Discussion of Conference Call with Mike Simpson 26th Jan 2009

  • frog
  • 10/10/08 13/09/09
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Posted: Mon, 26/01/2009 - 21:32

Dear all,

Here is a summary of the call with Mike Simpson JLP of KSFIOM that Alex and I had. This thread is for discussion regarding the contents.

Regards to all.

At the moment, the balances haven’t changed – with around £140M in cash being held. There is no update as to when KSFUK will report on when and how much dividend will be paid.
E&Y have not disclosed neither an approximate percentage of payout or date to any creditor. It seems that the IOM Government’s 65% is just a random projection.
Previous Question
1. DAG website address on bank site

A: This will be done also in the next couple of days.
- The site information cannot be found on the site – can you provide its location?
A2: Mike Simpson is collecting a number of relevant sites to include on the bank site – it will be updated with these sites this week.
2. What would be the total amount, which the DCS would be obliged, under the current scheme rules, to pay out to all eligible KSFIOM depositors in the (hypothetical) event that the bank had no assets to distribute?

Taking into account balances under £50K, joint accounts and multiple accounts, the DCS payment in this circumstance would be just under £240M

Clarification on Previous Questions

Question 5. Banks are required to have counterparty limits with other banks and for intergroup thus a question on why KSFIOM was allowed to make such a large single deposit. The regulator has set legal limits, which are normally a percentage of the Bank's capital. If £555m sent to KSF (UK) were in excess of 10% of the Capital then this would have breached the standard Regulatory guidelines. Can Mike Simpson confirm that:
a. The counterparty assumptions as set out here, are correct?
b. Were KSF (UK) and KSFIOM working within those 10% counterparty limits?
Answer: This has to do with the amount of money sent outside of the Kaupthing group. About 20% of the funds were in 3rd party banks in the form of CDs and other instruments. In addition, there is the loan book.

  1. Clarification of question.
    We understand that there are indeed risk limits posted against intergroup deposits as well as third parties and that the regulator does not allow unlimited intergroup deposits. That is certainly the case with FSA regulated entities in most countries. All prudential regulation follows certain standard guidelines and concentration and counterparty risk are two areas, which are included in this.

To be clear banks are generally not allowed to deposit intergroup without limit. There are counterparty limits to affiliates and for that matter normally with the parent and other subsidiaries of the parent in the UK. The FSA will question financial service companies about "group risk" and may even require them to keep additional capital where group risk is a concern although normally subsidiaries will argue against this. Bankers normally allocate maximum limits to all deposits including those made to affiliates. Now in this case it seems that previously the deposits would have been to the parent so in deciding to deposit with an affiliated bank would have been considered higher risk as normally the parent is stronger than the sub. Thus it follows that KSFIOM should not have made such a large deposit with the UK bank.
Can Mike Simpson confirm that he has investigated the relevant IOM FSA rules regarding intercompany balances and that KSFIOM has complied with them?

A: Until the bank goes into liquidation, Mike Simpson has no powers of investigation into whether the bank has complied with banking regulations. Upon liquidation, he will ensure that these avenues are investigated if required.
Today’s Questions
4. What was the value of the loan for which the JJB shareholding was used as collateral? (Note the LP seized 58M shares, worth £5.1M and were worth approximately 13 times that value back in September)
• What are the prospects of further recoveries in respect of this debt?
A: The repo agreement with KSFUK allowed for these shares along with some others to be held as collateral for a loan via KSFUK. When the value of the shares was not sufficient to cover the loan, KSFUK seized them. KSFIOM claimed some of these shares from KSFUK once the repo agreement was cancelled though the loan via KSFUK still stands, so on receiving the shares, the amount owing (the shares are at 6.5p currently) less the value of the shares will still be demanded from KSFUK. The remainder will therefore be regarded as part of the claim against KSFUK (and will be recovered at the same percentage as the cash holdings for instance).
5. What is the status of the Moratorium that the Icelandic Government has put in place, which prohibits action against Khf?
A: The moratorium for 6 months from the 8th Oct 08 is in place and Mike Simpson will be going to the Khf creditors meeting on the 5th Feb to gain more information regarding this status and other information affecting KSFIOM

  1. In the last round of questions you state the in-flight monies form part of the exposure to KSF UK - can you confirm these monies will be returned as a bulk deposit at full face value or will they be treated the same as the other up-streamed funds e.g. possibly only returned as a % of the total thereby disadvantaging all creditors to KSF IoM.

A: KSF IOM will receive a % distribution of the KSFUK dividend. If in flights had been paid out in full – this would have been a disadvantage to the other depositors.

  1. Is the LP considering legal action against the directors of the bank in regards to breaching their fiduciary duties with respect to: 
1. Allowing such a large deposit to go to KSF UK unsecured
2. Granting ridiculous loans such as the loan for the JJB purchase using shares as collateral.
    A: Until the bank goes into liquidation, Mike Simpson cannot investigate these areas. Upon liquidation, then he will investigate the actions and apply to the court if necessary.
  2. The KSF UK Creditor Committee met on 19 January 2009. Does he have any access to information, which was provided to the CC, and if so does he have any update on the payment of any dividend to KSF IOM from KSF UK?
    A: No further information – Mike Simpson doesn’t expect a clear answer in the near future and doesn’t feel that not being on the CC doesn’t affect the recovery at all or the rights as a creditor. The CC is there to assist the administrator and act as a sounding board. Ultimately it doesn’t make any difference to final pay out.
  3. Repeat question from previous call: 'When will we know how much money KSFIOM will be able to get back from the UK or at least a rough idea?'
    A: As in the intro – no news at present – no one knows, not even the IOM Government.
  4. Aiden Doherty advised us that the loan book consisted only of high quality loans. Please ask as follows:
    • Are there loans in the book, which are now considered to be at risk of substantial under-recovery? 

    • If so what is the estimate of the total amount of under-recovery if the loans are allowed to run to term.
    A: This is a commercially very sensitive area as invitations for the loan book are still being sought and so he cannot comment on this. The information has been available to those who wish to investigate the purchase of the loan book. The focus is on recovering as much as possible
  5. Were there any large movements of savings or shares from KSF (IOM) in the proceeding 12 months by any of the Directors of KSF (IOM)?
    A: Data protection prevents this information. The directors are planning to release a statement regarding this, which will give more information. Probably not before the 29th January

  6. On the 8th of October 2008 how many KSF IoM accounts were ex-Derbyshire?
    A: Roughly 4,500.

  7. How many of these ex-Derbyshire accounts were fixed term accounts, which had not reached term?
    A: Mike Simpson didn’t have the information to hand but said that approximately £100M was in fixed-term deposits which had not reached their term.
  8. Please confirm that all accounts have had statements issued as of 8th Oct 2008?
    A: Almost all depositors have been sent this information though some depositors living in countries where mail could be intercepted and be subject to fraud are being contacted by other means (email, phone etc.). Mike Simpson will look to list those countries on the bank website.
  9. From the statements issued how many depositors have returned their conformation details?
    A: Around 3,500 of the total 11,000 depositors have returned the forms.
  10. Will PwC publish the number of unclaimed accounts, their value and what will become of the funds therein?
    A: This is a long way into the future, but unclaimed monies will be paid into court in case a claim arises in the future.
  11. Are you (or PWC) working on a strategy with the IOM Government such that with the aid of a loan from the UK, the IOM Government could guarantee the liquidity of KSF IOM such that it could recommence normal commercial operations that would lead to a number of viable options for the bank.
    A: No. Mike Simpson’s understanding is that no money will be made available from the UK, but hopefully the IOM Government will come up with something.
  12. Can we have a full breakdown of the loan book in percentage terms (type & value)
    • %: - Based on shares, of the share based loans what other collateral do these loans have,
    • %: - Property loans (residential / commercial),
    • %: - Other mortgages shipping (private / commercial), aircraft etc,
    • %: - Personal loans,
    • %: - Commercial loans.
    • The total % interest only loans.
    A: Parties who can receive this information would need to be interested in buying the loan book – if this was made generally available then it could end up with people being able to identify individual properties and loans due to the small size of the book (relative to KSFUK who did provide this information). Interest payments are ongoing and full payment at the end of the period. 6 years is the maximum loan. There is one yacht and one plane in the list of loans but the loans are not interest only.

  13. The priority given to EY on their appointment was the transfer of depositors to ING. Have EY provided MS with any information on the status of their work?
    A: E&Y have not provided any information yet. ING looking to have fully taken over the KSFUK Edge accounts by 5th Feb – MS not privy to any information on that. Hopefully the KSFUK administrator will be able to turn its attention to the dividend once completed.

  14. Is it correct that E&Y will only be able to give attention to other activities when they have completed the ING transfer and hence any meaningful action to determine likely repayments to non-retail depositors, such as KSF IOM, will not take place until then?
    A: The ING transfer is their overriding objective – though they are carrying out other activities to assist they have a much bigger loan book and greater variety of loans and liabilities. Hopefully get more attention once this transfer is completed.

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loan book

  • dave
  • 14/10/08 31/05/09
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  • Tue, 27/01/2009 - 22:50

In view of all the figures for the loan book what can be obtained I have to ask the question why doesnt the IOM Gov buy the loan book. It has seen the loans and should offer a fair figure rather than the chancers trying to steal the book at a low price because the LP is duty bound to take the best low offer. This must give depositors a better return in the long run. IOM Gov would be investing in the IOM


Dave, The current state of

  • frog
  • 10/10/08 13/09/09
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  • Thu, 29/01/2009 - 13:39

Dave,

The current state of affairs is for the loan book to be run down - it may not be as fast as being bought out of course, but to some extent, the IOM Gov is doing something similar (but not to the full extent) by putting cash into the SoA.


Serious Questions regarding Breach of Banking Regulations Remain

  • steveejeb
  • 10/10/08 31/05/09
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  • Tue, 27/01/2009 - 11:33

[See under Previous Questions at the start of Discussion Topic]

Mike Simpson, after our clarification of the original question (asked in December), regarding counter-party issues. Responded to the revised question that KSFIoM may have breached Banking Regulations (counter-party limits) and if he has investigated the relevant IOM FSA rules regarding intercompany balances and that KSFIoM has complied with them? He answered yesterday:

"A: Until the bank goes into liquidation, Mike Simpson cannot investigate these areas. Upon liquidation, then he will investigate the actions and apply to the court if necessary."

It would appear therefore that serious questions about the actions of the bank, its directors and possibly the role of the FSC/FSA prior to 8th October, may not be revealed until the bank is actually in liquidation. I am sure this is something that our legal and banking advisors will be investigating.


Thanks frog the answers

  • nivit
  • 19/10/08 31/05/09
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  • Tue, 27/01/2009 - 10:39

Thanks frog the answers concerning the Derbyshire were very interesting. It appears that the ex-Derbyshire depositors are an even more important group than I had imagined.


I think this makes it clear

  • expatfrance1
  • 15/10/08 31/05/09
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  • Tue, 27/01/2009 - 07:18

I think this makes it clear that the key to all this is still HMG. Pressure must be put on them to either loan IoM the money, using the KFSIOM deposit in KFSUK as collatoral, or release E&Y from its 'Overriding Objective' to concentrate on the transfer of retail depositors to ING so that they can speed up the administration process there.


are any of these discussions taking place?

  • hippychickrobbed
  • 03/11/08 31/05/09
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  • Tue, 27/01/2009 - 07:57

Do you think any of these discussions are taking place? about the prospect of a loan to the iom ? simpson said in his call it was not an option a loan from the uk, that Isle of man would come up with something else?


I don't believe he said that

  • frog
  • 10/10/08 13/09/09
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  • Tue, 27/01/2009 - 11:14

I don't believe he said that this wasn't an option - just that he wasn't aware of any discussions taking place (or that he is acting on any instructions due to discussions.


I am not sure if they are

  • expatfrance1
  • 15/10/08 31/05/09
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  • Tue, 27/01/2009 - 08:09

I am not sure if they are taking place, most probably not. But that does not mean to say they could not if we keep up the pressure. I am sure Diver will be doing that at the TSC on 3rd February.

People have spoken a lot about the effect to the IOM banking sector if the problem is not sorted out. HMG must be made aware of the knock on effect to the UK banking sector as well if the IOM goes belly up.

To most people living overseas the IOM is the same as the UK, so if they see money being pulled out of there I am sure it would also effect the confidence that they have in the UK banking system as well. The last thing that HMG wants at the moment!


"HMG must be made aware of

  • dawes
  • 24/10/08 31/05/09
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  • Tue, 27/01/2009 - 21:48

"HMG must be made aware of the knock on effect to the UK banking sector as well if the IOM goes belly up."

Yes, people will deposit funds in UK banks and not mistake the IoM for the UK in future (actually I don't think thats very likely). UK banks needs as much deposits as possible, so HMG will be happy.


stockmarket...

  • hippychickrobbed
  • 03/11/08 31/05/09
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  • Tue, 27/01/2009 - 08:21

The isle of man sends funds over to the uk stockmarket, quite a big amount.


Question 11

  • homeless
  • 18/10/08 01/01/16
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  • Tue, 27/01/2009 - 05:08

I think it was only yesterday that Mr Brown said that countries had got to work together to solve the global crisis and yet here we are again hearing that the UK will do nothing in terms of a loan to the IOM and if they can't then who can. Does being a Crown Dependency account for nothing ? Can we have a news article along the lines of ... Mr Brown's actions belie his words !


MR brown said that when?

  • hippychickrobbed
  • 03/11/08 31/05/09
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  • Tue, 27/01/2009 - 06:19

When did brown say that? say he would not give a loan to the IOM? is he totally an inhumane person?. I beleive when conservatives come in things will not be looked at this way, .? human rights?


paying off small depositors

  • iainb
  • 11/10/08 01/02/10
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  • Tue, 27/01/2009 - 05:02

my question about this was not asked

but i note that 240m would pay off everyone in a DCS-type solution

with 140m already in hand and what IOMG has promised what is to stop this happening now and fairly quickly?

this would seem to be a very humane approach as it would allow the very large number of small depositors to walk away from this mess and start to rebuild their lives

the rest of us would then sit back and wait for a political/legal resolution

could this be put to LP next time?

regds


Ian, What question wasn't

  • frog
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  • Tue, 27/01/2009 - 11:17

Ian,

What question wasn't asked?

With regard to payout - the LP must follow liquidation rules (which do not pay out smaller investors first) but only when the bank is liquidated - if a SoA is arranged, he will follow the rules within that.

Anyhow, I'm not sure that it is equitable to pay off only the small depositors first - some of the large depositors are also destitute as well - with all their funds tied up in the mess.


Ian do you realise

  • hippychickrobbed
  • 03/11/08 31/05/09
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  • Tue, 27/01/2009 - 11:22

Ian ,do you realise there are many who have deposited house sales, in my case I have helped you alot , my substantial deposit was in there for 24hrs , never mind intrest whats that.


Ianb, If the bank is

  • expatfrance1
  • 15/10/08 31/05/09
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  • Tue, 27/01/2009 - 07:14

Ianb,

If the bank is liquidated, thus trigering the DCS, the 140m in hand would have to be distributed equally to everybody, including bond holders and corporate accounts who are entitled to very little from the DCS. The liquidator would also have to hold some back for his fees and contingency.

As far as the IOM money is concerned, this must cover any other financial institutions that collapse between now anc October 2009, so as has ben mentioned before it is unlikely that the DCS would see any of this until after then.


question 11

  • hippychickrobbed
  • 03/11/08 31/05/09
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  • Tue, 27/01/2009 - 04:46

what does mike simpson mean that hopefully the IOM govt can HOPEFULLY come up with a plan to make ksfiom liquid themselves.


Well he didn't say that - the

  • frog
  • 10/10/08 13/09/09
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  • Tue, 27/01/2009 - 11:22

Well he didn't say that - the words are mine and Nick's in the summary. What I believe he meant was the amount of the 'loan' that the IOM Government are putting in (the famous £150M)


ofcourse..

  • hippychickrobbed
  • 03/11/08 31/05/09
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  • Tue, 27/01/2009 - 11:28

ofcourse I was dreaming


Thanks Frog

  • SgKZ
  • 10/10/08 31/05/09
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  • Tue, 27/01/2009 - 03:44

No time to reply in full at present but once again thanks for maintaining such a valuable link.

I note that the issue of 'Data Protection' was used in reply to my Q7. I half expected that to be honest. I'm sure that the Directors will in time shed some light on the issue volutarily. If they don't then we might as well take that as evidence of naughtiness.

SG