Discussion of call with Mike Simpson on the 23rd February 2009
Sorry for the delay in posting this - I have been travelling.
- What is the current cash balance for the bank?
A: Cash balance has increased to £145M (Sterling equivalent) increase mainly due to capital repayments and interest.
How much interest has been earned so far?
Any news about the KSFUK deposit from E&Y?
A: Nothing yet. Mike Simpson doesn’t expect any movement just yet. It’s noted that the ING transfer is mostly completed.
What is the latest status on the sale of the loan book and any other interest in the purchase of the bank?
A: No new developments. There are no offers for buying the bank open – though once the KSFUK position becomes clear, this may change and Mike Simpson would hope that if the UK return was a big percentage then that would flush out some interest.
Can we have a breakdown of the type and quantity of individual depositors/entities?
A: Mike Simpson has a reasonable split, but the time needed to prepare for the court has delayed the publishing of the new information. Information is avaibale and will be published in the next couple of days on the website as promised
Can we have a breakdown of the balance sheet in multicurrency (£, $ and Euro)
A: Next couple of days. With regard to the lack of comment in the LP’s affidavit on the loss of legal rights, Mike Simpson has noted this fact and commented that the point has been made at the court anyway. With regard to the lack of clarity on the powers that would be available to the LP within the SoA, the opinion of Gabriel Moss QC was that the issues could be solved by leaving the powers of the LP in place during the life of the scheme. It is not clear on whether the powers would be equivalent under SoA as opposed to Liquidation. Mike Simpson cannot comment on the difference between the SoA and liquidation as there is insufficient detail on the SoA. When available, he will be commenting on this. The legal opinion of the depositors would be taken into account – either directly or through their lawyers.
The exchange rate is noted as being an emotive area.
This Week’s Questions
- In his judgment after the court hearing on 19 Feb the Deputy Deemster said “there is no doubt that claims against third parties in this particular case will assume significant importance. It is likely that there may well be claims against regulators, other governmental bodies, possibly directors” The LP is an officer of the court with powers of investigation under section 206 and 207. Indeed he can go back to the court to ask for more powers if necessary There seems to be prima facie evidence that (for example) the FSC and the bank directors failed to take due care when allowing KSFIOM funds to be upstreamed to KSFUK.
My question is: what plans does the LP have to investigate this with a view to bringing legal action for redress?
A: His powers under section 207 can only be used after the winding-up order has been issued. Nonetheless, Section 206 powers are for use in case of the concealing of assets and not for chasing claims of negligence in the case of the above parties. Upon liquidation, the other avenues are open if the evidence suggests that legal action should be persued.
Later in his judgment, the DD said “ this does, as currently advised, appear to be one of those cases where fraud is unlikely to be an issue”.
Does the LP know who has advised him of this?
A: No – he would have read the affadavits since October, and none of them have given any indication of fraud – and Mike Simpson believes that it is this fact which is guiding him.
Does he know if an investigation has been carried out? If so could he share the results of the investigation with depositors? If not could he make enquiries?
A: No – and in relation to the initial answer to this question, it isn’t within his powers to begin this.
Has the LP considered asking the IOM constabulary to rule out any criminal activity?
A: No – as above
2. I understand that it is the intention of LP/MS to discontinue online access to our [frozen] accounts at the end of this month - February 2009. In view of the recent decision of the IoM Deemster, could you please ask MS to leave this service in place until SoA or Liquidation is decided by the Court?
A: The accounts will be maintained for the time being.
3. Did KSFIOM have a Directors and Officers Policy. Please can we have a copy and can you tell us whom the policy is with. I believe as a depositor they are obliged to give this information if requested.
A: Mike Simpson did not want to either confirm or deny the existence of this policy due to the risk that this could void the policy. IF there were a insurance, the policy could be acted on at any time if there were any evidence that it could be called on.
4. Can you confirm that one of the four eyes was present on the island at all times in the 6 months prior to October 8th? Were they ever both off the island at the same time?
A: While Mike Simpson can’t confirm that both were always on the island at the same time, he can confirm that there were some individual days when neither were in the office during banking hours.
5. You have spoken to the Kaupthing Resolution committee and stated that there is little chance of a payout under the parental guarantee. It now seems that German depositors are going to receive at least a substantial proportion of their money and the Dutch are getting it all back. What are the differences between the German situation and ours? Do all creditors not rank equally with regard to any distribution from Kaupthing Resolution committee?
A: The German and Dutch operations were branches of Khf rather than subsidiaries. It seems that the money to pay out the depositors in these countries was loaned to the Kaupthing Resolution Committee by the respective governments. The IOM government has not done this, so the KSFIOM depositors cannot expect to share the same benefit as the German and Dutch depositors.
6. What on average does liquidation costs the creditors in percentage terms and how long it will take to pay out £50k compared to SOA. I know they will be averages but the depositors can then see exactly when we will get our money back and how much will be received over and above £50k
A: There is no industry data giving an average liquidation cost. There has been some speculation that the liquidator would take say 10% of the recoveries, but that is nonsense. The costs of liquidation have to be approved in court and a % number would not be acceptable. This is not possible to estimate due to the un-known factors that will change the amount of effort needed in a liquidation – notably the status of assets (such as the loan book) and whether any legal action needs to be taken, including for the recovery of cash where disputed such as what is happening in March with the UK Building Societies and the CDs.
With regard to timetables of payouts, the liquidation will pay out pari passu, while the SoA will pay out from the ground up, favouring the smaller depositors first. If the DSC is activated, there can be other factors, such as if another bank fails etc.
7. There has been mention of a provisional liquidation creditors’ committee – do you have any more details about this such as the rules and composition etc? How members of DAG can be assured a spot on the creditors' committee. After reading Skandia's latest release, it seems as though they already have their spot.
A: This is something that Mike Simpson will be acting on quite soon. The informal creditor committee will comprise of one representative from the Life Companies, one fully protected depositor (under the DCS), one partially protected (a >£50K depositor) and an unprotected creditor (such as a non-depositor). The group would have no statutory powers. Mike Simpson’s view was that he would almost have to choose randomly as to who these people are (apart from the Life Companies who will suggest their own) but is open to suggestion. He felt that whoever took the role would need to be based on the island for accessibility reasons. (My personal take on this is that the DAG can suggest a make-up of the informal committee which would be considered – he is talinking already to the DAG Lawyer for instance)
8. Who were the auditors of KSF? This business was contingent upon a parental guarantee being in place. The auditors must have signed off the accounts on the basis that this guarantee was valid and legally enforceable otherwise it might not have been a going concern. or did the auditors place reliance on the FSC's opinion as to guarantees? Were any of KSF accounts qualified by the auditors or were they all "clean"?
A: The auditors of KSF are/were KPMG and Mike Simpson has received no information from them of concern about KSF’s business. He is not aware whether the parental guarantee was a factor in their approval of the KSF accounts.
9. Assuming EPS2 goes ahead based on exchange rates at 8Oct08 as EPS1, foreign currency depositors who are in the fortunate position of having less than the equivalent of GBP10k owing, will be paid-up. However if the DCS or SOA is subsequently based on a later date for exchange rates, would they be entitled to a balancing payment from the Liquidator/Scheme Manager?
A: Both the scheme information and the EPS2 rules are unclear and so it is impossible to comment on what would happen regarding this situation. He confirmed that the foreign currency issue is still not clarified.
10. Could the LP please give one or preferably both of the following:
11. Ignoring all risk of bad debt what is the current basic Net Present Value (NPV) of the Loan Book (i.e. the sum of all the cash flows due back to KSFIOM from borrowers until the loan book has been fully run down)? What discounting curve (i.e. Libor) does the LP use for said estimation?
A: There could be a range of NPVs depending on which discount rate is applied. Based on current rates, total cash receipts would be around £460M.
12. Please summarise the cash flows due by month and year (rather than just by year) on the Loan Book until it is run-down.
A: Mike Simpson says that it is pretty difficult to get down to the monthly level as it may expose individual borrowers.
13. As we have with our personal current accounts, etc, would it be possible to have a 'Statement of Account' for KSFIOM, at each of these discussions, to give us an idea of the ongoing state of affairs.
A: This would be a time consuming enterprise.The metrics provided at the beginning of these calls provide generally the same information, so there is no plan to publish a bi-weekly statement.
14. In your affidavit re PWC/KSFIOM costs incurred for 'assistance' to IOMG and Alix Partners in preparation of their revised SoA. How much and when does MS expect to 'bill' them for 'PWC/KSFIOM' work that was associated with the S0A preparation. IOMG said that they would bear all costs involved in this
A: The whole question of the Liquidator Provisionally’s costs has yet to be heard, but with regard to this specific point, there has not been any clarity on who would pay these fees. Mike Simpson says that in the court, there was no indication that the costs were to be paid by the IOM Government. The IOM Government said it would pay its own costs and that of its advisors (such as Alix) the LP doesn’t fall into this.
15. What is the nature of the alleged "set-off" against the debt of KSFUK to KSFIOM shown against "Balances with KSFUK" under intergroup business?
A: This is predominantly the Sub-participation agreements in respect of some of the loans done through KSFUK, but the risk was transferred to KSFUK of around £155M. The repo agreement is a separate item.
16. Could you tell us to whom you speaks (or e-mails) in the UK Financial Services Authority? How senior is this person? Do you know if this person is the one who spoke to the IOM FSC regarding the transfer of £550,000,000? If you don't know this, could you contact the person and ask him? If the person says "not me" could you ask for the name of the person involved? If the person says he can not disclose the name, would you please ask "and why not?"
A: PWC are speaking to the UK FSA at various levels, Mike Simpson is not aware of who was involved in the recommendation in the FSC or FSA. Who did this isn’t relevant to the discussions he is having with them.
17. How many depositors and how many accounts have balances of less than 10k. What percentage of depositors will have been paid in full having taken the revised EPS?
A:This payment will take about 2,000 depositors out at that point. The vote is transferred to the IOM Government – but only as one vote (but not sure 100%).
18. As HMG has targeted E&Y with working exclusively on the transfer of depositors accounts to ING for the first 6 months of the administration process does the LP know if HMG will be paying all the costs of administration for this 6 month period?
A: Don’t Know.
19. With regard to suing the FSC, have you taken advice on this? Can they be directly sued?
A: Under section 33 of the FSA they have a powerful indemnity – they can only be sued if they acted in bad faith. There is no culpability due to incompetence.
20. The issue of in-flight court action was raised again recently. If I understand the cases correctly if they were successful then the money would effectively come from funds KSFUK owes to KSFIOM (but as secured creditor). This would reduce the total deposits in KSFIOM whilst reducing our exposure to KSFUK. This would mean that it is in all our interests for the in-flight case to win. If this is the case can Mike Simpson confirm if he would reconsider his earlier decisions on the issue of in-flight and even support the case against KSFUK and RBS? As the legal opinion you received on this will be paid out of the depositors’ funds, it is reasonable to ask you to share that advice with us.
A: The hearing has been adjourned until sometime in April. If the action was successful, the LP would have to go along with the judgment of the court.
21. We understand that you, as Liquidator provisionally are still not allowed to see the sealed Orders of the Court on 8 October. Can you still not tell us why your hands are being tied? Can you tell us whether you have asked WHY it was considered necessary to seal the orders and WHO in the Treasury asked for them to be sealed?
A: The information as to who wanted them sealed and why is likely to be contained in the sealed documents. It has been indicated to Mike Simpson that this will not affect payments back to KSFIOM.
22. Multipart question:
a) KSFIOM is a company wholly owned by Kaupthing Holdings (IOM) Limited, situated at the same address Yes/No
b) K Holdings is a company wholly owned by Kaupthing Bank hf, Borgatun 19, 105 Reykjavik, Iceland, Yes/No
c) Kaupthing Bank hf is therefore a creditor of KSFIOM to the tune of £10,000,000 Yes/No
d) If c is the case, then will this amount be offset against the Kaupthing hf Parental Guarantee, making K hf just a debtor to KSFIOM
A: The legal aspects of this haven’t been researched yet but if it is legally possible, then this would be done.
23. Is it legally possible to swap our frozen deposit for part of KSFUK loan book, and if so, is there any benefit of doing so?
A: The liquidators have an obligation to treat all creditors equally and doing such a thing could be regarded as providing a preference to a group of creditors. As to the benefit for KSFIOM, that depends on the level of distributions coming out for which there is no indications as yet.