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Kreuger: Chasing Monopolies
“KREUGER CHASING MONOPOLIES”
1. Sweden and the International Match industry before World War I
Since the late nineteenth century and except for a brief time at the beginning of WWI, Sweden was
the world’s leading exporter of matches before Japan took the lead in supplying Asian markets in
the interwar period. Sweden had pioneered match-producing technologies, for example the
invention of the “safety match” in 1844 which led to production of modern matchbox; and the
invention of the matchmaking machine in 1872. By 1900 every match manufacturing step, from splint
sorting, leveling, and dipping to packing the finished matches in a box, was mechanized. About 85%
of Sweden’s match production was exported, 40% of this to Great Britain. Between 1870 and 1900,
Sweden’s match exports grew from about 2,500 to 17,100 tons. By 1914, Sweden was exporting
40,000 tons of matches each year, more than any other country.
Although highly mechanized, the match production was uncomplicated process and thus required
relatively modest capital investments, shaping it as an industry with low barriers to entry. Numerous
countries around the world produced matches, mainly for domestic consumption but also for export.
Before WWI, Sweden’s main competitors in international markets where Austria and Belgium, which
had well-developed match industries. The Soviet Union became an important match producer in the
postwar period. In the late 1920s, the rest of Europe and North America (United States and Canada)
accounted for about 50% of the global match production.
The match industry turned as an easy source of tax revenue for many national governments, thus
protecting domestic industries through prohibitive customs duties or creating government-controlled
monopolies (starting with France in 1872). Thus, smaller match companies around the world were
pressured to consolidate, by limited opportunities for exports, together with the industry overcapacity.
Fewer and larger match companies operating internationally facilitated the development of price
cartels and other market agreements limiting free trade.
At the start of the twentieth century, the match industry in Sweden was consolidating. In 1903,
Jönköping och Vulcans Tändsticksfabriks AB (J&V), a new company resulting from the merger of six
of Sweden’s 15 match producers, was responsible for about 80% of the country’s total match
production, and strongly integrated vertically (purchase of chemical distributors, forests property,
and machine manufacturers in Sweden). J&V exports accounted over 90% of its production, this
prompted the firm to establish its own sales office in London and thus to reduce dependency on
British agents for sales in its largest market. In 1910, J&V became Sweden’s first multinational match
firm, easily dominating Sweden’s match industry until 1913. During that year, the formation of AB
Förenade Svenska Tändsticksfabriker (Förenade) took place with the joining of 12 factories from the
country’s remaining independent match producers. Förenade was valued at less than one-third of
J&V’s worth and accounted for just 20% of Sweden’s total match production. However, the new
match company would soon overtake its domestic rival under the leadership of the local entrepreneur
Ivar Kreuger.
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Kreuger: Chasing Monopolies
2. Ivar Krueger, Genius and Swindler1.
Ivar Kreuger was born on March 2 nd, 1880 in Kalmar, on Sweden’s southwest coast, from an
enterprising family who owned two small match factories nearby. He died on March 12 th, 1932,
shooting himself through his heart in his Paris apartment. His suicide note read: “I have made such
a mess of things that I believe this to be the most satisfactory solution for everyone concerned”.
At the time of his death, he was leading a $600 million globe-spanning organization, the largest firm
of which, Swedish Match, was one of the earliest companies with a global reach in the contemporary
age. It came to control 40% of the world’s match production, owning manufacturing operations in 36
countries, and having monopolies in 16 countries. Kreuger’s fortune comprised a very diverse range
of asset, including factories, forests and mines, real estate (e.g., luxury residences all over the world),
and even film production companies. Since 1927, Kreuger’s holding company lent over $300 million
to governments in Europe, Latin America, and Asia in exchange for national match monopolies. By
1929, Kreuger companies’ stocks and bonds were the most widely held securities in the US and
around the world. In 1932, three years into great depression Kreuger was dead, and his holding
company bankrupt. Forensics auditing unraveled a large pyramid scheme lying on bloated accounts,
with fictitious assets, hiding the truth in a warren of over 400 subsidiary companies. Swedish Match
deficits exceeded Sweden’s national debt.
John Maynard Keynes referred to Kreuger as “maybe the greatest financial intelligence of his time”,
praising him for having “deemed it his task a mid-post-war chaos to create a canal between the
countries with abundance of capital and those in bitter need of it”. Harsher than Keynes, John
Kenneth Galbraith called Kreuger as “by all odds, the biggest thief in the long history of larceny - a
man who could think of embezzlement in terms of hundreds of millions.”.
However, matches were not the first industry that attracted Kreuger.
At the age of 20, soon after his graduation (in mechanical engineering at the Royal Institute of
Technology in Stockholm) as the young, educated Swedes’ tradition required, Kreuger left his home
country to gain experience abroad. Since 1900, when he first moved to New York, Kreuger spent
the following 8 years travelling primarily through the United States, and then across Europe. During
that time, he mainly managed to work as an engineer in the steel construction industry, but he also
experienced different jobs, always seeking for better opportunities. In Chicago (1900-1901), he found
employment in a real estate firm, specialized in selling lots to European immigrants. In 1903, he
worked full time as the manager of a restaurant he opened with a friend near the center of
Johannesburg, but the venture turned only small profits. However, while in South Africa, Kreuger
made an easy $7,300 (about $211,000 in 2022) endeavoring gold speculation. By 1907, Ivar Kreuger
was appointed manager and vice president of New York’s Consolidated Engineering Company,
where he learned about the latest building techniques, using reinforced concrete.
In 1908 he returned to Sweden and founded a construction firm in partnership with entrepreneur and
construction engineer Paul Toll based on the knowledge he absorbed during the American
apprenticeship. Kreuger & Toll could complete building projects more quickly and cheaply than any
competitor, thus soon establishing as a leading construction firm in Sweden, and shortly after
becoming the first construction firm in Europe to guarantee to finish projects by a fixed date. In order
to meet or even forestall deadlines, however, the company worked nights and during festivities,
neglecting complaints about noise and disruption. In 1911, the company was incorporated with a
1 Here recalling Robert Shaplen, Kreuger: Genius and Swindler (New York: Alfred a. Knopf, 1960)
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Kreuger: Chasing Monopolies
stock capital of 1 million Swedish kronor (about US$250,000). Addressing the financial need o f his
business, Kreuger began establishing contacts in Swedish banking community. That was the
occasion on which he encountered one of his future chef financial advisor, Oscar Rydbeck, manager
of the Stockholm branch of Skandinaviska Banken. Rydbeck put forward the initiative to increase
authorized shares in Krueger’s father’s two match factories, for the purpose to use them as collateral
in other match factories acquisitions.
3. Building a Match Empire
With the support and two of Sweden’s largest banks – Stockholms Enskilda Bank (owned by the
powerful Swedish Wallenberg family) and AB Stockholms Handelsbank (Handelsbanken) – Kreuger
undertook the new match venture called Förenade in 1913. Although the match industry did not have
a great appeal in terms of potential or opportunity, on the surface, Kreuger had already envisioned
a plan “to consolidate the match businesses of the world under one control.”.
In 1913, Krueger combined many of Sweden’s independent match factories into the company
Förenade, paying the owners with a combination of shares in the new company and cash from the
banks’ purchase of shares. Kreuger’s expansion strategy mainly relied on mergers and acquisitions,
as well as forming joint ventures or cartels with local firms. Kreuger’s takeover of Japan’s match
industry – the only serious non-European competitor – was among the last in this early expansion
stage. In rare cases, such as in India, Kreuger resorted to building his own factories. He often
financed acquisitions through new share issues in his companies, as he did with Förenade, tripling
the firm’s share capital in three years, to 18 million kronor in 1917 (equivalent to US$115 million in
2022). Nonetheless, he frequently operated in underhanded ways, like hiring local agents to quietly
purchase match companies on his behalf. In 1914, in reaction of Norwegian match company’s
violation of a price agreement for the British market, he surreptitiously purchased the majority interest
in the firm. He used the same strategy to acquire a Finnish match company that had started exporting
low-priced matches to Sweden and Great Britain.
In 1917, Kreuger and the bankers behind Förenade’s rapid growth pushed through final negotiations
for the merger of J&V and Förenade into Svenska Tändsticks Aktiebolaget (The Swedish Match
Company). Swedish Match was not directly involved in production, in fact it operated as a holding
and sales company. Förenade and J&V continued to exist as separate companies. The main
purpose of such a merger was to rationalize sales, making them more efficient. Kreuger consolidated
the group’s several overseas trade companies into just three centrally managed sales groups (for
Sweden, Great Britain, and all non-British overseas markets). New local sales offices opened in
several cities, gathering intelligence about markets and competitors in the region, and passing the
information on to the sales groups and the central office in Sweden. The core goal of Kreuger’s
international strategy was to expand and protect the Swedish-made matches export, while reducing
overproduction in other parts of the world. In such a way that interests of Swedish Match foreign
companies had always been secondary to those of the Swedish ones, J&V and Förenade. Once a
new dominant position was acquired within a market, Kreuger made sure to modernize and to
streamline production methods, turning around local industry to the extent that their output did not
compete with Swedish exports.
Although it was one of the few European match businesses that remained profitable during WWI,
Swedish Match had still to face international market dislocations and financial uncertainties soon
after its formation. Nonetheless, in the postwar period the international match industry was
fragmented, and even established companies were often underfinanced. Kreuger easily acquired
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these firms, especially those operating in war-torn European countries or countries with a low-value
currency. Kreuger approached factory owners with a simple offer: “sell to him or be ruined.” Indeed,
after acquiring one or two local companies, he was able to pressure the remaining local competitors
to sell to him as well, often through threats or deceit. Between 1919 and 1922, Kreuger made similar
incursions into the match industries of Austria, Hungary, Denmark, Holland, and Switzerland. In other
cases, he initially collaborated with the largest local competitor in order to gain control of the market.
For example, in Belgium, where the match industry had consolidated into one large company (UNAL)
already before the war. After combining all the remaining independent Belgian firms into a single
company (1920) and a period of collaboration, Kreuger merged with UNAL in 1925 gaining control
over the country’s match industry. During the post war period, due to the economic crisis and
leveraging on Swedish neutrality, Kreuger also managed to buy assets cheaply. This way, he created
also a large real estate business, starting from Germany and then elsewhere, which increased
Kreuger’s already diversified sources of revenue (he still retained the ownership of Kreuger & Toll).
However, the main financial source for Swedish Match’s international acquisitions was “Match
Syndicate”. Formed in 1919 by five major Swedish financial institutions, it provided 60 million kronor
(about US$218 million in 2022) at Kreuger’s disposal. Förenade would service the expensive loans
during the three-year life of the syndicate, instead of Swedish Match, that was to assume liability
only after. The syndicate worked independently of Swedish Match and in secret: few of Swedish
Match’s directors even knew of its existence. To mask his expansion strategy even from competitors,
Kreuger carried out his acquisitions with utmost secrecy, employing third parties to make inquiries
and purchases on behalf of Swedish Match without the party being acquired ever knowing of
Kreuger’s involvement. Most acquisitions appeared surreptitiously in Swedish Match’s accounts and
public statements as “sundry creditors”. All but a few of Kreuger’s most trusted associates remained
unaware about the extent of Kreuger’s international activities.
4. Kreuger and International Finance
In the early 1920s, economic depression struck, and just when Kreuger was about to reap the
rewards of his European match assets. In 1923, Swedish Match entered in a serious liquidity crisis,
due to decreasing sales and prices. Swedish Match’s debts to the Syndicate were coming due, and
the associate banks started claiming for an immediate return on their investment. Kreuger went to
the global capital markets to repay his Swedish bank creditors, though. He pioneered financial
techniques that are still in practice today, including the use of offshore finance. His most innovative
financial strategy consisted in creating non-voting “B shares” (one equaling one-thousand vote), as
opposed to “A shares” (one equaling one full vote). Offering “B shares” allowed him to raise funds in
the London stock market without violating a Swedish law prohibiting more than 20% foreign
ownership of Swedish companies in certain industries. Indeed, the law referred only to voting shares
rather than to the percentage of financial stake in the firm. Such an innovation allowed, in 1924, to
double Swedish Match share capital up to $47 million without diluting Kreuger’s control of the
company. Through the use of “B shares”, Kreuger held a $600 million empire owning only 1% of the
total shares of his companies.
He was then able to finance a large-scale international expansion, and still maintain the control
necessary to execute his strategy operating in an independent and quiet way. Moreover, the global
post-war scenario in banking activities opened the door for Kreuger to become an international
financier, who could compete with investment banking giants such as J.P. Morgan. In the 1920s,
European countries were facing recession and their economy was in ruin, emerging from the war as
debtor-nations. Conversely, the United States, untouched by the physical destruction of the war,
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were experiencing a great economic boom, lasting through most of the decade, and were emerging
as the “lender of the world”.
In 1923, Kreuger formed the International Match Corporation (IMCO) in New York, as to provide
himself a vehicle for raising money in the United States. The company was incorporated in Delaware
to secure the greatest flexibility. He established several IMCO subsidiary companies in Europe,
where he transferred the Match Syndicate’s remaining assets and most Swedish Match’s
international holdings (about $8 million). In exchange, Swedish Match and the syndicate received
$30 million in IMCO shares. Swedish Match initially received a little over half of IMCO’s shares,
becoming the company’s sole owner years later. By 1933, through a series of bond issues – the very
first, issued soon after incorporation and worth $15 million, was oversubscribed on the same day of
issue – Kreuger raised nearly $150 million from U.S. investors. Indeed, IMCO appeared extremely
profitable: it used parts of the capital raised to distributed annual dividends of 20%, which kept the
stock value up. As a result, Kreuger had been able to raise funds in the US and elsewhere in the
world. In addition to that, he offered brokerages and confidential discounts to new subscribers. The
close alliance he had with his home-country banks reassured the majority of US investment bankers
about the legitimacy of his business. But not everyone trusted Krueger, as J.P. Morgan and, in the
latter days, the Wallenbergs (see below).
Beginning in 1925, Kreuger ventured into an entirely new kind of expansion strategy, enabled by
money raised in the bond markets. Kreuger had abundant capital that he was willing to lend to needy
governments in exchange for monopoly control of the national match market. Poland was the first
borrower in a long line of countries (including Greece, Latvia, Yugoslavia, Hungary, Ecuador, and
Peru). In 1927, France urgently needed a loan to stabilize its currency, and J.P. Morgan – from whom
France had borrowed $89 million three years earlier – had refused to give any more funds before
France paid its prior debt. Morgan’s word stood for all of Wall Street. But not for Kreuger who lent
$75 million to France (even after the French legislature turned down his monopoly proposal).
Kreuger’s loan helped France to pay off Morgan’s higher-rate loan. Such a deal played relevant a
role in reorganizing the country’s finances at a critical time. In return, Swedish Match gained
exclusive rights to supply the French monopoly with raw materials and machinery, in addition to the
right to import luxury matches into France). Through these kinds of deals, Kreuger acquired an
international reputation as a serious financier, being awarded France’s Grand Cross of the Legion
of Honor. By 1933, Kreuger had made a total of $387 million in state loans, all financed through sales
of securities in Swedish Match, IMCO, and Kreuger & Toll.
5. The unraveling of Kruger’s empire
On October 24, 1929, stock prices on Wall Street collapsed. Though hit hard by the market crash,
Kreuger securities rebounded following the announcement of an increased dividend on IMCO in the
last quarter of 1929. For the next few years Kreuger continued to pay generous interest and
dividends with company capital to ride out this latest bump in the economy. On October 26, 1929,
Kreuger signed a deed for a $125 million loan to Germany, which would have brough him a 50%
ownership share in the state match company with monopoly rights over production, import, and sales
of matches in Germany for 32 years. The loan helped Germany meet war reparation payments and
stave off a domestic economic crisis, while Kreuger achieved a new level of international stature for
himself.
Indeed, at that time few anticipated a prolonged and severe downturn in production and prices. As
the Depression deepened, investments in new stock and bond issues almost stopped. The Swedish
matches export dropped (just above 200,000 cases by 1934) and Kreuger found himself in severe
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Kreuger: Chasing Monopolies
liquidity problems. He needed to seek for new sources of cash to meet operating costs and investor
obligations. First, Kreuger tried to capitalize on his stature at home. He used $50 million in German
bonds – belonging to IMCO – to back a $30 million loan extension by Skandinaviska Banken.
Kreuger kept those bonds in his personal bank account, using them again to secure a second loan
from another Swedish bank. Still short of cash in March 1931, he forged Italian government bonds
worth $142 million, presenting present them as proof to bankers and his own accountants of having
secured yet another national monopoly, by claiming he got the bonds as collateral for a loan of the
same amount to Italy.
By December 1931, Kreuger began preparing for a shakeout by removing from his office safe
thousands of shares in several Swedish companies and giving them to his brother Torsten. Then,
he tried to sell his most valuable non-match assets, as a last-ditch effort to save his sinking empire.
Indeed, Kreuger had secretly purchased LM Ericsson shares, gaining the control of the company by
1930. He was now approaching International Telephone and Telegraph (IT&T) with a merger offer,
willing to trade a majority stake in Ericsson for a block of IT&T shares plus $11 million in cash. For
the first time, Kreuger had agreed to an independent audit of one of his companies. Accounting
investigations revealed that he had taken over $7 million from Ericsson, replacing it with foreign
government bonds of lesser value. Any attempt to mollify the IT&T accountants was in vain (the audit
company was a J.P. Morgan’s one, and Morgan had never trusted him), on February 19, 1932, IT&T
cancelled the deal. Kreuger was then unable to make an overdue payment to four U.S. banks.
In total despair, on February 23, Kreuger turned to the Swedish banks, threatening that Swedish
Match would be forced to suspend payments and go bankrupt, if $2 million was not delivered that
day. The Wallenbergs-owned bank (Stockholms Enskilda Bank) refused any further loan extension,
effectively dragging down Swedish Match. The Swedish central bank had to provide a loan of two -
thirds the cost necessary to keep Swedish Match afloat for a few more, and the remaining one-third
was made up by Skandinaviska Banken and Handelsbanken, for one-sixth each. Kreuger’s
European creditors set a meeting for April in Germany. The loan granting condition was that Kreuger
return to Europe from New York immediately. When he arrived in Paris, as for encountering
colleagues to prepare for the creditors’ meeting, he learned that Swedish officials had discovered
the Italian bonds during a raid in his offices. Kreuger assured his associates that he would explain
everything, but just before the scheduled meeting in Paris, he took his own life. The stock markets
reacted violently to the news of Kreuger’s death. All Kreuger-linked stocks collapsed. IMCO sold a
record block of 673,000 shares in a single day, going bankrupt in the following months. Subsequent
auditing investigations revealed that Swedish Match deficits exceeded Sweden’s national debt. All
told, Kreuger was worth about $100,000, having as most valuable personal assets some Rembrandt
etchings and a Rolls Royce limousine. Claims on his estate totaled $1.2 billion, about $98 million of
which representing losses to U.S. banks and investors.
Nonetheless, his legacy was solid. After Krueger’s death, Stockholms Enskilda Bank reconstructed
Swedish Match, remaining a well-established multinational company for the following seventy years.
Yet, the Wallenbergs’ bank had been owed 60 million of the 830 million kronor the Kreuger Group
owed to Swedish commercial banks. As a result, the already strong industrial interests of the family
expanded considerably, and the Wallenbergs’ position as the largest Swedish business group finally
consolidated.
