Ивар Крегер: «Атамыстың патшасы» және қаржылық империяның құлауы

Swedish civil engineer, financier, entrepreneur and industrialist

Ivar Kreuger (; 2 March 1880 – 12 March 1932) was a Swedish civil engineer, financier, entrepreneur and industrialist. In 1908, he 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 European, Central American and South American governments, and finally controlled between two thirds and three quarters of worldwide match production, becoming known as the "Match King". Kreuger's financial empire has been described by one biographer as a Ponzi scheme, based on the supposedly fantastic profitability of his match monopolies. However, in a Ponzi scheme early investors are paid dividends from their own money or that of subsequent investors. Although Kreuger did this to some extent, he also controlled many legitimate and often very profitable businesses, and owned banks, real estate, a gold mine, and pulp and industrial companies, besides his many match companies. Many 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 Kreuger a "genius and swindler", and John Kenneth Galbraith wrote that he was the "Leonardo of larcenists". Kreuger's financial empire collapsed during the Great Depression. The Price Waterhouse autopsy of his financial empire stated: "The manipulations were so childish that anyone with but a rudimentary knowledge of bookkeeping could see the books were falsified." In March 1932, he was found dead in the bedroom of his flat in Paris. The police concluded that he had committed suicide, but decades later, his brother Torsten claimed that he had been murdered, which spawned some controversial literature on the subject.

Kreuger was born in Kalmar, the eldest son of Ernst August Kreuger (1852–1946), an industrialist in the match industry in that city, and his wife Jenny Emelie Kreuger (née Forssman; 1856–1949). Ivar Kreuger had five siblings: Ingrid (born 1877), Helga (born 1878), Torsten (born 1884), Greta (born 1889) and Britta (born 1891). At school, Ivar skipped ahead two classes by taking private lessons. At age 16, he began studies at the Royal Institute of Technology in Stockholm, from which he graduated with combined master's degrees 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 for the first time in Stockholm in 1913. According to the book she wrote after Krueger's death in 1932, he was not interested in marriage or children and was 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 Öresund 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 (≈ 57 mph). 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 masters 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.

After the start of the 20th 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 the US. In South Africa, he ran a restaurant for a short time together with his friend Anders Jordahl, but they soon sold the restaurant. At an early stage, he came in contact with the patented
Kahn System for concrete steel constructions that was exploited by Julius Kahn's Trussed Concrete Steel Company, 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 concrete steel construction method 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. The new technology 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 )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 $10 million ($ in dollars) 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 and 1912, the Kreuger family match factories in Kalmar, Fredriksdal and Mönsterås, run by his father Ernst Kreuger, uncle Fredrik 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, besides Ivar, was his banker Rydbeck. 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 as well as 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 matchbox. 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.

From 1925 to 1930, years when many countries in Europe were suffering after the First World War, Kreuger's companies gave loans to governments 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 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 30 billion Swedish kronor, equivalent to approximately US$100 billion in 2000, and consisting of more than 200 companies. In the same year, the total loans made by Swedish banks were barely 4 billion SEK.

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 Law, and the South Sea Bubble) but Kreuger was very creative inventing new ways of financing business, while making sure that he kept control of his companies.

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.

Kreuger invented another financial instrument, which continues to be used and is nowadays known as American depositary receipts. 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.

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, a company established to facilitate his deals, 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 term 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. 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 and Lehman Brothers. The former issued 250 million dollars' worth of complex securities (equivalent to about $ in dollars) in 1929. Lehman issued similar obligations, which immediately rose 30 percent. Enron used them extensively and in the financial crisis of 2008 they played a major role in bringing down Bear Stearns and Lehman Brothers.

Despite the large number of bona fide companies Ivar controlled, he was an avid gambler. He speculated with his personal funds and, especially, with the money of the corporations he controlled. 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 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 other people as front men to conceal his actions, for example 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 $10 million ($ in dollars) for payments, including Kreuger & Toll dividends. His speculations were in foreign currencies, equities and derivatives 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 (c. $ and $ in dollars). His first sovereign loan went to Poland, and when Kreuger signed the agreement he had no idea where the funds would come from. He made a deal with Germany for a $125 million dollar loan ($ in dollars) 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, again he had no idea where he would obtain the huge amount; however, he was lucky. Prime Minister Aristide Briand of France decided to repay a previous $75 million dollar loan from Ivar before it was due. 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 $5M (c. $ in dollars) due to the way the loan to France was structured. (It had been discounted and although France received only $70 million it was obligated to pay back $75 million.)