URGENT ACTION - WHAT DAG SHOULD DO FROM TODAY 4th FEB

Posted 05/02/2009 - 20:47 by Gordon 45

3.2.2009

Diver/Provisional Liquidator (Mike Simpson)/Chief Minister (Tony Brown)/Alix Partners (Mr Lovett)/ DAG Lawyer (John Wright)/Deputy Deemster (Andrew Corlett), Attorney General (John Corlett)/FSC (Chief Exec John Aspen & Mr Wild)/Head of Treasury (Allan Bell)/MD KSF – IOM (Mr Aiden Doherty)/KSF- IOM (represented by Mr Clucas)/The Insurance Companies (Mr Paul Morris)/AILO (Chief Exec Mr Alan Morgan - Moodie)

Dear Diver,

I read the DAG information constantly, but became a bit concerned with your feedback after the court hearing on 29.1.2009. All feedback to yourself has been good so far and I find it all a bit worrying as a Bondholder through a Life Company encompassed within a ‘Group Holding’ – of which I did not know about until this situation arose. I realise that you and others in the DAG Committee who are in contact constantly with the Manx Government, the Provisional Liquidator and others including the various lawyers etc are more up to date and more informed than those of us who do not live on the IOM.

I therefore write this prolonged letter in an effort to understand more of where we are right now, with regard to the DCS Scheme/Scheme of Arrangement options, also look at the various figures shown on the Balance Statement given out by the Provisional Liquidator and what that might mean in the short or long term for all of us (as creditors).

I write the following in good faith, based on what I have read from various sources, so if it is not all factually correct I apologise and hope you will all look at the bigger picture that I am trying to get across for the sake of all creditors.

  1. If the IOM Government state whether it is a DCS Scheme or the Scheme of Arrangement that the proposed £150m GBP will be used to pay Individual Depositors and Life Company ‘Group Bond Holders’ alike then all creditors are in the same boat. Now Diver and the DAG Website keep saying to all of us that 100% return for all is the aim. That would be a start with all depositors agreeing.
  2. The £150m GBP being returned or clawed back by IOM Government is a separate issue for all those who currently have more than £50k GBP invested in KSF- IOM and I will come back to that later.
  3. What we need now is clarity of figures for various items –
    a. The Loan Book – before anyone should decide whether we are prepared to go down the DCS or SoA route we need to know from Mike Simpson/KSF – IOM/IOM Government what they can expect to recover from the Loan book.
    i. If sold off what is the best offer to Mike Simpson for it - £200m GBP, £250M GBP or whatever?
    ii. If not sold off what return can Mike Simpson expect to recover, over the 6 years, from the outstanding loans? I.e. £416m GBP over the 6-year term, or 80% or 85% - someone has to give some form of estimate based on a previous experience of payments received.
  4. If we then take a look at the Balance statement of 9.10.2008 and
    a. We assume the offsets at KSF – UK and KSF hf (Iceland) – leaving parental guarantee aside at present – then this would leave as Mike Simpson states a net-
    i. £402m GBP at KSF UK owed to KSF – IOM (Mike Simpson said he expects something back from here now- need a guestimate re time span and amount of cash for this.
    ii. And Zero owed by KSF hf (Iceland) to KSF – IOM
    b. If we then look at Certificates of Deposits - £18m GBP back so far, with £35m GBP outstanding. Now if I am reading correctly what Mike Simpson has said – that although there are cross claims via offsets by some Building Societies, having taken legal advice ‘it remains my position that set off should not be applied and that these amounts should be remitted, via Kaupthing UK, to the Company. I shall continue to pursue the Company’s rights in this regard’. Although I believe there is at least one court case at present due to be heard in March 2009.
    c. So if we look at the Balance statement as given out and I put in my best estimates – of recovery of monies due, as per 6th & 7th columns we then see the following

No. Headings Book Values AmountsRealised Book value amounts to recover My - Estimates of Further recovery My - Estimates of Further recovery
9.10.2008 16.1.2009

    £m GBP  £m GBP  £m GBP  £m GBP  £m GBP

1 Fixed Assets 1.3 0.0 0.0

2 Opening cash 109.8 107.7 0.0
3 Certs of Deposit 53.0 16.2 36.8 25.0 0.0
4 Advance to Customers – loan book 416.0 ? 416.0 *250.0 **332.8
5 Loan red cash recpts 3.2
6 Interest paymnts rec 3.2
7 KSF – UK -net 401.8 0.0 401.8 ***200.0
8 Due Kaupting IOM ltd 0.2
9 Parental Guarantee? 0.0 0.0 0.0 0.0
10 Total Assets 982.1
11 Total - 130.3 475.0
Less cost of realisatin -0.9
Add interest +0.4
cash in hand 129.8
Certs of Deposit post 16.1 2.0
Total cash in hand 131.8
12 Customer Deposits 872.8
13 Due Kaupthing hf - net 0.8 0.0
14 Due other Group coys 29.0 0.0
15 Other non dep creditors 3.3 0.0
16 Liabilities 906.2
17 Net Assets 76.9

18 Cash in hand from above 131.8
19 Plus conversions to Sterling –16.1.09 7.2
20 From IOM Government 150.0
21 From Banks & Build Soc ****80.0
22 New Total 844.0
Sub Total 332.8
23 Less –from co l6 250.0
24 Sub Total 82.8
25 Add 82.8
26 New Total *****926.8
* If sold off
** If not sold off and retained until loan book cleared over 6 years @ 80% recovery
*** Assume 50% recovery based on £1.3b GBP excess on book value
**** Assume 33 Banks Build Soc @£8m GBP pa over 10 yrs
***** Takes no account of – ‘Parental Guarantee’, Cash from life Companies, Cash from UK Government (either as a gesture with no strings attached or loan to IOM Gov, Cash from Icelandic Gov, IMF loan.
***** Takes no account of the eventual costs of Provisional Liquidator and his staff (includes KSF – IOM Bank staff).
Certs of Deposits – another £2m recovered since 16.1.2009

  1. Remember my figures assume IOM Government will not ‘claw back’ – and we should demand this if they want to retain credibility as an International Finance Centre- any of their £150m GBP until all creditors are repaid. Will they come out and say this? Or are they hoping that by satisfying the under £50k depositors totally and giving those above that figure a maximum of 65% back on their investments that they can slide away and get away with that. And perhaps our ‘dear’ Life Companies are hoping for the same thing (and I accept this does not involve individual investors – but I did not know and I am sure probably all other investors through Life Companies did not know that our monies were invested in ‘Group Holdings’).
  2. The IOM Government should be demanding substantial help in the way of contributions from the Life Companies. I.e. - £100m GBP - Are they doing this?
  3. We should be asking Mike Simpson for the average monthly costs incurred by the Liquidator Provisional (inc costs for retention of KSF – IOM Bank staff) so far, or the total costs incurred so far since 8.10.2008.
  4. It will take 6-years to get back the £416m due from the ‘Loan Book’ or £332.8m if it is 80% or whatever.
  5. It will take 10 years for the Banks to pay in their share (if it is £8m GBP per year at £250k per bank per year, for 10 years) unless the amount due in total for up to £20k per depositor does not come to that. But it should include ‘Group Bond holders’ also. Are the Banks/building societies only responsible for the total due to these types of depositors or can the IOM Government demand 10 years at £8m?
  6. Then we have KSF – UK. How long until they wind up the business and payout to all creditors.
    We know that ING want all transfers and cash paid to them by 5.2.2009 (read this somewhere re KSF – UK reputedly from an ING employee – can’t find it again). So shortly thereafter taking into account the various court cases to decide about ‘set –offs’ we can expect some movement. So what time span? – 1year, 2 years, or what is the maximum time required?
  7. Next come the JJB shares – and you can understand the problem for Mike Simpson, and all of us, if he goes for a quick sale – if he could sell them – currently worth £5.1m when they were supposedly worth 13 times that when taken on as collateral - £66.3m – a substantial amount. So how long do you wait to recoup your cash, or part of your cash from that source – who knows?

So in essence we have certain figures out in the open, certain people know more than this, but not the majority – and we want to know before the next court hearing on 19.2.2009 – less than 2.5 weeks away.

As said already how can we vote – if we need to vote – if we do not know the options? It appears there are two options –

DCS Scheme or SoA Scheme, as any takeover of the Bank appears to depend upon what we get back from KSF – UK – and right now no one knows – although we can guestimate.

So as said at the beginning –

· Is the IOM Government willing to say that, if they put in £150mGBP (can we take it that from now on any figure shown in £millions is GBP) – it will be put into either Scheme?
· Are they saying that all depositors – whether individual or through a ‘Group holding’ will be treated the same?
· Will all rights due under a DCS Scheme be transferred in total to the SoA if that is the better option? If the SoA is chosen over the DCS Scheme will the ‘sunset clause’ due to come into effect in October 2009 be reviewed so as to allow the SoA Scheme the same opportunity for creditors I.e. retain the £50k compensation level instead of dropping back to £20k in October 2009?
· Are they saying that all will be treated the same – up to say 65% recovery as muted, then they will’ claw back’ their £150m?
Or are they saying – as they should, if they want to retain integrity, respect, and their position as an International Finance Centre that they will not ‘claw back’ until all creditors are paid 100%?
· Now if the IOM Government do the above and wait until required for ‘claw back’, that means
o They put in their £150m immediately
o The Banks start before the end of this financial year – 31.3.2009 and start putting their cash in – over the timescale determined – and the IOM Government wait for that cash over that timescale?
o They recoup the cash due from the ‘Loan book’ over the 6 years period and receive whatever they and the Provisional Liquidator Mike Simpson think/agree is feasible – as said perhaps 80%/90% more or less. (Unless some company or group are willing to pay that kind of figure just now).
o They await the outcome of the KSF-UK Bank windup – how long – 1 to 2 years? To hopefully recoup at least £200m.
o They await the sale of the JJB shares - how long – 2 to 3 years?
o They await the outcome of the Certificates of Deposits – still due £35m. Mike Simpson believes set off should not apply. So and even with court action pending and perhaps more in the pipeline – surely a result within 1 year? - £25m of the £37m?
o It will take 10 years for the Banks to pay in their share (if it is £8m GBP per year at £250k per bank per year, for 10 years) unless the amount due in total for up to £20k per depositor does not come to that. But it should include ‘Group Bond holders’ also. Are the Banks/Building Societies only responsible for the total due to these types of depositors or can the IOM Government demand 10 years at £8m?
o What is the total value in cash terms due to depositors – whether individual or within ‘Group Holdings’ between £1 and £20k? – This would give us an idea of what the Banks/building societies are expected to pay out.
o What is the value in cash terms due to depositors - – whether individual or within ‘Group Holdings’ between £20,001 and £50k? – This would give us an idea of what the IOM Government would be duty bound to pay out if a straight DCS Scheme.
o One last question relating to the £1000 early payment, now perhaps £10,000 early payment to Depositors. Does this apply to all Depositors – individual and ‘Group’? And two if available to ‘Group’ depositors through the Life companies, what is the chance of being paid direct to our own bank accounts rather than via the Life Companies – where we will have limited access or have to pay extra charges to get this much needed cash out?

· Is Mike Simpson –
o Willing to do his bit re the above –
· The KSF – UK Bank guestimate?
· The Certificates of Deposit?
· Transfer of Rights to the SoA if that is the best option. Will he fight for that?
· The ‘loan Book’ – give out best deal received to sell on immediately and also best guestimate for returns going the full 6 years.
· JJB Shares – what’s best?
· Fight to ensure IOM Government accept no ‘Claw back’ until all depositors – individual and ‘Group Holding’ paid back 100%

o Will he give figures for the average monthly costs incurred by the Liquidator Provisional (inc costs for retention of KSF – IOM Bank staff) so far, or the total costs incurred so far since 8.10.2008.As my figure take no account of the costs that will be incurred by the Provisional Liquidator whether we go for the DCS Scheme or the SoA Scheme.
o Next come the JJB shares – and you can understand the problem for Mike Simpson, and all of us, if he goes for a quick sale – if he could sell them – currently supposedly worth £5.1m when they were thought to be worth 13 times that when taken on as collateral - £66.3m – a substantial amount. So how long do you wait to recoup your cash, or part of your cash from that source – who knows – 2/3 years?

I am not an accountant so apologise for any glaring mistakes, I am not a lawyer so apologise for any technical errors regarding what you can and cannot do.

I presume that the IOM Government, the Provisional Liquidator, all the lawyers/ barristers involved, The Life Companies, the IOM Court all want the best possible result – I.e. 100% recovery for all Depositors of all types.

I am not sure the DAG Committee and the DAG membership will agree with all I have said, but it has been said with the best of intentions, in order that we get all the information we require before we vote (as depositors or Group Holding’ depositors) as to what is best for all us.

So please everyone do not rip apart what I have said for the sake of it, please be constructive and let us try and use this or something else as the way forward at this very important time – remember less than 2.5 weeks to go.

And something has to come out of 19th February, the DAG Committee and others have ensured this now, due to what was put forward and agreed at the court hearing on 29.1.2009.

So let’s make it the right decision, as far as we can.

Best of luck to all,

Gordon 45
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