. In the United States on the other hand, where rules on dual-class shares are much more restrictive and investor opposition is more vocal, just over 2% of companies issue restricted shares.
Convertible Gold Debentures
Ivar and Lee Higginson & Co., his investment banker in the USA, decided to have International Match issue new securities called convertible gold debentures. "Debenture" is a debt instrument not secured by physical collateral or assets. They were issued to mature in 20 years and they were payable in either dollars or gold, at the holder's option. These bonds gave investors the right to receive annual interest payments of 6.5 percent from International Match, which was an attractive rate at the time.Finally, these debentures were convertible, which meant that they could be converted into shares. If International Match performed well and the value of the shares increased, investors could switch from the debentures to the more valuable shares. The convertible feature made these securities particularly attractive: they have both downside protection (because in the case of bankruptcy the bond holders were paid before the shareholders) and upside potential. In other words, the best of both worlds. "Ivar and Lee Higginson had designed their first financial mousetrap."
Ivar's popularity helped Lee Higginson sell $15 million of International Match gold debentures, at a price of $94.50 for each $100 of principal amount. Investors paid $94.50 in return for the right to receive interest of $6.50 per year for 20 years (6.5 percent of the hundred dollars principal amount.). The deal raised a total of $14,175,000, i.e. 94.5 percent of $15 million.
American Certificates
Kreuger invented another financial instrument, which continues to be used and is nowadays known as American Depositary ReceiptAmerican Depositary Receipt
An American depositary receipt is a negotiable security that represents the underlying securities of a non-U.S. company that trades in the US financial markets...
s. That issue was called Kreuger & Toll "American Certificates." American investors had never seen an investment like this. It was part bond, part preferred stock, and part profit sharing option. The certificates enabled investors to gain exposure to a foreign company that had been paying dividends of 25 percent. It would be backed by the largest private loan to a foreign government (i.e. Germany) ever. Even in the midst of the growing panic investors went crazy for the issue and promised to buy 28 million dollars of the new securities. And this happened two days after Black Monday
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
in 1929.
Binary Foreign Exchange Option
The second Poland agreement also contained some extraordinary protection for International Match including a binary foreign exchange option, a kind of derivative contract, to protect International Match from any declines in the value of the dollar: "International Match Corporation shall have the right to obtain payment of interest in Dutch guilders or US dollars according to its choice and for all such payments one dollar shall be counted as 2½ guilders."To retain control of Garanta, Ivar created another innovative financial provision,
which meant that during the first four years until October 1, 1929, International Match Corporation had the right to appoint the managing director of Garanta who alone was entitled to sign for the company On or after October 1, 1929, International Match Corporation had the right to acquire 60 percent of the shares at par. This option term secured both initial control over Garanta and the right to own a majority of Garanta's shares in the future.
Off Balance Sheet Entities
This means that details of an enterprise do not appear in the parent company's financial statements. Some of these entities were more or less secret. The associated debt, called "off balance sheet obligations", didn't appear in any financial statements of the companies Ivar controlled other than in summary form, if at all. (In this context, it should be kept in mind that most of these financial statements were figments of the imagination in any case.) Albert D. Berning of the firm Ernst & Ernst, International Match's auditor, rationalized it at the shareholder's meeting in 1926. He said "it is only customary to consolidate the assets and liabilities of companies in such a balance sheet when a substantial majority of the outstanding shares are owned by the parent company. Where less than such a majority is owned, the shares are included as investments."This invention gained rapid acceptance by others, e.g. Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
and Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
. The former issued 250 million dollars worth of complex securities (equivalent to about 3.75 billion in today's money) in 1929. Lehman issued similar obligations, which immediately rose 30 percent. Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
used them extensively and in the recent financial crisis they played a major role in bringing down Bear Stearns
Bear Stearns
The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
and Lehman Brothers.
Kreuger the gambler
In spite of the large number of bona fideBona Fide
Bona Fide is a studio album from rock band Wishbone Ash. It is the first studio album in six years and is the only studio album to feature guitarist Ben Granfelt...
companies Ivar controlled, he was fundamentally a gambler and often a very lucky one.
He speculated with his personal funds and, especially, with the money of the corporations he controlled. The preceding statement should be seen in light of the fact that Kreuger treated most of his companies as if they were exclusively his personal property. He frequently transferred funds from one corporation to another with little or no formality. A number of dummy corporations and holding companies (e.g. Garanta and Continental Investment Corporation) helped him to hide what he was doing. He also used others as front men to conceal his actions, e.g. when he acquired almost half of the outstanding shares of Diamond Match Company
Diamond Match Company
The Diamond Match Company was the largest manufacturer of matches in the United States in the late nineteenth century. Jarden is the current owner of the Diamond brand.-History:...
so as not to raise anti-trust concerns in the USA. Towards the end, in 1932, when he frantically gambled with the securities of corporations he controlled in the vain attempt to reverse their falling prices he played the markets himself and had friends help him in the effort to prop up share prices. Between the end of February and early March 1932 he needed to make over $10 million (equivalent to more than $150 million in today's money) for payments, including Kreuger & Toll
Kreuger & Toll
Kreuger & Toll was a company founded May 18, 1908 by the two Swedish engineers, Ivar Kreuger and Paul Toll, with Henrik Kreüger working as a consultant and chief engineer.-History:...
dividends.
His speculations were in foreign currencies, equities and derivatives such as optis and he also signed loan agreements with governments not knowing where the funds would be coming from. For example the majority stake he had bought in a chemical company in Griesheim
Griesheim
Griesheim is a town in the Darmstadt-Dieburg district, in Hessen, Germany. It is situated approx. 7 km west of Darmstadt.-History:...
, Germany returned 15 times his investment after two years when the company became part of I. G. Farben. Part of his attraction for investors were the high dividends Kreuger & Toll paid. Therefore he also had to make sure that he had money to pay those dividends.
It has never been established how much Kreuger lost in these frantic efforts in early 1932 but it has been estimated to be between $50 million and $100 million (ca. $750 million and $1.5 billion in today's currency).
His first sovereign loan went to Poland and when Kreuger signed the agreement he had no idea where the funds would come from.
When he made a deal with Germany for a $125million-dollar loan (almost $1.9 billion in today's currency) with the conditions that Germany sign the Young Plan
Young Plan
The Young Plan was a program for settlement of German reparations debts after World War I written in 1929 and formally adopted in 1930. It was presented by the committee headed by American Owen D. Young. After the Dawes Plan was put into operation , it became apparent that Germany could not meet...
and, of course, award him a match monopoly. (He already controlled 70 % of German match production before the loan agreement.) When he signed the contract he had no idea where he would obtain the huge amount, however he was lucky. Prime Minister Aristide Briand
Aristide Briand
Aristide Briand was a French statesman who served eleven terms as Prime Minister of France during the French Third Republic and received the 1926 Nobel Peace Prize.- Early life :...
of France decided to repay before it was due a previous 75million-dollar loan from Ivar. Incredibly, the French agreed to pay this sum by April 1930, just before Ivar's first payment to Germany was due. That payment gave Ivar enough cash to make his first installment. Either he had negotiated a sweetheart rescue deal with Prime Minister Briand, or he was incredibly lucky. He also made $5 million (ca. $75 million in today's currency) due to the way the loan to France was structured. (It had been discounted and although France received only 70 million dollars it was obligated to pay back 75 million dollars.)
Main companies controlled by Ivar Kreuger, c.1930
It should be kept in mind that Kreuger controlled around 400 companies, therefore the following list is highly selective.- Kreuger & Toll AB. Holding company for most corporations Kreuger controlled. (Notable exceptions include Diamond Match CompanyDiamond Match CompanyThe Diamond Match Company was the largest manufacturer of matches in the United States in the late nineteenth century. Jarden is the current owner of the Diamond brand.-History:...
, of which he owned almost half the outstanding shares, Ohio Match Company and I.G. Farben.) - Svenska Tändsticks Aktiebolaget-STABSwedish MatchSwedish Match is a Swedish company based in Stockholm that makes snus, tobacco, cigars , Red Man Chewing Tobacco, dipping tobacco, matches and lighters. It was founded as Svenska Tändsticksaktiebolaget by Ivar Kreuger in 1917 in Jönköping...
- International Match CorporationIMCOIMCO may refer to:* the Intercontinental Manufacturing Company* the International Maritime Organization* the Intermountain Manufacturing Company* the Committee on the Internal Market and Consumer Protection of the European Parliament...
, USA. Holding company for countries outside Europe. Founded in 1923. - Diamond Match, USA
- Ohio Match, USA
- Stora Kopparbergs Bergslags AB
- Svenska kullagerfabrikenSKFSKF, Svenska Kullagerfabriken AB , later AB SKF, is a Swedish bearing company founded in 1907, supplying bearings, seals, lubrication and lubrication systems, maintenance products, mechatronics products, power transmission products and related services globally.-History:The company was founded on...
(Ball bearing company) - LKABLKABLKAB is a Swedish mining company. The company mines iron ore at Kiruna and at Malmberget in northern Sweden. The company was established in 1890, and has been 100% state-owned since the 1950s...
(Mining company) - Bolidens Gruv ABBolidenBoliden is a locality situated in Skellefteå Municipality, Västerbotten County, Sweden with 1,515 inhabitants in 2005. It lies 28,5 kilometers from Skellefteå City....
(Mining company, mainly gold.) - Hufvudstaden AB (Real estate company. Main interests in Stockholm City. Founded by Ivar Kreuger 1915.)
- Telefon AB L.M. EricssonEricssonEricsson , one of Sweden's largest companies, is a provider of telecommunication and data communication systems, and related services, covering a range of technologies, including especially mobile networks...
- SCASvenska Cellulosa AktiebolagetSvenska Cellulosa Aktiebolaget is a Swedish consumer goods company and pulp and paper manufacturer with headquarters in Stockholm. It has approximately 45,000 employees and a turnover of approximately SEK 107 billion...
(Cellulose industry.) - Högbroforsens Industri AB (Cellulose industry.)
- Sirus A/G
- Szikra Ungar. Zundholzfabriken
- Alsing Trading C:o, England
- SFAB Svensk FilmindustriAB Svensk Filmindustri or Svensk Filmindustri is a Swedish film production company, distributor and movie theatre chain, currently owned by the Bonnier Group. It was established on December 27, 1919....
(Movie industry.) - Skandinaviska KreditaktiebolagetSkandinaviska BankenSkandinaviska Banken, literally the Scandinavian Bank, was a Swedish bank founded in Gothenburg, 1864. Its foundation coincided with the political aspirations of the Scandinavian movement, which sought to unite Sweden, Norway and Denmark into a single kingdom...
- Stockholms Inteckningsgaranti AB
- Trafik AB Grängesberg-Oxelösund (Railroad company.)
- Deutsche BankDeutsche BankDeutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
- Union de Banques à Paris
- Banque de Suède et de Paris
- Hollandsche Koopmansbank
- Aktienbauverein Passage
- AG für Hausbesitz
- Bank Amerykański w Polsce, Poland
Kreuger group loans to foreign states, 1925–1930
The total loans by Kreuger to foreign states have been estimated to US$387m in 1930, corresponding to about USD 5.8 bn in 1998 currency.- Poland I, 1925: $6m and Polen II, 1930: $32.4m
- Free State Danzig, 1930: $1m
- Greece I, 1926: GB£1m and Greece II, 1931: £1m
- Ecuador I, 1927: $2m and Ecuador II, 1929: $1m
- France, 1927: $75m
- Yugoslavia, 1928: $22m
- Hungary, 1928: $36m
- Germany, 1929: $125m
- Latvia, 1928: $6m
- Romania, 1930: $30m
- Lithuania, 1930: $6m
- Bolivia, 1930: 2 $m
- Estonia, 1928: SEKSwedish kronaThe krona has been the currency of Sweden since 1873. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it, but especially in the past, it sometimes preceded the value...
7.6m - Guatemala, 1930; $2.5m
- Turkey, 1930: $10m
- Part of the "Young-loan" to Germany, 1930: US$15m
Kreuger planned to issue a loan of $75m to Italy, known as the "Italian Bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
" in 1930 but the deal was never completed.
End of the Kreuger empire
By mid 1931, rumours spread that Kreuger & Toll and other companies in Kreuger's empire were financially unstable. In February 1932, Kreuger turned to Sveriges RiksbankSveriges Riksbank
Sveriges Riksbank, or simply Riksbanken, is the central bank of Sweden and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden .-History:...
for the second time in his life to support him in raising a large increase in his loans. At this time his total loans in Swedish banks was estimated to about half of the Swedish reserve currency that had started to give negative effects on the value of the Swedish currency in the international financial market. In order to grant him more loans, the government required that a complete statement of accounts of Kreuger's entire company group was presented, as the bank's (Sveriges Riksbank
Sveriges Riksbank
Sveriges Riksbank, or simply Riksbanken, is the central bank of Sweden and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden .-History:...
) own calculations showed that Kreuger & Toll finances were far too weak to give him more loans.
At that time Ivar Kreuger was in the United States and was asked to return to Europe for a meeting with the chairman of the Riksbank, Ivar Rooth
Ivar Rooth
Ivar Rooth was the International Monetary Fund 's second Managing Director and Chairman of the Executive Board, serving from 1951–1956. He was born on November 2, 1888, in Stockholm, Sweden...
. He had left Sweden for the last time on November 23, 1931 and returned to Europe on the ship Ile de France, arriving in Paris on March 11, 1932. The meeting with Ivar Rooth was scheduled to take place on March 13 or 14 in Berlin
Berlin
Berlin is the capital city of Germany and is one of the 16 states of Germany. With a population of 3.45 million people, Berlin is Germany's largest city. It is the second most populous city proper and the seventh most populous urban area in the European Union...
. He met with Krister Littorin (vice president of Kreuger & Toll holding) and his own banker Oscar Rydbeck in Paris on March 11 to prepare for the Berlin meeting. But on March 12, he was found dead in bed in his apartment at Avenue Victor Emanuel III. After questioning Kreuger's servants (his French maid mademoiselle Barrault and the janitor
Janitor
A janitor or custodian is a professional who takes care of buildings, such as hospitals and schools. Janitors are responsible primarily for cleaning, and often some maintenance and security...
who had had contact with Kreuger in the morning) the French police and a physician came to the conclusion that he had shot himself some time between 10:45 a.m. and 12:10 p.m. A 9-mm semi-automatic gun was found on the bed beside the body.
He left a sealed envelope in the room, addressed to Krister Littorin, which contained three other sealed envelopes - one addressed to his sister Britta; one to Sune Schéle; and one addressed to Littorin. In the letter to Littorin (for some reason written in English although Littorin was his closest Swedish colleague), he wrote:
I have made such a mess of things that I believe this to be the most satisfactory solution for everybody concerned. Please, take care of these two letters also see that two letters which were sent a couple of days ago by Jordahl to me at 5, Avenue Victor Emanuel are returned to Jordahl. The letters were sent by MajesticRMS Majestic (1914)RMS Majestic, launched in 1914 as SS Bismarck, was, at 56,551 gross tonnage, the largest ship in the world until the completion of the in 1935. Originally slated to be the third and largest member of German HAPAG Line's trio of transatlantic liners, her completion was delayed by World War I...
- Goodbye now and thanks. I K.
Ivar Kreuger was interred in Norra begravningsplatsen
Norra begravningsplatsen
Norra begravningsplatsen, literally "The Northern Cemetery" in Swedish, is a major cemetery of Metropolitan Stockholm. The cemetery is located in the municipality of Solna.Inaugurated on June 9, 1827, it is the burial site for a number of Swedish notables....
in Stockholm.
Murder allegations
More than 30 years after Ivar Kreuger's death many previously classified Kreuger & Toll documents and Ivar Kreuger documents were made public. Based on these and his insight in his brother's business and life, Ivar's brother Torsten Kreuger wrote a book in 1963 (2nd edition) called Kreuger & Toll, describing how Kreuger & Toll had been taken over, and how then the other Kreuger companies were taken over too. In 1965, Torsten Kreuger published Sanningen om Ivar Kreuger (published in English as: "Ivar Kreuger: The Truth at Last") claiming that his brother Ivar had been murdered. Recently, more books have been written claiming that more documents have re-appeared or were finally released to public scrutiny, and supporting Torsten Kreuger's claims that his brother was murdered: Därför mördades Ivar Kreuger ("The Reason for the Murder of Ivar Kreuger") (ISBN 91-7055-019-0) (1990), and Kreuger-Mordet: En utredning med nya fakta (translation: "The Kreuger Murder: An Investigation with New Facts") (ISBN 91-630-9780-X) (2000).The Kreuger Crash
Kreuger's death precipitated the Kreuger Crash which hit investors and companies worldwide, but particularly hard in the USA and Sweden. In 1933 and 1934, the U.S. Congress passed several security reform legislations that were meant to prevent a repeat of the Kreuger Crash. These bills were largely successful in their mission and the American financial industry did not witness frauds of the same magnitude until the EnronEnron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
scandal and Bernard Madoff
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
's Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
which occurred after the regulations were relaxed in the 1990s.
A Foreign Affairs
Foreign Affairs
Foreign Affairs is an American magazine and website on international relations and U.S. foreign policy published since 1922 by the Council on Foreign Relations six times annually...
report from 1930 had judged that of the $630m worth of assets the company claimed to have, $200m came from the match business, $30m were in the bank, and the other $400m were merely categorized as "other investments." When the company finally went bankrupt
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
at the end of March 1932, claimed assets of $250m turned out to be non-existent.
Prior to the crash, Kreuger had issued thousands of participating debenture
Debenture
A debenture is a document that either creates a debt or acknowledges it. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note...
s. These were very popular, and a firm public belief in the rising Kreuger empire convinced contemporary Swedes to invest in these "Kreuger papers". Following the Kreuger crash, both the debentures and shares became worthless, and several thousand Swedes and small banks lost their savings and investments as a result. Large investors and suppliers apart from share holders, received a total of 43% back. The banks related to the Wallenberg family
Wallenberg family
The Wallenberg family is a prominent Swedish banking family, renowned as bankers, industrialists, politicians, diplomats and philanthropists. The most famous of the Wallenbergs, Raoul Wallenberg, a diplomat, worked in Budapest, Hungary, during World War II to rescue Jews from the Holocaust...
company group, Stenbeck
Stenbeck
Stenbeck is Swedish surname of:* Barbara Ann Coleman * Cristina Mayville Stenbeck* Hugo Edvard Stenbeck* Jan Stenbeck* James Stenbeck* Lucinda Walsh, née Stenbeck & Wheatley...
company group, and Handelsbanken
Handelsbanken
Svenska Handelsbanken AB is a Swedish bank.-History of Svenska Handelsbanken:The history of Svenska Handelsbanken goes back to 1871 when a number of prominent companies and individuals in Stockholm's business world founded Stockholms Handelsbank...
took over most of the companies in the Kreuger empire. Swedish Match recovered shortly after the crash as did most of the industrial companies within the Kreuger empire. Swedish Match received a large government guaranteed loan that was fully repaid after several years. IMCO in USA however did not survive. The liquidation took nine years and was eventually finished in 1941.
Tentative conclusions
One biographer called him a genius and swindler. John Kenneth GalbraithJohn Kenneth Galbraith
John Kenneth "Ken" Galbraith , OC was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism...
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
IBM
International Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
, 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
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
.
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
Securities Act of 1933
Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
and 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
- 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
Kreuger & Toll
Kreuger & Toll was a company founded May 18, 1908 by the two Swedish engineers, Ivar Kreuger and Paul Toll, with Henrik Kreüger working as a consultant and chief engineer.-History:...
. 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
Diamond Match Company
The Diamond Match Company was the largest manufacturer of matches in the United States in the late nineteenth century. Jarden is the current owner of the Diamond brand.-History:...
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
Swedish Match
Swedish Match is a Swedish company based in Stockholm that makes snus, tobacco, cigars , Red Man Chewing Tobacco, dipping tobacco, matches and lighters. It was founded as Svenska Tändsticksaktiebolaget by Ivar Kreuger in 1917 in Jönköping...
, Ericsson
Ericsson
Ericsson , one of Sweden's largest companies, is a provider of telecommunication and data communication systems, and related services, covering a range of technologies, including especially mobile networks...
, Boliden AB
Boliden AB
New Boliden is a Swedish mining and smelting company focusing on production of copper, zinc, lead, gold and silver. Following a series of acquisitions during the 1980s and 1990s the company acquired mining and smelting assets of the Finnish mining and smelting company Outokumpu in 2003. Outokumpu...
, - Europe's largest gold mine -, Skandinaviska Banken
Skandinaviska Banken
Skandinaviska Banken, literally the Scandinavian Bank, was a Swedish bank founded in Gothenburg, 1864. Its foundation coincided with the political aspirations of the Scandinavian movement, which sought to unite Sweden, Norway and Denmark into a single kingdom...
and SKF
SKF
SKF, Svenska Kullagerfabriken AB , later AB SKF, is a Swedish bearing company founded in 1907, supplying bearings, seals, lubrication and lubrication systems, maintenance products, mechatronics products, power transmission products and related services globally.-History:The company was founded on...
.) “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
Swedish Match
Swedish Match is a Swedish company based in Stockholm that makes snus, tobacco, cigars , Red Man Chewing Tobacco, dipping tobacco, matches and lighters. It was founded as Svenska Tändsticksaktiebolaget by Ivar Kreuger in 1917 in Jönköping...
's bankruptcy cost American investors over $250 million ($3.75 billion today). But although hints of dishonesty had always been associated with him (from pretending to be an architect
Architect
An architect is a person trained in the planning, design and oversight of the construction of buildings. To practice architecture means to offer or render services in connection with the design and construction of a building, or group of buildings and the space within the site surrounding the...
in Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
in 1900 to the badly forged Italian bonds), he cannot be described “as nothing but a crook” as Bernie Madoff, for example, has been called.
Sources
Poul Bjerre: Kreuger, 1932. (The book Kreuger by Poul (Carl) Bjerre (1876–1964), covers the Kreuger family heritage from 1710, Ivar Kreugers childhood and the time until he returned to Sweden, around Christmas time 1907. A number of letters are published in the book.)- Allen Churchill: The Incredible Ivar Kreuger (Weidenfeld, London; Rinehart & Co., New York; 1957)
- M.J.Meaker: Sudden Endings, 13 Profiles in Depth of famous Suicides (Doubleday, Garden City, NY, 1964), pp. 225–249: "Silence, Shadows, Shhhh, $$$$$: Ivar Kreuger" Torsten Kreuger: Kreuger & Toll. 2nd edition 1963, 3rd edition 1967.
- Torsten Kreuger: Ivar Kreuger: the truth at last. Published by Samtid och Framtid AB, Stockholm 1965. Torsten Kreuger: Sanningen om Ivar Kreuger. Published by Samtid och framtid AB, Stockholm 1966. Lars-Jonas Ångström Därför mördades Ivar Kreuger. Published by Stockholm S&B 1990. (ISBN 91-7055-019-0) Lars-Erik Thunholm: Oscar Rydbeck och hans tid. Published by T. Fischer & Co., Stockholm 1991. (ISBN 91-7054-659-2) Lars-Erik Thunholm: Ivar Kreuger. Published by T. Fischer & Co., Stockholm 1995. (ISBN 91-7054-757-2) Magnus Toll: Paul Toll 1882–1946, ingeniör-entreprenör. 1996. Private book. Lars-Jonas Ångström Kreuger-Mordet: En utredning med nya fakta. Published by Tendens i Sverige AB 2000. (ISBN 91-630-9780-X)
- Lars-Erik Thunholm: Ivar Kreuger. The Match King. Translated into English by George Thiel., 2002. (ISBN 91-7054-958-3)
- Partnoy, Frank The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals, 2008. (ISBN 978-1-58648-743-0)
External links
- Ivar Kreuger - Bibliography at Project Runeberg
- Ivar Kreuger - at www.ivarkreuger.com
- Ivar Kreuger's Gravesite
- BBC NewsBBC NewsBBC News is the department of the British Broadcasting Corporation responsible for the gathering and broadcasting of news and current affairs. The department is the world's largest broadcast news organisation and generates about 120 hours of radio and television output each day, as well as online...
article - Kreuger: The original Bernard Madoff? - The Ivar Kreuger Homepage
The 1932 film The Match King
The Match King
The Match King is a 1932 film made by First National Pictures, directed by William Keighley and Howard Bretherton, and starring Warren William and Lili Damita. The film closely follows the rise and fall of Swedish safety match tycoon Ivar Kreuger.-Plot:...
, directed by Howard Bretherton
Howard Bretherton
Howard Bretherton was an American film director, film editor, and the father of film editor David Bretherton. He began his career as a propman and then became a film editor during the early 1920s for MGM...
and William Keighley
William Keighley
William Jackson Keighley was an American stage actor and Hollywood film director....
, starring Warren William
Warren William
Warren William was a Broadway and Hollywood actor, popular during the early 1930s, who was later nicknamed the "king of Pre-Code". He was born Warren William Krech in Aitkin, Minnesota to parents Freeman E. and Frances Krech. He had a certain physical resemblance to John Barrymore. He attended the...
is based on Kreuger's life.