Depositors buying the bank
Hello!
I would like to put on course an idea that was already proposed here before by coleridge.
The idea in basic is simple: using our money in our deposits to buy the bank, thus "restarting" it, and resuscitating it.
I am not a banker, nor am I a business man. But I am trying to recruit all the common sense I can in finding a solution to this plunder. For my mother and father, like I believe for all of you reading, the money deposited in KS&F is a “life-changing” matter, and was the only assurance they had for old age. I think the work done on the site, newspapers, TV and letters is amazing and I applaud all the tremendous efforts done by all. I would like to add to all that hard work this outline for a solution – and I hope we shall prevail.
Before I go into detail I would like to stress out the weakness I see in our main strategy as I see it today. Our main target, as outlined by the core group, is to get the UK and Iceland to acknowledge their responsibility to the situation in IoM. Although that is the only Just solution, I am not sure that’s the course things will take… as a matter of fact I believe that it is in the best interest of the UK and Iceland to wait for the winding up of KS&FIoM, enabling the UK to do as it likes with its assets, and releasing the new Kaupthing bank from its obligation (from September 17th) to its subsidiary. The winding up of our bank will leave us with rightful claims only from the Isle of Man. And we already know they only have 150M Pounds… (we also know we all have a total of 850M pounds in the bank… meaning we will lose 85%).
Don’t get me wrong – I believe we should try and get the UK government to do the right thing… but bear in mind that we have very little leverage to hold any pressure on them. What if they decide to ignore our rightful claim? What then? We can try and drag them to court but it may take years and most of our savings… again, I am not trying to discourage any of you, (and our efforts towards the governments must not cease), I’m just trying to grasp our real situation.
So – who does have an interest in keeping our bank alive?
1. We do! – but that’s obvious…
2. The Isle of Man government – I am sure they would prefer a “happy end” rather than paying out 50K pounds a depositor…
3. The workers of the bank – I don’t know how many were there…
4. Any share holders that weren’t “Kaupthing hf”, if there were any…
In order to get the bank up and running we need to find a way of giving the bank sufficient liquidity – how much money is that?
Well let’s say we all give 5% of our deposited money, that’s 42.5M Pounds… is that enough? I guess not, but if we match that sum with a grant or loan from the Isle of Man (who have an interest in keeping the bank alive, as I said) we can get close to 100M Pounds – coming quite close to the needed Capital Adequacy needed for a running bank. We would then have a live bank! With a viable claim from Ernst & Young, the UK, Iceland and all the other parties now holding our assets…
How much is Mike Simpson asking for the whole bank?... I don’t know. I also may have the math wrong – this all needs to be checked up professionally…
Here is a problem, for instance:
If we get the bank up and running the most natural thing for each individual to do would be to… take the money and run… the bank will collapse in seconds, and we would lose much more money (our deposits would have 5% less… the DCS will be 42.5M Pounds emptier…)
We would be of course stupid to do so, but we may have to find a mechanism making sure we don’t go bankrupt in a split second – for instance: we may decide to fine any large withdrawal done in the first six months… this is of course not ideal, but I think it is the only way to buy time and leave the bank alive.
So – this is the basic idea, and I leave it here for your consideration.
Kaupthing's Swedish Pension arm bought by employees...
This may interest those who's thoughts have been similarly towards KSF IOM.
http://ap.google.com/article/ALeqM5gCoUrMRKVk9rSTT-Bq-4SRfdEDygD947BKH82
STOCKHOLM, Sweden (AP) — The Swedish branch of troubled Icelandic bank Kaupthing said Monday it has sold its pension unit Kaupthing Pension Consulting to a group of employees.
The company said the pension business was sold to a group led by the unit's chief executive Dick Simonsson. The sale price wasn't disclosed.
"Kaupthing Sweden has, for some time, aimed at selling the wholly owned subsidiary KPC. The sale is completely in line with customers' demand for a totally independent pension consultancy," Kaupthing Sweden spokesman Peter Borsos said in a statement.
The new company will change its name but will continue to cooperate with Kaupthing Sweden, it said.
The Icelandic government took control of Kaupthing on Oct. 9 as Iceland plunged into a deep financial crisis, triggered by the global credit crunch and uncontrolled lending among the country's banks.
Kaupthing's Swedish Pension arm bought by employees...
Employees are in a very good position to action Management Buy Outs and note that it's not all the bank that's been bought, e.g. not deposits, but the pension arm of the business. In regard to KS&F (IOM), the liquidator has had more buyers interested in the mortgage book because it couldn't be transferred and moved around like the deposits, which were moved to the UK. The parent guarantee is a better lever to use for depositors to get their savings back.
Buying the Bank...
OK - it won't be worth much in its current distressed state, so we should be able to pick it up for a song!
Question is what we then do with it... Where would we get the cash to fund its operational expenditure and plug its current liabilities (bearing in mind that KSF IOM is in provisional liquidation in the first place because it had solvency/liquidity problems)? Do we have the requisite expertise to run it as a going concern to let it trade out of its difficulties?
(Probably not a realistic prospect after all, sadly!)
Buying KS&F (IOM) Bank
The idea of buying the bank depends on how it's value is assessed. The borrowers from the bank are of value because a potential buyer has a total value of debt owed, an income stream and how long each loan term is. The problem with the savers (depositors) is that the money has been moved out of the bank. At this point these deposits have no value to a potential buyer unless the money is returned. This makes buying the bank to protect the depositors a very unlikey proposition. I have raised money in the City to buy companies but not to buy a bank but I think my experience of buying a company with cash in it, the "cash conssideration", holds true as a principle of what is an asset and how it is valued.
Assets and liabilities
For a bank:
Currently KSFIOM has lots of liabilities, but not sufficient assets to match them. Any buyout would have to address that ultimate issue.
Buying out the KSF is totally unrealistic
In effect, it is impractical / impossible
well, that's the thing...
I have a growing sense that waiting for us to be saved by the queen, alistair Darling or Gordon Brown is the impractical and unrealistic thing to do...
True - we should wait and see where the wind blows on tommorow TSC but we must bear in mind:
Accepting a set back in our deposits (that's the meaning of us "buying the bank"), while gaining ownership, and then settling with the british government may be a path we must walk if we want to save a large precaentage of our money.
Equity
Are you suggesting exchanging some or all of the depositors for shares in KSFIOM?
This would just be exchanging debt liability for equity liability: how would this actually help matters?
Also, do remember that there are tax costs (corporation tax) in funding equity which are not incurred in funding debt.
Buying the Bank
I have been reading some opinions on buying the bank ( how the hell can this happen), I have lesss than 50K and if and when I get my dosh back, I am doing a forrest gump (running as fast as I can) to a more secure bank, no way will I want to keep funds in the banking disaster. No one knows what the next few weeks will bring, I think nothing and the bank will then get wound up, there is a massive fiancial chaos out there ( I work for a bank, I Know), so looks to me no one is going to take it on. What happens to people with over £50K is any ones guess and my heart goes out to you all, I still dont and cant sleep until I get my money back so the pain for you guys must be hard.
Buying the bank
Firstly, the efforts of everyone have been tremendous, and my best wishes to everyone involved. I share your grief.
Secondly, the idea of buying the bank - with vitual money as things stand! - highlights the fact that there are two primary groups of cheated depositors. The first are those whose deposit with KSF falls below £50K, or £100k if in joint names, and the second are those whose deposits well exceed the compensation limit, and in many cases represents their life's savings if not their life's work.
The latter group may have an argument for exploring this idea, assuming of course that means are found to buy the bank and fund its initial working capital, and also preserve the bank's rights to the transfered funds.
The former group I fear are unlikely to see any advantage over waiting for the payout, however longwinded.
Running bank is in the best interest of us all
"small" depositors as "big" ones...
It is hard for me to believe the DCS will follow through... it has been published they have 150M pounds there and that's not even close to what they need in order to pay every one 50K (they would need 300M). if they will give the "small" depositors their money first i imagine "big" depositors will file charges at the IoM court, in order to make sure money is kept for them... and if they'll do it the other way round them there will be no money left for the "small" depositors...
re Running bank is in the best interest of us all
It is dificult to say, as far as I know how much it would cost to pay out on the DCS, we would need details of how many accounts qualify and what was their "value" for the DCS ie many below 50K, some 50k some between 50 and 100k some 100k. Some accounts eg the insurance bonds will be very large but only have one 50k, others eg trusts will be limited to the trust amount. The Provisional Liquidator has no interest in finding this out, so will be difficult to get an accurate figure. 8000 * £50000 gives £400 million, my guess is that the figure would come in at more like £200 million, and maybe even less.
The DCS will take over everyones claims against the bank for the first £50k (etc as appropriate) and will pay out pro-rata, so many pence in the pound, as it receives funding. As the IOM Government have put some money aside that will be available immediately and provide quite a large (for smaller depositors) payment (if my figures are right).
My guess at the balance sheet of KSF(IOM) would suggest that at present (including a sum for the mortgage book) the liquidator would have about 30 pence in the pound available for creditors - so the the DCS would only be funding £34k of a £50k protected deposit.
It is very difficult to say, but my point is that it is going to be difficult to ask every one to wait several years for any money until it can all be obtained for everyone.
Reliable figures and numbers would make it easier to look at this.
Depositors buying the bank
There are two measures of solvency:-
Assets exceed liabilities
Able to meet liabilities as and when they fall due.
In addition a bank must have capital set at a certain level of liabilities, to provide some protection for bad debts.
For this idea to work either
a) the claims on KSFUK and KSFhf have to be assessed as not only good, but also there must be certainty as to how much they will eventually pay out and when. If this is clear then it may be possible to sell the debt at a discount to provide funds, but is unlikely.
and/or
b) The depositors of KSFIOM promise to defer reclaiming their money until KSFUK/hf pay out, and then limit their claims to the proportion paid out.
Depositors who also have loans are in a different position, as they can have them netted in a liquidation, but not under this scheme.
This would work, but would also mean that "small" deposits are not paid out by the DCS (under £50000 entitled to 100%, and part could be paid fairly soon).
The unknown factor is the references to the mortgage book. £30 million of non-performing loans on £200 million book sounds horrendous, toxic debt level. I would expect the level should not exceed £2 million. Someone suggested it might be sold after liquidation is confirmed for 50% book value, but if the book is of quality loans with quality collateral and a low non performing total I don't see why it would not be worth near 100% value.
If the loan book is good, it provides a viable option for the bank to continue, but only if the depositors are willing to all hang together.
My guess is that quite a few will need whatever they can get as soon as possible, a bird in the hand is worth 20 in the bush.
You are right, but
if the depositors become owners than they have an interest in not leaving the bank before it has regained it's capital.
what my suggestion realy means is:
we take 5% or so off from our deposits, making the bank's liabilities smaller by 5%, hence promoting its solvency...
we get capital from IoM who will be happy to pay less than what they would have to if the DCS is activated...
I believe we can settle with UK and Iceland on our assets held by both governments, thus achieving quite a bit of capital and than we can make the bank run again and hpefully be profitable - regainig our 5%!
Loans and book value
The trouble with selling the loan book for a decent price is that the market is very messed up at the moment - lots of banks needing to sell, and a complete lack of banks wanting to buy.
The Icelandic banks have not got very good prices for their foreign assets they've had to sell.
So the basic economics of the situation are being put second to other factors. Of course, it does also mean that there are massive bargains to be had - if someone had the money.
That's my point
We have the money! we just have to make it accesable... and we have an interest in the bank being alive - something a buyer may not have...
re That's My Point
It is very true that now is not the time to sell these assets, but how good were they? Estimate I saw in one post said £30 million of £200 million (it may have been slightly more than £200m) was in arrears and only had £20 million collateral. That did not add up to me, but I have not seen any other estimates.
If the loans are not toxic it would be best to wait, if you are confident that the market is close to the bottom.
Not viable
The good news is that the cost of buying KSFIOM at present would be nominal.
The bad news is legion:
- you can't use the deposits to buy the bank, as you don't have access to them
- buying the bank wouldn't fix the current black hole in the accounts - it wouldn't 'magic' the money back again
Basically, the ownership of the bank isn't the problem at the moment - even if ownership changed it would still be stuck in liquidation unless someone came along with £700m to put in.
The problem would be solved if it was bought by a bigger bank who was willing to take on the liabilities. However, they'd actually want paying to take on KSFIOM. I estimate they'd want circa £700m.
(c.f. ING takeover of Kaupthing Edge UK accounts - ING paid £2.5bn by the UK Government to do so)
re Not Viable
I think you could turn deposits into capital in the bank (eg preference shares repayabel out of London funds), but if its assets (London deposit plus mortgages) have to face write downs it would have to come out of the capital ie the KSF(IOM) depositors original claims.
The advantage of attempting this scheme though would be to try and remove need for liquidation at all, and so give time for recovery of assets and at a fairer market value.
If not depositors then perhaps IoM Government
Ok, but what would happen if the IoM Government took over, i.e. nationalised KSF IoM?
They've already put £150M on the table. If they got a loan of £550M from the IMF it would solve the £700M question, and the bank could go back to its usual business of making money.
In time they would probably recover a good part of what is presently owed to KSF IoM by Iceland and the UK, which would allow them to pay back the principal on the IMF loan, and they would end up owning a 'flourishing' :-) revenue producing bank which could be sold for billions.
And who knows, the bankruptcy of Kaupthing might as well prove to be the best thing that ever happened to Island's economy.
I think we would not cause any damage if the IoM team approached the local government with such idea.
IOM Govt. Takeover + Bank Deposit Insurance Scheme
I agree with the idea of the IOM govt taking over the bank. This is what I suggested in a message 2 days ago. I also suggested that they could apply for a soft loan from the UK govt. so as to be able to set it up and cover their liabilities. This would also provide a face-saving exit for the UK govt.
In addition if they needed to generate additional revenue to cover costs and/or pay the loan back, they could introduce an insurance scheme to cover 100% of bank deposits in the event of failure. In this case they could levy all bank depositors on the IOM by collecting a percentage on interest earnt, as well as continuing to collect compensation funds from the banks.
Given the current economic turmoil, would not many offshore depositors welcome an offshore jurisdiction providing 100% cover on all kinds of deposits eg bonds etc.?
Please note that I am neither a banker, accountant nor politician and therefore some of this might sound naive. However, I do believe that if there is a will on the part of the IOM govt. to satisfactorily resolve this crisis, they they will come up with a creative solution in the event that the current strategy being followed does not bear fruit. Moreover, if they are not putting together some kind of contingency plans to deal with this situation over and above the revised Compensation Scheme (50,000 pounds max. per depositor), then quite clearly, we as a group need to exert some serious pressure on them to do so.
Buy Out
A variation on this theme might, as a matter of principle, be the conversion of some part of the deposit base to equity as part of an overall restructuring to return the bank to solvency and enable it to resume trading.
Buying bank
Its good idea- however it maybe compared to a Captain asking you take the wheel of his tanker and navigate up the North West Passage.
We would need to understand all complex financial tools that got us beached in first place or bin them
Yes, would agree to a buy-out
In principle yes I would consider a buy-out. My deposit was held solely for retirement income, nothing more, and therefore the subject would interest me.
I actually hate living in S.E. Asia and might even welcome the chance to work in the bank. How about that?
Buying the bank idea
I don't know enough of the technicalities but as a brainstorming idea, this looks good. I needed all my funds out for a house purchase but would live with such withdrawal constraints to ensure I got most of my deposit back.
reply to buying the bank
But in order to do this, we still have to get our savings back! If we approached, say, ING Direct, and asked them if they were interested in inheriting us as customers, could we ourselves, and ING on our behalf, then negotiate with British Government for return of those assets for this reason? Would HMG be any more interested in helping us if they knew that it wasn't to simply restore a situation of which the agenda has maybe been to dismantle?