Kaupthing Singer &
Friedlander Isle of Man
One of the ironies of the 2008 credit crunch is that savers went broke because too many people borrowed money that didn't exist. At least they would have gone broke if huge injections of taxpayers' cash hadn't rescued high street banks across the developed world. But as yet, a few banks, and their depositors, have not been rescued. These banks are Icelandic, and one of them happens to be in the Isle of Man.
Kaupthing Isle of Man depositors
A number of British people with deposits in the Icelandic Kaupthing Singer & Friedlander bank on the Isle of Man currently stand to lose much of their entire life savings because the bank was put into provisional liquidation on October 8th. The same applies to offshore savers with Landsbanki Guernsey now in administration.
KSFIOM depositors delegation petitions Downing St & Icelandic Embassy
October 2008 – ordinary British savers who just want their money back
The problem for the depositors seems to arise from the fact that their money is 'offshore' – the Isle of Man is not part of the United Kingdom (nor is it in the European Union, but its residents are British citizens and the head of state is the British monarch). The UK government has said that personal deposits made in the UK with the Icelandic bank Icesave are fully protected – even though Icesave wasn't regulated in the UK. This protection doesn't apply to Kaupthing Singer & Friedlander Isle of Man's UK-based depositors, some of whom argue it should and that both must be treated the same.
Limited protection
The Isle of Man has recently increased its depositor protection scheme to £50,000 but Guernsey has none for non-resident savers. The Isle of Man position appears to be complicated in that Kaupthing Singer & Friedlander Ltd in the UK has also been put into administration, holding assets of Kaupthing Singer & Friedlander Isle of Man – reportedly some £550 million of deposits that were mysteriously 'upstreamed' to the mainland. Also in the picture are the hundreds of millions that were deposited in subsidiaries of Icelandic banks by British Local Authorities, charities, and other public bodies which the government is now trying to recover in consultation with the Icelandic government.
One hopes justice prevails and that the savings are returned to the offshore and Isle of Man resident depositors by the actions of the governments concerned or by the liquidators of what remains of the bank. Saving is not the same thing as speculative investment and the depositors who stand to lose their money aren't wealthy tax exiles but ordinary people with what they believed were ordinary bank accounts. In some cases deposits included the proceeds of house sales that couldn't be banked directly in the UK because the individuals involved had gone to work or live abroad and had no UK address. And many local residents regarded Kaupthing Isle of Man as just a normal bank.
Life savings at risk
For a number of individuals the collapse of Kaupthing in the Isle of Man involves the potential loss of everything they have, accumulated over a lifetime of hard work. It should not be possible in civilised nations for anyone to be so overwhelmed by events outside their control. Some 7,000 accounts with around £850 million of deposits are estimated to be affected – an average of over £120,000 each.
But it's hard to see how the money can legally come directly from the British taxpayer. It was deposited in a foreign bank located outside the UK. The Isle of Man Government can't afford a complete bailout, and its depositor protection scheme could take years to bear fruit, and even then only up to £50,000 per depositor. Unless the liquidators perform a miracle my guess is that the Icelandic Government offers the best chance in the longer term, returning the money as a condition of an IMF loan to help rebuild the country's economy. And Iceland probably doesn't want too many outstanding foreign debt commitments when it contemplates membership of the European Union. The IoM depositors must therefore keep their case in the public eye. The purpose of this article is to help do just that.
Savers' deposits in KSF IoM
Some examples (excludes deposits of £100,000 or less):
"I'm in for £500k" [life savings]
"I've lost 180K+" [proceeds of house sale + 10 years savings]
"320K in KSF IoM" [entire life savings]
"200K for us" [proceeds of house sale + life savings]
"180K and all my dreams" [set aside for retirement]
"GBP 307,000" [entire life savings]
"600K sterling for us" [life savings, just about]
"140K sterling" [entire life savings]
"£187k with £8k interest" [profit from property deal]
"220k pounds" [about all we have got]
"210,000 GBP" [retired expats]
"GBP140,000" [life savings]
"250,000 sterling" [from Bradford and Bingley IoM]
"£310K" [just retired to UK]
"200K" [part of retirement fund]
"Lost £230k" [of life savings]
"Around one million GBP" [from Derbyshire B.Soc. IoM]
"£161000" [hop before exchange to Aussie dollars]
"350+k in two accounts" [pension fund]
"£650,000" [from Derbyshire B.Soc. IoM]
"GBP 240,000" [retirement savings]
"Lost over £700k"
"£170K and 20K" [life savings]
"Balance of about 500,000"
"£280K+"
"Best part of 500,000" [parents hard earned life savings]
"Over £600K" [inheritance and personal savings]
"£220K hard earned" [from Derbyshire B.Soc. IoM]
"£259,000 lost" [2 generations' careful savings]
"Close to £300000" [savings after lifetime of hard work]
"GBP 150,000 worked hard for it"
"Lost everything 350,000" [sale of house]
"$722,000" [earned from 10 hard years in Russia]
"$535,000" [proceed of a lifetime spent working hard]
"Million sterling" [proceeds of a business sale]
"$600,000+ US Dollars"
"£700,000+" [account when living abroad]
"160k+" [retirement savings]
"Lost 380000" [life savings + inheritance from parents]
"£500,000 approx." [from Derbyshire B.Soc. IoM]
"USD 367,000" [lifetime savings]
"$260K+" [30 years of savings]
"£275,000" [entire life savings]
"OVER GBP 500,000" [intended house deposit]
"US$732k and GBP220k"
"360k GBP+" [to buy UK house after years overseas]
"£200,000+" [retirement fund]
"GBP 229K" ['pension' after 40 years saving]
"150k Hard lesson indeed"
"Lost $200,000" [life savings from working in Africa]
"I have GBP 151,000 at risk here too"
"£300K+" [Life Savings (pension)]
"140K" [savings made over 30 years]
"Total lost, 450,000 sterling" [saving and sacrifices]
"£132,000" [25 years savings as an expat]
"GBP170,000" [from Derbyshire B.Soc. IoM]
"450,000 UKP" [savings from being overseas 8 years]
"Total loss IRO £600K" [from house sale]
"Approximately £950,000" [from sale of business]
"£900K+"
"Around £800k and $240k"
"550k" [life savings to buy house + fund retirement]
"Around GBP130,000" [from Derbyshire B.Soc. IoM]
"GBP 152,000" [retirement fund and inheritance]
"Lost USD 600k+" [entire lifetime savings as expat]
"400,000 pounds" [from Derbyshire B.Soc. IoM]
"2.3 Million Pounds" [sold everything]
"Approx £925k"
"150,000 GBP" [all my savings]
"I have £136,000 deposited in KSF (IOM)"
"£105k"
"970K USD" [18 years worth of savings]
"GBP 100,000+" [life savings]
"£240,000" [life savings]
"560K"
"200,000GBP"
"Have lost £240k" [from selling a flat]
"£400,000" [life savings, sale of property etc]
"£370k"
"I had two accounts with KSF, totalling GBP220000"
"140K+" [savings nest egg]
"Amount Lost £196,000"
"Company Account – Lost 270,000 Euros"
"US dollars 290,000" [life savings]
"£GBP 100,000" [life savings in totality]
"GBP 117k" [with Derbyshire B.Soc. IoM for a house]
"GBP 480,000" [life savings]
"GBP177,500" [life savings]
"140k GBP" [from selling house]
"Lost £800,000" [divorce settlement]
"GBP350K" [divorce settlement]
"In excess of £400,000" [re-mortgaged house + savings]
"£500,000 of mine in the bank" [hard earned]
"300000 eur in a 90 days notice account + 17000 eur"
"150K with interest due"
"$595,000 (about £350,000)"
etc…
[quote Kaupthing Isle of Man depositor]"Money is recoverable. After KSF you will laugh again, you will smile, you will have moments that you will be so pleased you are living."[unquote]
[quote Kaupthing Isle of Man depositor]"How the F'ing hell can a borrower have more stability than the man who funded his purchase?"[unquote]
Kaupthing Banks affecting Britain:
Kaupthing hf (in Iceland) – since 1982 – now with Icelandic govt.
Kaupthing Singer & Friedlander Ltd (in the UK) – since 2006.
Kaupthing Singer & Friedlander (Isle of Man) Ltd since 2007.
Kaupthing Edge (pan-European) – since 2008 in UK – now ING Direct.
Offshore investors
It isn't only savers whose funds may be at risk. An estimated 1,400 policyholders have some £220 million with KSF Isle of Man in the form of offshore investment bonds via life assurance companies such as Royal Skandia and Norwich Union. These investments are not covered by the island's Depositor Protection Scheme because the money is held in the name of the provider as a 'corporate entity', not the actual policyholder. The companies involved say they are doing their best 'on behalf of their clients' but how the money can be recovered is unclear.
Many of these investments were made on the advice of independent financial advisors (IFAs, who are paid commissions by life assurance companies) whom their clients now say should have clearly spelt out the risks when offshore bond portfolios fail. This is likely to result in a spate of negligence claims against IFAs by investors who lost their money.
From Gordon Brown's speech at the Mansion House in 2006:
"On regulation, the challenge at home is to match our risk based approach, which now extends from the risk based regulation by the FSA and HMRC to local authority inspection, to actual delivery on the ground. Like all advanced industrial economies – and this is what I hear every time I visit America – you know as do I that this requires a cultural change, a change of mindset, a rejection of the old model of blanket, untargeted, heavy handed intervention – in favour of a new view of the corporate world, founded on trust in the responsible company."
Sure, Mr Brown? Say that again to British savers in UK, Isle of Man, and Channel Island subsidiaries of collapsed Icelandic banks.
So much for NuLabour. Although Gordon Brown seems to be receiving justifiable credit for his part in the rescue of the international banking system (but not by some people), let's not forget who helped to get us into the credit crunch mess. Unlike some people, I like quirky Mr Brown. I believe he is fundamentally honest and does his job out of a strong sense of personal conviction. But it was he who was Chancellor when the Bank of England Act was introduced in 1998, and it was his lot in power when the Financial Services Authority failed to do its job in regulating the banks, and it was his Chancellorship that enjoyed much of the kudos for the (illusory) sense of 'never had it so good' during the debt-fuelled boom years of the new Millennium.
Crumbling ice? The writing was already on the wall 2½ years ago. More recently: MoneyWeek (March 2008) and "Markets call time on Iceland" (Robert Peston, October 4th, 2008).
The bank's website: Kaupthing Singer & Friedlander (Isle of Man) Ltd »
Before the World Wide Web, the Kaupthing Isle of Man Depositors Action Group and Landsbanki Guernsey – I want my money would probably not have existed in such an timely and effective form. An almost instant and brilliant response to the problem, in fact. Next week they're going to Number 10 and the Icelandic Embassy to present a petition. My feeling is that this story will have a happy ending. [Guernsey web link updated by Patrick, November 13th]
I hope so (happy ending).
Mr Darling apparently telephoned to try to establish the Icelandic Government's position on guarantees on four billion pounds worth of British deposits with Landsbanki, then already in administration. In response Mr Mathiesen referred to an insurance fund and how new legislation would help in 'solving the problem.' He referred to a letter from the Trade Ministry in Iceland which explained how the fund would work together with a pledge of support to it from the government.
The conversation is short and full of scope for misinterpretation. But Mr Mathiesen could not guarantee all deposits in Icelandic banks in the UK, and despite his assurance that: "We are certainly working to solve this issue. This is something we really don't want to have hanging over us," it was perhaps this simple fact that led to (i) the UK Treasury's 'Anti Terrorist' Landsbanki Freezing Order, then (ii) a run on Icelandic banks not subject to the Freezing Order causing a technical default on Kaupthing Singer & Friedlander UK, then (iii) the decision to put KSF UK into administration, then (iv) the UK Financial Services Authority's sale of Kaupthing Edge UK to Dutch ING, then (v), as is being alleged, the knock-on collapse of the entire Icelandic banking system – or something along those lines. A view is held in Iceland and elsewhere that were it not for the hasty actions of the British Government on or around October 8th, Kaupthing would still be up and running.
This is relevant in that it may provide the Kaupthing Isle of Man Depositors Action Group with its best case for British Government support, one way or another. Read why at "Who's to blame?" and "Icelanders are not terrorists".
[quote Kaupthing Isle of Man depositor]"We are just cross-fire victims caught in the middle of human error – that's cool, people make mistakes – we just want people to do the right thing now."[unquote]
Update:
(1) Iceland's Prime Minister and Foreign Minister have reportedly stated that an IMF loan is "not nontingent upon settlement with Britain" and that the "Icelandic authorities do not intend to agree to obligations other than those for which they are required to honour according to law."
(2) Mr Brown and Mr Darling may face a massive claim over the Kaupthing collapse (this is perhaps why the British Government is saying nothing). The law firm involved is also considering whether it can act for KSF (Isle of Man) depositors, but…
(3) The former majority owner and chairman of Landsbanki has reportedly stated that the collapse of the Icelandic banking system was caused by the Central Bank of Iceland's rejection of a UK offer to accept Icesave under a British guarantee.
(4) Kaupthing Singer & Friedlander Capital Markets in the UK has reportedly been sold by the administrators to the executives and some 70-odd staff and is now Singer Capital Markets Limited. This follows the recently reported purchase of Kaupthing Singer & Friedlander Investment Management by Evolution Securities.
(5) Channel 4 News on TV in the UK has revealed that the British Government, the Bank of England, and the Financial Services Authority were aware of serious problems in the Icelandic banking system in March 2008 but chose to take no action
Further update:
Savers and private investors in KSF (Isle of Man) have not yet recovered any of their money from the bank and some are now experiencing real financial hardship and having to make changes to their lives. Attention is now focused on a further court hearing on the island on November 27th, following the postponement of the winding up of KSF (IOM) on October 24th.
As an alternative to liquidation, the reconstruction of the bank is apparently under consideration by the 'Liquidator Provisionally' PricewaterhouseCoopers and the IOM's Financial Supervision Commission. The Isle of Man Treasury also has a stake in the outcome of the hearing as it has reportedly put up £150M to help compensate savers and is concerned over the future credibility of the Isle of Man's banking sector upon which the island's economy partly depends.
At a Treasury Select Committee meeting on November 3rd, Alistair Darling, Mervyn King (Governor of the Bank of England), and Lord Turner of Ecchinswell (Chairman of the UK Financial Services Authority) were reminded of the plight of British depositors in failed offshore banks and were asked to comment. Mr Darling, whilst not ruling out direct UK involvement at some point in the future, made it clear that the Isle of Man is not part of the UK, describing it (to applause) as a "tax haven sitting in the middle of the Irish Sea."
Meanwhile, financial assistance for Iceland from the IMF currently seems to be on hold because of Icesave-related 'objections' from the British and Dutch Governments. As well as the IMF itself, a number of European countries have said they would offer loans to Iceland as part of a consortium that would include not only Britain and the Netherlands but other Scandinavian countries and Poland.
As I see it, Kaupthing Singer & Friedlander Isle of Man will in due course be liquidated, or run down, or reconstructed (whichever) resulting in creditors eventually receiving a significant proportion of what is owed to them. Probably liquidated. In other words the technical and legal processes will be allowed to run to their natural conclusions. By then, the IMF and consortium loans to Iceland will have begun to flow, a condition of which will be the compensation required to make good their remaining losses.
4 years hard struggle in Baghdad just to possibly lose it all.
Kaupthing Story Momentum Gathering on BBC R4 Website.
The plight of thousands of innocent depositors caught in the cross-fire when UK Government Treasury froze the assets of Kaupthing Singer & Friedland is being highlighted on the BBC R4 Website.
To view the moving comments that people have made on the subject visit :-
http://www.bbc.co.uk/blogs/ipm/2008/11/a_twist_in_the_expat_tale.shtml
To make a comment yourself, register here :-
http://www.bbc.co.uk/cgi-perl/signon/mainscript.pl?c=register&service=blogs&ptrt=http://www.bbc.co.uk/blogs/bbcinternet/2008/12/whats_on_is_off.html
Please pass this word on – lets get some momentum going here and get some justice from the UK Government.
19 Feb 2008, & the IOM Government submits a Scheme of Arrangement to the IOM High Court in an effort to stave off liquidation. Liquidation would trigger the Government's Financial Compensation Scheme & this would damage the Island's reputation.
Presently it is estimated that the SoA would return 60p in the Pound. Depositors want all their money back, saying it was deposited on assured trust and not as an investment embodying risk.
Depositors say that the IOM should do what the UK Government has done to protect savings deposited in failing UK Banks. This is a fundamental principal of trust that must be the basis of all money deposited in a bank. If the Island can not do this then the foundation of its financial services industry is inherently insecure.
It is the submission of the Depositors' Action Group that if the IOM Government can not provide the resources to underwrite this trust, it should seek a loan from the UK Treasury in order to do so.
However, the IOM Government has committed itself to resolving the problem as best it can and its Scheme of Arrangement will be finalised in time for a Court hearing on 9 April. Depositors are demanding that it must contain a clause that makes it clear that their legal rights to pursue their demands through the courts are not compromised.
The Depositors' Action Group is now seeking the advice of legal councel to sue those who it considers to have failed to saveguard their deposits.