Ivar Kreuger (1880 – 1932)
When things get a bit sticky for businessmen, there is a tremendous temptation to cook the books in an attempt to trade out of their difficulties. The chef par excellence or, as J K Galbraith described him, “the Leonardo of larcenists”, was Swedish born businessman, Ivar Kreuger, who monopolised at first the Swedish safety match business and then, at his height, controlled about 75% of the world’s match production and retail business. These days safety matches are hardly used but in the early part of the 20th century they were essential for lighting lamps, stoves and the like as well as igniting the almost ubiquitous cigarettes and other smoking materials.
Although an engineer by trade and co-founding Kreuger & Toll Byggnads AB, which specialised in developing and promoting new building techniques, in 1911 he turned his attention to his family’s ailing match factories. Rolling them up into his own firm and introducing cost and production efficiencies as well as controlling the supply of the natural resources needed to manufacture them, Kreuger soon cornered the market. He improved the quality of the matches and sold them at a lower price than his competitors who had no option but to go to him, cap in hand, to sell their businesses to them.
But he did not stop there – world domination was his aim. To fund his ambitious expansion plans, Kreuger raised money through issuing shares and bonds. With a sizeable war chest at his disposal and governments on their knees trying to fund reconstruction work after the ravages of the First World War, Kreuger was able to offer loans. In return he demanded that they granted him a monopoly in the production and sale of matches in their countries. At the height of his power, Kreuger owned some 200 companies with interests in such diverse industries as forestry in Northern Sweden, where he had a monopoly, mines, telephone companies, ball-bearing manufacturers and banks such as Deutsche Unionsbank and Union de Banques a Paris.
The more monopolies he acquired, the more attractive his company became to investors. Kreuger began to live an extravagant lifestyle, buying art, houses and attracting lovers by the score. Everything in the garden seemed rosy but underneath the surface he was stoking up enormous problems. The continuous programme of expansion was designed to deflect attention from the true state of his finances. Promising high dividends to make his companies more attractive, the profits generated from these businesses were insufficient to meet his obligations, particularly as he was often forced to pay high levels of interest to access funds.
The answer to these problems, of course, was to indulge in a spot of financial engineering. He would sell off the shares of every company he acquired to inflate the balance sheet whilst, at the same time, exaggerating the profitability of his companies to secure more credit. But to secure the level of credit he needed and to offset the demands of dividend payments and maturing debt, he needed more and more money. In despair, Kreuger turned to highly risky speculative deals and when these failed, even forged millions in Italian bonds which his obliging accountants included in the tally of his company’s assets.
Although Kreuger survived the Wall Street crash, what did for him was the ensuing credit squeeze. Deprived of the credit needed to fund his activities and maintain investor confidence, the only way out for Kreuger was to shoot himself. After his death, the authorities found two holes – one in his chest from the bullet with which he killed himself and the other, some $250 million, in his company’s accounts.
Although his latter-day activities smacked of a Ponzi sceme, Krueger did have a genuine business underpinning it all. He just got greedy.