Summary of Conference Call with Mike Simpson - 6th April 2009

Posted 25/04/2009 - 21:56 by frog

Dear all,

Sorry for the delay in this - got rather busy (and a bit lazy!) but here is the summary of the last call. The comments in [ ] are mine - note the call is available to listen to on the bank site and the next call is on Friday 1st May.

General Questions

  1. What is the current cash balance for the bank?
    A: £156M sterling
  2. How much interest has been earned so far?
    A: £600K on the deposits and on the loan book about £6M
  3. Any news about the KSFUK deposit from E&Y?
    A: No news right now. Still expecting around Easter
  4. What is the latest status on the sale of the loan book and any other interest in the purchase of the bank?
    A: Some discussions but they didn’t come to anything. There are no active enquiries in progress. If there is clarity from the money from KSFUK, it may bring some people back into play. Expect that a discount would be needed on the book values. Regarding Setoff, Icelandic position there is no change. With respect to the CDs in the UK – one case has completed and we are awaiting judgement. He is still confident on the success of this. This hopefully make a precident for the other disputed CDs
    Open Questions

  5. Can we have a breakdown of the type and quantity of individual depositors/entities?
    A: Given on March 13th update.

  6. Can we have a breakdown of the balance sheet in multicurrency (£, $ and Euro)
    A: Haven’t progressed that – it is on the list of things to do but busy with the SoA preparation.

This Week’s Questions

  1. Since 8 October 2008 has any payment for expenses been claimed by and/or made to any of the bank's directors. If so would MS, as the LP please detail?
    A: Not aware of any expense claims, the £103K paid was for salaries and directors’ fees. There is only one exec director left – Aiden Docherty as CEO and two non-exec directors in place at the moment. The non-execs are required as the bank is not liquidated and so they need to be in place for company rules.
  2. Were Whelan and StockCube plc preferred creditors of KSF UK, which allowed them to receive their funds ahead of other creditors thus reducing the pot for return to KSF IOM?
    A: Both were unsecured creditors. The payments were made out of the FSCS. The FSCS supports bank customers rather than other banks, so the money owed to KSFIOM would not be something that the FSCS would deal with.
  3. Does MS know
-whether Whelan was an unsecured creditor of KSF UK? Corporate or personal?
    A: Unsecured
  4. You mentioned in your last note on April 2nd that KSFIOM cannot claim compensation from the FSCS in this regard. Why not? Exactly what basis did Whelan claim on?
    A: As above
  5. There are reports in the press today from The Times and others that PriceWaterhouseCoopers, acting as administrators for KSF IOM, have sold the stake in JJB Sports that they held as collateral on a loan. Is this the case? If so, why sell now when this almost amounts to a "firesale"? JJB's share price is very low at the minute. Could he further clarify how many shares were sold, and at what price?
    A: Confirmed that the JJB shares were sold, but the price sold at is confidential. He confirms that the sale was not at firesale prices. JP Morgan advised in the sale. The shares were part of a basket of shares in a repo agreement of about £160M. In order to provide collateral, the UK bank had to put in shares to the value of the £165M – and if the shares fell, they would have to put in more. The money for the sale of the shares is now in the hands of the LP.
  6. If a loan from HMG was arranged between IOMG and HMG, how does MS see this working in practice, as the LP is working for the benefit of depositors. It is something that has been in the air recently (in fact since Oct/Nov 2008) and as such I would expect it to have been discussed, internally within the Bank and suggested as an option to the Court, including its practicalities and potential timescale effects on repayments to depositors. If it has not been discussed as a potential option, why not, and when will it be?
    A: This option has been discussed but Mike Simpson understands that there will be no such loan.
  7. Regarding the £147m of assets of KSF London deposited in a segregated Bank of England Trust Account between 2 and 7 October 2008 under the orders of the UK FSA, please describe what actions you have taken to understand who these monies belong to and to register, if relevant, a claim against these monies.
    A: It is not clear – there was a hearing last month in the UK and there is another hearing in mid-May – the administrators are seeking the advice of the court as to the distribution of this amount.
  8. The FSC has said it will fund the cost of developing the SOA (Alix & Partners etc.,) but what about the ongoing cost of running the bank in anticipation of a successful SOA? The LP has indicated that some 35-40 staff have been kept on which must have incurred a much greater overhead than if the bank had gone into liquidation. Surely the FSC should also bear this cost. Can Mr. Simpson comment and put in an application for these to be covered fast.
    A: The Treasury has agreed to take the cost not the FSC. The level of staff will be the same under liquidation or SoA. Interest in buying the bank dried up in Dec. the LP will look into the opportunity to recover costs for developing the SOA from the Treasury. He thinks it isn’t as clear as has been suggested.
  9. See today’s reports ref Directors salaries since 10/08.
    http://www.iomtoday.co.im/news/MHK-slams-payments-to-directors.5125692.jp
    Extract: Speaking afterwards, Mr. Watterson said: 'I find it appalling that over £100,000 has been paid in directors' fees, primarily for two directors in such a short period of time. This is a significant sum that cannot now be diverted to creditors, and part of the tab that must ultimately be picked up by the government. Suggest that if he has not already done so these not insignificant costs should be claimed from IOM Gov´t without delay. Mr. Watterson has kindly alerted them that this should happen.
    A: Mike Simpson is not sure under what basis this should be claimed. The bulk of the payments were to the CEO and FD as salaries – and keeping them employed was in the best interest of the creditors.
  10. It is normal for the practioner/ liquidator provisional to prepare a Statement of Affairs, up to date. This is a list of assets and liabilities using expected realisable value rather than 'book' values. Creditors need one in order to have any idea of what they are voting on. Would you ask MS to produce one by 7th April 2009, for the above reason
    A: The realizable values are based on the UK recovery position and there are on-going legal issues going on for which the outcomes aren’t known, setoff issues also, so these significant uncertainties make it impossible to do this right now.
  11. On Oct 2008 A Doherty stated that cash from KSFIOM had been placed in 3rd party banks in IOM, how much was this and has it all been reclaimed by LP
    A: Total amount was about £108M and is now under the LP control. It is spread out among various institutions
  12. What would happen should the SOA be rejected? Would there be automatic liquidation and activation of the DCS?
    A: His understanding is that if the SoA isn’t voted in, then liquidation would occur immediately afterward and the DCS scheme will be triggered.
  13. How much has he billed in fees for the PL1 and PL2 to date. As they really are just in a holding mode until after the April 6th how has the PL acted to keep fees to a min. reflective of being a caretaker? Does he expect his staff/fees to scale up (by how much) in full liquidation/SOA
    A: No fees received yet. The role is intended to be brief to protect the assets pending a winding-up order. The role is more involved then just a caretaker action – the legal action and managing the loan book for example. There is a phase (proof of debt etc) and after that the amount of effort will be less. There is no expectation that the headcount will increase during this first phase.
  14. On liquidation
- can he outline his plan of action for the first 3 months of liquidation if we go into liquidation? When would he form a creditors' committee? 
- Can he tell us what percentage of realisations he would think of holding in reserve and what percentage he would pay out? 
- Would payouts be time based i.e. quarterly, 6 monthly etc or based on monies available for pay out
- does he have view on the likely duration of liquidation?
    A: The timescales for the SoA should be covered in the explanatory statements. On liquidation, the meeting of creditors would happen within 1 month – whether in Scheme or liquidation, the LP would plan to distribute the amount on hand as soon as possible less what is needed for costs and supporting any future legal action etc. About 3 months after the winding-up order the first distribution will happen. The payments schedule would be agreed with the creditors’ committee and the court. The cost of a distribution can be significant, so a balance between the amount of payments and the frequency needs to be made. The Bulk of loan book is estimated to be paid back by 2013 – also should have an idea as to what would come from Kaupthing Iceland. No knowledge about the timing of repayments for KSFUK loans – most of them are loans on high-end property and loans Etc.
  15. Would it be considered normal to hedge exposed foreign currency liability: that is the liability not covered by assets denominated in the particular currencies i.e. cash, bonds, loans etc.
    A: There were hedging agreements were in place (with KSFUK) upon LP but were reversed out of by KSFUK anyhow hedging is expensive and can be a big issue if the market goes the wrong way. The Dollar transactions didn’t go thorough KSFUK but went through Deutsche Bank. The Dollars were put into Dollar Accounts and is still in dollars. He could not comment what is in Dollars – the Euro position is very small. He will provide the breakdown later.
  16. When MS was appointed PL when KSFIoM was put into Administration would it not have been sensible, given the situation was Administration and not Liquidation, and foreign currency accounts were a significant part of the banks business to consider such an action (hedging), and was it considered? In the light of his answers what would be his opinion now.
    A: As above
  17. Can MS explain why one of the 'four eyes' has now left the Company - Andrew John Davies - resigned 26 11 2008 - if legal action were to be taken, how would this now be achieved, as he is no longer employed at KSFIOM? It is assumed the other 'four eyes' Aidan Doherty is and will continue to be 'employed' at the bank.
    A: Andrew Davis is not protected against legal action if that is what the LP wanted to do.
  18. Has MS been consulted by IOMG and Alix Partners regarding the timescale of the SoA presently on the banks web site? If yes does he believe its workable
    a. If not consulted, does he agree with it or not, if not what is his proposed timescale
    b. Has he been consulted on the timescale if the DCS is triggered
    c. Has he been consulted or seen the comparison timescales for the SoA vs. DCS (or has he only seen the SoA timescale)
    A: Timescales are achievable, but they are tight. The LP was in the process of producing the explanatory statement. The DCS administrator apparently provided a statement in court the last time about the timescale for DCS. The LP has not seen an updated timescale for the DCS.
  19. When will we have the promised comparison of the SoA and DCS/liquidation?
 Whilst your paper will necessarily be detailed, if it is possible could we have an additional one that would be understandable to, let us say, the typical depositor?
    A: The explanatory statement is nearing completion for the SoA. The intention is that the explanatory statement would be understandable by all creditors.
  20. Why is accrued interest in the SoA treated differently to capital. Would this also be the same in a liquidation?
    A: Interest for both is accrued up to the date of the date of appointment. IF more than 100% were recovered, then the distribution would be done using the notional interest rules as explained in the SoA – it would be the same for liquidation.
  21. What is MS take on IOMG (JS) positions that there is "too much risk" in IOM
 Bankruptcy and Company Law (DAG discussions with Alix Partners & J Spellman) to permit liquidation to proceed? For whom is there risk and what is its nature?
    A: Wasn’t aware of the context of the comment, but the liquidation process is well established – Mike Simpson is not aware what he means. Perhaps someone can send him the text of this?
  22. Will the SOA limit the maximum potential recovery to between 60 and 70% of 
depositors funds and abandon the rest , to an ultimate purchaser of KSFIOM residual assets? If so to whom - KHF (as principal ) or former KSFIOM Directors, perchance?
    A: Khf will not likely be in any position to buy anything. The Scheme will not limit any payouts to creditors – it is designed to accelerate the payments. With the residual assets, possibly assets which have been seized (houses, shares etc) and offers would be pursued to get the best value for creditors.
  23. Whether adopting liquidation route or SOA , given current knowledge what is MS's estimate of the probable achievable limit on recovery of depositors funds without external borrowing or government largesse?
    A: Depends on recovery from the UK.
  24. Has MS seen the latest KHF creditors meeting updates February & March 2009? Do these improve the prospects for eventual relief from KHF under the parental guarantee given that Iceland appears to have received IMF funding? The question is asked in light of the March creditors update from KHF (as reconstituted) and the extension of the Iceland "Moratorium" to November 2009.
    A: The money from the IMF will be spread very thinly and is not been given to repay creditors. He is no more confident of recovery than before. Book values of Khf was at 25% and at book values. Latest updates have not improved the situation. The parental guarantee rates as a non-secured claim and equal to all the other creditors. The 25% looks like a top-end figure. The LP will persue the guarentee vigorously.
  25. What proportion of the "loans" in the KSFIOM 8/10/08 Trial balance involve "contingent deposits" owed to small - business borrowers whose funds are currently frozen in KSFIOM? Have any such borrowers refused to continue repayments until deposit funds are release, and if so in what amounts?
    A: The amount of deposit and loan customers add up to £12M and most are repaying the loans. It is the LP’s intention to offset (it happens automatically under either liquidation or Scheme)
  26. What has been the effect of the Whalen payment from the administrators of KSFUK on the JBC Sports price for shares held as security by the Liq Prov of KSFIOM?
    A: Answered above.
  27. What effect does MS expect from the release of the KSFUK administrators from the ING -related "overriding objective" moratorium ? In his view what should be E&Y 's payment priorities once clear of the UK Treasury moratorium, given that some large business operators have already received their deposits?
    A: Again the FSCS paid Scockcube and Wheelen. Now the ING transfer is complete E&Y will be putting their full attention to the administration. Expect the details of their strategy soon.
  28. What has been the role, if any , of the former company directors in pushing IOMG to press for the SOA conclusion? Are any remaining directors still influential in determining the likely future of KSFIOM?
    A: The directors are not involved – the decisions in liquidation will be governed by the creditors. One of the non-execs is a former member of the house of keys and the other was a former CFO of the Treasury and sat on the FSC. The LP understands that the other has recused himself from the discussions in the government.
  29. What new laws or regulations would the IOMG have to enact in order to endow the LP in an "SOA-administration" role with the same powers he would have for the recovery of funds as a fully-fledged liquidator?
    A: The scheme is an arrangement between the creditors and the company – and there is no process to gain legal powers. The LP will still remain in place though and if there is a requirement for liquidation powers, he can apply to the court to gain these powers. Mike Simpson would make that call (to go to the court) and would be discussed with the creditors’ committee.
  30. What in the opinion of the Liquidator Provisional is the most likely recoverable asset fraction from current estimates of the available funds?
    A: Answered above
  31. Given that MS in his Affidavit of 18 February 2009 showed that depositors
 would appear to get more of their money back more quickly through the mechanism of the DCA than with the IOMG-proposed SOA, and the Deemster appeared to misinterpret this, can MS do anything to correct the Deemster's understanding prior to 9 April? With the SoA putting the Treasury in a position to veto any proposal on management of the disposal of the bank’s assets, how can the LP approve of this as the Treasury’s amount at risk is substantially lower than most of the other depositor groups, and also has a different agenda to that of the other depositors.
    A: Mike Simpson was not aware the Deemster misinterpreted anything.The deemster will have the SoA in fill on the 9th plus the draft explanatory statement plus the afadavits so it would make the position clear.
  32. 10.4 section 3 – the veto of the Treasury still stands and relative to the value of their assets maybe it is unfair to the creditors?
    A: As standing behind the scheme it is not unreasonable that they have a say. In case of dispute, the administrator can go to the court for directions. There needs to be a clarification as to whether the creditors committee contains the treasury or whether the treasury appears separately. This should come up on the 9th [Did it? – it is a key point]
  33. On Part 6 33.2 – the creditors’ committee, the five members one being the treasury, one protected and one other – who are the other 2?
    A: what the clause says that there should be at least one of each (protected and non-protected). When a protected depositor is paid up, at that point they are no longer creditors. He thinks once this happens then they should drop away (be replaced). Not sure whether this is clear in the clarifying notes [another key point]
  34. Why do you approve of the SoA over a liquidation?
    A: The main advantage is that the SoA gives a certainty for the early distributions both in amount and timing. The IOMG also don’t get any repayments until all creditors get to 60%. If recoveries do not reach 60% then they will not get anything back. This could well influence ‘people’s’ thoughts – but any indication will be heavily caveated. He agrees they have minority creditor (the treasury) having much more power than other creditors and that this is a point upon which the creditors have to decide when voting on the scheme [ in other words – yes, it is a problem for creditors!]. He expects the Treasury would be unwilling to make the change to re-balance this. He understands the concern that the creditors have over the Treasury’s undue influence. [!!!] He will have a look at this and get it clarified.

  35. How can we make a decision as to an SoA without further information from Ernst and Young about the probable recovery from KSF UK? These figures would have an enormous impact on whether the bank could be sold which would therefore affect whether liquidation would be a viable option.
    A: Agreed. Voting will be in May and we hope for indications from KSFUK before that.

  36. While I understand that the PL will be disclosing his costs to the Court in due course, is it possible for him to say how much he has spent on legal fees and other professional consultants since his appointment, and a breakdown of such costs, e.g. inflight legal expenses, Certificate of deposits legal expense etc etc.
    A: Will be done in due course – but right now it would be misleading due to the possibilities in losing cases, winning costs etc. Working on the scheme has delayed the calculation of expenses.
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