Discussion of Conference Call with Mike Simpson 9th Feb 2009

  • frog
  • 10/10/08 13/09/09
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Posted: Mon, 09/02/2009 - 23:01

Please find below the summary of the conference call with Mike Simpson for the 9th February 2009. The recording of the call will be available on the bank site later.

What is the current cash balance for the bank?
A: Things haven’t changed much – it’s about £140M
How much interest has been earned so far?
A: About £460K in Sterling and $62K in Dollars – the Euro amount is negligible
Any news about the KSFUK deposit from E&Y?
A: No news as yet – though E&Y say that they will take a few months

What is the latest status on the sale of the loan book and any other interest in the purchase of the bank?
A: For the whole bank, this is based (as usual) on the recovery from Kaupthing London – so there is nothing on the table until the situation from KSFUK is clearer. For the loan book, there is no change in interest but the level of discount required is not acceptable. It is in the depositors’ interests to run down the loan book.

Today’s Questions
5. Do the staff have contracts ending in Feb, if so, are you planning to reduce the number on the payroll at that time
A: Yes some contracts end in February, but Mike Simpson plans to keep them on due to the level of work needed to support either a SoA or liquidation. When either activity starts, there will be a lot of administration needed, such as getting proof of debt documents organised and also the payments out. If the money from the UK enables the bank to be sold as a whole, the staff would be needed to run the bank in this instance.
6. Do any of the current directors (or previous directors) have any outstanding loans, via cash/mortgage or their personal directors loan accounts? If you won't offer that up now, will you under full liquidation?
A: None of the KSFIOM Directors have had or have loans with the bank. In the start of 2008, the Directors had deposited £108K, but that went down to £100K by the time the bank went into provisional liquidation.
7. Previously Mike Simpson has said that the costs of running the bank for first 3 months were £900K. Is the current going rate £300K/month? Or has it come down since the first 3 months? If the bank goes into liquidation what is his estimate of monthly running cost?
A: The costs were higher initially, but they are now somewhat lower though they should fall on either liquidation or SoA. The overall costs could increase if legal action needs to be taken to retrieve debts.
8. KSFIOM is in provisional liquidation, is Kaupthing Holding (IOM) Ltd, whose Directors are basically one and the same, also in provisional liquidation. If not, why not? - It is the 'holding' company and trades at the same address as KSFIOM
Kaupthing Holding (IOM) is not in liquidation, but is a creditor of the bank. The credit is unsecured.
9. Is Marriott IOM Ltd (previously Marriott Singer Ltd)(Company number 084667c) who’s Directors are basically one and the same to those of KSFIOM and K Holdings, also in provisional liquidation. If not, why not - it is part of the 'group', and traded at the same address as KSFIOM, before changing address on 14/11/2008. Normally under IOM Companies Memorandum of Articles of Association, there is a clause which states that at least 2 of the Directors must be Islanders, and 1 of these must be the Managing Director - does this clause apply to KSFIOM, and if it does could the nationalities of the Directors and their titles be issued.
A: This has now been spun out of KSF (IOM) and is not connected to the bank.
10. Did any employee of KSF (IOM) transfer or move any sizeable assets in the proceeding 12 months to Oct 2008? Of particular interest would be the final 4 weeks of operation.
A: This has not been investigated, but as the Directors did not make large cash movements, it is unlikely the staff did.
11. Does KSFIOM have any outstanding relationship via loans or anything else, with JJB Sports PLC its subsidiaries or associates other than the share ownership being held by KSFUK?
A: No – there is no other relationship. The Repo agreement is valued about £150M and the JJB shares are only a small part of the overall value. The shares that have been seized are under control of Mike Simpson, but any loss on these collateral shares will be an unsecured credit against KSFUK
12. Who are/were the ‘four eyes’ on IOM between Jan & Dec 2008 and who are/were the 'four eyes' of KSFIOM from Jan 2008 to now Note: Four eyes are two people who have responsibility for the day-to-day operations of a licensed entity. They are subject to vetting by the FSC and must be, and remain, 'fit and proper' and are assessed using the broad categories of ICS (Integrity, competence and solvency). The term more usually used following the introduction of the FSA2008 (which came fully into effect in the Isle of Man on 1 Jan 09) is "resident officer" but as KSFIOM’s was licensed under the Banking Act 1998 Banking general Practices (Regulatory Code) 2005 in Para 10 and 69 or Part I and II respectively will apply which refer to "Four Eyes"
A: They were Aiden Docherty and Andrew David up until the point of provisional liquidation. The ‘four eyes’ is now Mike Simpson.
13. Can we have a breakdown of the type and quantity of individual depositors/entities?
A: Yes, this information will be posted to the website when ready
14. Following the EPS payment of £1,000 how many account holders have now been removed, by fact, they had less than a £1000?
A: Has not been calculated yet. The amount of less than £1,000 depositors may not be an accurate figure for this as some may not have claimed yet. Claims are still coming in.
15. LP has already said that the loan book has a life of about 6 years. What is the analysis year by year?
A: The loan amounts are as follows:
YEAR DUE
2009 £62M
2010 £34M
2011 £168M
2012 £111M
2013 £34M
2014/5 the rest
16. What has been recent experience in KSFIOM of bad debts on loans? 
% in 2008? % in 2007 ?
A: There has been only one loan in the past two years where KSFIOM has needed to take legal action. The quality of the current loan book is very similar
17. Can we have a breakdown of the balance sheet in multicurrency (£, $ and Euro)
A: This will also be published to the web site
18. What is the average rate of interest that you are receiving on the cash balances?
A: It is in the order of 1% as the amounts are placed in very low risk accounts and on short-term deposit. This is to safeguard the cash rather than to maximise interest.
19. Were KSF Staff able to get their money out after the 6th - and if so, has this been returned to the bank as well as other in-flight transfers made after the 6th?
A: All transfers after the 6th have been returned to the bank (or held in KSFUK) including any staff transfers after that date.
20. If the bank is in liquidation and we want to initiate a legal action against KSFIOM, FSC or IoM Government, would Mike Simpson be prepared/obligated to lead such an action on our behalf and could KSFIOM liquid assets fund such an action?
A: If the bank is in liquidation, the creditors’ committee can recommend some action, but the liquidator would take legal advice on any action and then petition to the deemster to start legal action. Any legal action (including the current action against the UK building societies who are trying to argue set-off against the CDs held by KSFIOM) is paid out of liquid assets.

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Wrong Four Eyes

  • chd
  • 13/10/08 30/09/09
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  • Tue, 10/02/2009 - 08:06

Well they certainly chose the wrong Four Eyes. Their "Integrity, competence and solvency", did not come into action when Aiden Doherty reassured my dad (few days before collapse) that the money in London was ring fenced. Doherty must have had some proof or documentation of this if he was so sure.... or was it just hearsay?

I still cannot get over the idea that no one was capable of securing this money.

Thanks frog for all your work. This initiative really gives us a clearer idea what's going on.


Excellent Feedback

  • Alastair
  • 10/10/08 30/09/09
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  • Tue, 10/02/2009 - 00:49

Frog,

Thank you for this it is extremely valuable. Good information and PWC have really improved beyond all recognition.

The information about the loan book is particularly heartening and makes the failure of the IOM Gov't to step and bridge the potential gap all the more surprising.


In a separate discussion after the call...

  • frog
  • 10/10/08 13/09/09
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  • Mon, 09/02/2009 - 23:06

I asked Mike Simpson about his visit to Iceland and the Kaupthing hf. creditors' committee. He told me that the creditors have been told that the return will only be around 25% - so the parental guarantee could be a real issue here! Luckily the exposure of KSFIOM to Khf is only in the order of £10M and that Khf would want to offset.


Frog - please clarify

  • kiwi38
  • 11/10/08 31/05/09
  • unspecified
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  • Mon, 09/02/2009 - 23:16

I don't follow your post to clearly. Are you saying that there may be an opportunity for KSFIOM to make a claim under the parental g'tee on Khf? Or, are you saying KSFIOM had a deposit of £10M with Khf and that they are likely to get back 25% over time?

Either way does the g'tee liability go into the "pot" when the liquidator is distributing funds as if the 65% current payout estimate from KSFIOM is proven to be correct we will have a 35% shortfall or roughly £330M which we should be able to claim under the parental g'tee. Even 25% of that amount (c.£80M) would help us. Can we ask the liquidator if a claim has been made under the parental g'tee and if so how much is he claiming?


Khf

  • frog
  • 10/10/08 13/09/09
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  • Mon, 09/02/2009 - 23:31

The amount owed to KSFIOM by Khf is about £10M after offsetting. The likelihood is that £2.5M will come back eventually from Khf.

The comment I made about the parental guarantee was that if the payout is so low, it is rather unlikely that Khf could honour the parental guarantee even if it wanted to.

The parental guarantee was always a 'last resort' claim. If KSFIOM make a claim against the parental guarantee - it isn't clear to me what status it would have with regard to the other creditors.

The good news though is that the bad debt on KSFIOM's loan book - which has been widely commented on this site to be around 15%-20% is likely to be very much less than that based on Mike Simpson's comments. With a good return from KSFUK, things will not be too bad.

BTW, Mike Simpson confirmed (again) that the 65% did not come from him, and he has no idea where that number comes from other than being used as an illustration of payout.


Frog - parental guarantee

  • kiwi38
  • 11/10/08 31/05/09
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  • Tue, 10/02/2009 - 09:56

Frog I think a key issue that we need clarification on is exactly where a contingent liability like the Khf parental g'tee ranks versus the other classes of depositor in Khf. Mike Simpson should be able to advise on this although maybe bankruptcy rules differ in Iceland? At the moment it appears we will have some level of shortfall from the liquidation of KSFIOM assets (leaving aside any proceeds that may come from litigation of various parties later) so surely if KSFIOM can make a claim against the Khf assets we should have our hand out now? Can you call Simpson and clarify please?


Frog - parental Guarantee again

  • kiwi38
  • 11/10/08 31/05/09
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  • Tue, 10/02/2009 - 14:40

Frog, further to my above posting re you asking Mr Simpson where the KSFIOM guarantee liability ranks alongside the Khf other liabilities and depositors, can you also ask Mr Simpson what legal advice he has received re the enforcability of the parental g'tee. I cannot believe that he has not taken advice on this and I think the answer may be very revealing and point the finger of blame again back at the FSC and possibly the KSFIOM directors who must have had concerns about the basic content of what Aspden referred to last week at the TSC as a "short form guarantee".


Parental Guarentee

  • frog
  • 10/10/08 13/09/09
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  • Tue, 10/02/2009 - 15:01

This was brought up on the first call and his advice was that the parental guarentee was enforceable but due to the moratorium, it wasn't possible to action it. The moritorium currently ends this Friday, but the resolution committee have applied for a 9-month extension and this can go on until Nov 2010 - where then the parental guarentee can be lodged I would think.

See: http://www.kaupthing.com/Pages/4007?NewsID=4144. The creditors' report is quite revealing, Page 28 onward talks about the moratorium.


Clarification

  • bellyup
  • 10/10/08 09/01/10
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  • Mon, 09/02/2009 - 23:27

I need clarification too.

As i see it KSFIOM owes khf 10 million I would like to be wrong on this.


The balance sheet shows a net

  • frog
  • 10/10/08 13/09/09
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  • Mon, 09/02/2009 - 23:33

Having another look at the balance sheet, it shows a net position with Khf of £0.6M as a liability - KSFIOM owes Khf the money.


@frog

  • rbirch
  • 13/10/08 31/05/09
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  • Tue, 10/02/2009 - 09:29

thanks for your coordination and succinct summary ...