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Ivar Kreuger

Ivar Kreuger (March 2, 1880 – March 12, 1932) was a Swedish civil engineer, financier, entrepreneur and industrialist. Between the two world wars, he was one of the most powerful businessmen of Europe. Negotiating match monopolies with European and Central and South American governments, he finally controlled two thirds of the worldwide match production, and became known as the "Match King". The Kreuger loans to European countries during 1925-1930, with most of the capital raised in the USA was to a great extent used to finance the reconstruction of Europe after the First World War.

Birth

Kreuger was born in Kalmar, the eldest son of the banker, industrialist and Russian consul Ernst August Kreuger (1852-1946) and his wife Jenny (nee Forssman 1856). He had 5 brothers and sisters; Ingrid (born 1877), Helga (born 1878), Torsten (born 1884), Greta (born 1889) and Britta (born 1891). The family Kreuger owned several match factories in the Kalmar area. At school, Ivar skipped ahead two classes by taking private lessons, to graduate at age 16. He continued his studies at the Royal Institute of Technology in Stockholm, where he graduated with combined Master's degrees covering both the faculties of mechanical and civil engineering, at the age of 20.

The 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 Jordahl, but the business did not turn out well for the two engineers. 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.

This new technique had not been introduced in Sweden at that time. Kreuger 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.

The building contractor

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.

The new way of constructing buildings soon became 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.

After some years Ivar Kreuger became more focused on “constructing” new companies and corporations, rather than constructing buildings and bridges. As a result of that, in 1917 Kreuger & Toll was split up into two separate companies: Kreuger & Toll Construction AB, with the majority of shares owned by Paul Toll; and Kreuger & Toll Holding AB, with Ivar Kreuger as the manager. At the same time Kreuger formed Swedish Match. Ivar Kreuger was not among the board members in the construction company. Paul Toll, however, was a board member in Kreuger & Toll Holding from start, working as a coordinater for the construction projects that Hufvudstaden AB (real estate co.) was working with. How much of Paul Toll's company Ivar Kreuger owned has not been revealed, just that Paul owned 60% in 1917 and 66% in around 1930 of the new established construction company. This would explain why Kreuger & Toll Construction Co. never shows up in any Kreuger & Toll Holding charts.

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.

The corporate designer

In 1911-12 the Kreuger family match factories in Kalmar, Fredriksdal and Mönsterås 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 entire Swedish match industry as well as the major match companies in Norway and Finland.

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 1913 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 forced AB Jönköping-Vulcan to accept the merge by raising a large amount of capital through investment companies controlled by Oscar Rydbeck.

This company group now covered the entire match industry in Sweden, including all the major companies that manufactured the production machines that were used in the factories. It also had control over major companies supplying the raw material for the match industry. During this time Kreuger also acquired the largest match companies in Norway (Bryn and Halden) and in Finland (Wiborgs and Kekkola).

However, Kreuger did not only "acquire" companies but also introduced a new way of thinking in the match industry with large scale production facilities; new ideas to increase efficiency in both production, administration, and distribution; and in the sales organisation. This was the starting point for the large international corporations that have since become the norm in the industrial world.

In nine years (from 1908-1917) he had managed to establish a new large construction company as well as founding a united Swedish match industry, including 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.

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 1925-1930, years when many countries in Europe was suffering after the First World War, Kreuger's companies gave loans to governments to speed up reconstruction, with the basic intention of preventing a new war breaking out. As a security, the governments would grant his empire the match monopoly in their country. In return, Kreugar gained a monopoly in match production, sales or distribution or a complete monopoly. The monopoly agreements differed from country to country. The loans were enormous: comparable with the size of large government loans to other countries. To what extent the governments in both Sweden and the USA were behind the deals is not clear, but they were probably involved in some way, as the enormous capital was raised to a large extent as direct loans by Kreuger, spread out in both Swedish and American banks, combined with issuing a large amount of participating debentures. The banks wished to have guarantees that the money was repaid. Only the governments could guarantee that.

Kreuger did not limit himself to matches, but gained control of most of the forestry industry in northern Sweden and planned to became a head of a cellulose cartel.

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 manouvers 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 an estimated 200 companies were controlled by Kreuger. However, the Stock Market Crash of 1929 turned out to be a major factor in exposing his accounting that ultimately proved fatal to both Kreuger and his empire.

In the spring of 1930 he visited America and held 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 at the Syracuse University, where he had worked as a young chief engineer when a 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, comprising more than 200 companies. In the same year the total loans made by Swedish banks were barely 4bn SEK.

Main companies controlled by Ivar Kreuger c.1930

Kreuger & Toll AB. Holding company for the entire Kreuger corporation including IMCO.
Svenska Tändsticks Aktiebolaget-STAB
International Match Corporation, USA. Holding company for countries outside Europe. Founded in 1923.
Diamond Match, USA
Ohio Match, USA
Stora Kopparbergs Bergslags AB
Svenska kullagerfabriken (Ball bearing company)
LKAB (Mining company)
Bolidens Gruv AB (Mining company, mainly gold.)
Hufvudstaden AB (Real estate company. Main interests in Stockholm City. Founded by Ivar Kreuger 1915.)
Telefon AB L.M. Ericsson
SCA (Cellulose industry.)
Högbroforsens Industri AB (Cellulose industry.)
Sirus A/G
Szikra Ungar. Zundholzfabriken
Alsing Trading C:o, England
SF (Movie industry.)
Skandinaviska Kreditaktiebolaget
Stockholms Inteckningsgaranti AB
Trafik AB Grängesberg-Oxelösund (Railroad company.)
Deutsche Bank
Union de Banques à Paris
Banquede Suède et de Paris
Hollandsche Koopmansbank
Aktiebauverein Passage
A/G fur Bausbesitz
Bank Amerykanski w Polsoe
(more to be filled in, in total around 200 companies)

Kreuger group loans to foreign states from 1925-1930

The total loans by Kreuger to foreign states has been estimated to US$387m in 1930, corresponding to $35bn in 1998 currency (keeping in mind that the entire world population in 1925 was around 3bn people and the industrial world thus much smaller than today). The loan to Romania was not fully repaid until 2001. Germany stopped further paymentswhen Adolf Hilter was elected as president in Germany around 1933-34, before the Second World War broke out.

Poland, 1925: US$6m, 1930: $32.4m and Gdańsk (Poland), 1930: $1m
Greece, 1926: GB£1m and 1931: £1m
Ecuador, 1927: $2m och 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: 7.6m kronor
Guatemala, 1930; $2.5m
Turkey, 1930: $10m
Part of the Young-loan to Germany, 1930: US$15m

The 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 Riksbank 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 Kreugers entire company group was presented, as the bank's (Sveriges Riksbank) own calculations showed that Kreuger & Toll fininaces 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 29, 1931 and returned to Europe with s/s Ile de France, finally arriving in Paris on March 11, 1932. The meeting with Ivar Rooth was supposed to take place on around 13-14 March in Berlin. He met with Krister Littorin (vice president of Kreuger & Toll holding) and his own banker Oscar Rydbeck in Paris the same day as he arrived in Paris to prepare for this meeting. However, on March 12 he was found dead in bed in his Paris apartment at Avenue Victor Emanuel III. After hearing from the people working for Kreuger, the French police that made the investigation of his death came to the conclusion that he has shot himself some time between 10:45am and 12:10pm. A 9mm automatic gun was found on the bed beside the body. He left a sealed envelope behind in the room addressed to Krister Littorin, which contained three other sealed envelopes - one addressed to his sister Britta; one to Sune Scheéle; and one letter to Littorin. In the separate 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 Majestic - Goodbye now and thanks. I K.

Ivar Kreuger was interred in Norra begravningsplatsen in Stockholm.

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 repear of the Kreuger Crash. These bills were largely successful in their mission and the American financial industry did not witness a fraud of the same magnitude until the Enron scandal, which occurred after the regulations were relaxed in the 1990s.

A Foreign Affairs report from 1930 had judged that of the $630mn 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 nonexistent.

Prior to the crash, Kreuger had issued thousands of participating debentures. 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 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 most of the industrial companies within the Kreuger empire. Swedish Match received a large government guaranteed loan that was fully repaid after a couple of years. IMCO in USA however did not survive. The work with the bankruptcy took nine years and was not finalized until 1941. Economic analysts in recent years, among them Lars-Erik Thunholm, have criticised the work with bankruptcy as beeing too conservative, reducing the company values too much - on average down to about 20% of original value or less.

Personal life

Ivar Kreuger never married but lived for many years with Ingeborg Eberth (nee Hässler). He had private apartments in Stockholm, New York 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 Avenue Victor Emanuel III. 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 and can be rented for special occasions.

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 auction in September 1932. The collection in Stockholm comprised 88 original paintings, among them 19 paintings by Anders Zorn and a great number of paintings by old masters from the Netherlands. The New York collection comprised original paitnings 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 his motor yacht Loris. A 6 minute long film sequence from this occasion filmed by SF was saved and is now owned by the Swedish public service television company, Sveriges Television. In the sequence, Pickford, Fairbanks, Kreuger, Charles Magnusson (the manager for SF), Greta Garbo and various SF employees all appear.

Recent controversy Kreugers death

Kreuger was called the "Swedish Match King" until 1932, and after his death "the prince of the first global finance state". The Economist, on the other hand dubbed him "The World's Greatest Swindler." Recently, after classified documents were made public, books have been published which support different views of Kreuger and the circumstances of his death: Därför mördades Ivar Kreuger (ISBN 91-7055-019-0) (1990), and Kreuger-Mordet: En utredning med nya fakta (ISBN 91-630-9780-X) (2000). Although his brother Torsten wrote a book in the early 1960s defending the murder theory, there has been consensus among historians that Kreuger killed himself.

Trivia

When the journalist Isaac Marcosson from the Saturday Evening Post asked him about the secret behind his success in business, he answered: "silence, more silence, and even more silence". The interpretation of this statement was that his negotiations of monopolies with governments involved was too risky to be discussed in open, as this would have made the business deals impossible and would probably have had major political effects on both sides.

Ivar Kreuger was engaged in the Swedish film industry SF by a chance. Charles Magnusson, a cinema owner, was looking for a new place to run his cinema when the new NK warehouse, was about to be built (by Kreuger & Toll) in 1913, forcing him to move out of the present building. He found a new location - the owner was Ivar Kreuger. Ivar became interested in the movies and was always looking for new business ideas. The film industry in Sweden was very small, but had a chance to expand, influenced by the development of the industry in America. Kreuger tried to sell SF in 1930 to a German company, but without luck.
Ayn Rand's play "Night of January 16th" (1934) was loosly based on the circumstances of Ivar Kreuger's death. Kreuger seems to have also partly inspired capitalist characters in later Rand novels, "The Fountainhead" and "Atlas Shrugged".

Sources

Lars-Erik Thunholm: Ivar Kreuger. Published by T. Fischer & Co., Stockholm 1995. ISBN 91 7054 757 2
Lars-Erik Thunholm: Ivar Kreuger. The Match King. Translated into English by George Thiel., 2002. ISBN 91 7054 958 3
Lars-Erik Thunholm: Oscar Rydbeck och hans tid. Published by T. Fischer & Co., Stockholm 1991. ISBN 91 7054 659 2
Magnus Toll: Paul Toll 1882-1946, ingeniör-entreprenör. 1996. Private book.
Bjerre, Poul: Kreuger, 1932.