Two of Iceland's most senior former bankers have been jailed for making reckless business loans, following investigations stemming from the collapse of the country's banks in 2008.

Larus Welding, the former chief executive officer of failed Icelandic bank Glitnir, and Gudmundur Hjaltason, a former director at the bank, have each been sentenced to nine months in jail for fraud, a court ruled.

They were sentenced by the Reykjavik District Court after the two men were indicted a year ago on charges that they had "misused their position and grossly endangered the bank's funds" by lending €102m to a company called Milestone ehf without guarantees or collateral, the prosecutor said. At the time Milestone was a shareholder in the bank.

Collapse

They are the first bankers from Iceland's three largest lenders to be sentenced to jail for activities linked to the country's financial and economic collapse in 2008.

In 2008 Glitnir became the first of Iceland's big banks to fail, an event that triggered the biggest recession in six decades and led to an 80pc collapse in the value of the Icelandic currency (Krona) against the euro.

The scale of the country's banking collapse made it impossible to prevent. The domestic parts of the country's three biggest banks were saved, while their international arms were liquidated. Bondholders who had lent money to Iceland were "burned" with significant losses, but given control of the remains of the banks.

Mr Welding has been indicted on separate charges for his role in approving a smaller business loan to holding company FS38 ehf, a company linked to the former high-profile former chief executive of the Baugur Group, Jon Asgeir Johannesson.

Mr Johannesson, who has also been indicted in relation to the loan, became famous in business circles around the world in the years before the Icelandic crash for a debt-fuelled acquisition spree that included a string of high-profile retailers including department store chain House of Fraser, Hamleys toy shops, , frozen food chain Iceland, fashion chain All Saints and Woolworths.

Iceland's special prosecutor indicted the two former chief executives for their roles in approving the €35m loan just three months before the collapse of the bank. (Bloomberg)

Irish Independent