Carnegie cuts ties with government

Carnegie Investment Bank announced on Tuesday evening that it was to relinquish its position as financial advisor to the state. On Wednesday morning Secretary of State Urban Funered also announced his resignation.

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By the time Carnegie's decision was made public on Tuesday evening the government had already reached the conclusion that it would be required to terminate its contract with the bank.

An evaluation of the bank initiated by Minister for Financial Markets Mats Odell on Friday had already been completed by Tuesday, a source close to the process told the TT news agency.

"It reached the same conclusion as Carnegie itself, which Carnegie was also aware of," said the source.

Carnegie's interim CEO Anders Onarheim explained in a statement that the bank wished to provide a calmer working environment for the Swedish government. While he felt that Carenegie had created a solid foundation for the sale of state-owned companies, he also expressed regret for recent events.

"This is extremely unfortunate for our staff who dedicated vast amounts of time to these jobs and performed work of the highest quality," he said.

Urban Funered, Secretary of State at the office of Mats Odell, announced his resignation in the wake of the recent criticism of the investment bank.

"The ongoing processes related to the sale of state companies are too important to risk being disturbed by a debate about me as an individual.

"If I were to continue as Secretary of State, the criticism being directed at Carnegie would risk spilling over into the important project of reducing state ownership," he said in a statement.

Carnegie, one of Sweden's oldest and most respected investment banks, was last week fined 50 million kronor by authorities and ordered to replace its CEO, chairman and many members of its board.

The action followed Carnegie's admission that three traders exaggerated their own trading gains, something that resulted in the bank overstating profits by 200 million kronor. This led in turn to the bank's staff being paid bonuses that were too high.

Finansinskpektionen (FI), the Swedish Financial Services Authority, said in a statement on Friday that Carnegie's internal checks were insufficient and that its annual reports for 2005 and 2006 were incomplete.

"Governance of the operations has been contradictory and the bank’s internal rules have been incomplete. The control functions have been significantly undersized in relation to the scope and risk of the operations," FI said.

FI said it would report the responsible auditors to the Supervisory Board of Public Accountants.

Carnegie came close to having its licence revoked, according to FI, but the presentation by the bank of an action plan meant that a warning and a fine were sufficient.

The 50 million kronor fine was the highest FI was able to impose.

Carnegie has already reported three staff to the police, accused of fraud. Prosecutors are currently evaluating the accusations.