Events leading up to the failure of KSF (UK) and KSFIOM: HM Treasury vs IOM Treasury Minister?

  • anrigaut
  • 19/10/08 30/10/09
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Posted: Wed, 27/06/2012 - 15:54

Almost 4 years after the great collapse, the last two days have seen the publication of two important documents relating to the events leading up to the failure of KSF (UK).

Hot on the heels of the FSA statement announcing its public censure of Kaupthing Singer & Friedlander Limited for a breach of one of its regulatory Principles (http://www.fsa.gov.uk/library/communication/pr/2012/068.shtml ), came HM Treasury's long-awaited Report (or 'note') on the failure of KSF (UK), which can be down loaded here: http://www.hm-treasury.gov.uk/d/fin_stability_icelandic_banks_ksf_report...

The Treasury Report states that:

The Financial Secretary to the Treasury has asked officials to prepare a note on the events around the failure of KSF. He asked that the note focus on the actions of the Treasury and cover certain specified items. They were:
1. to provide a chronology of events ahead of the failure of Icelandic banks in October 2008;
2. to set out why the FSA came to the decision that KSF had breached its threshold conditions;
3. to explain apparent discrepancies in reporting in 2008 on whether Iceland would honour its obligations to protect UK depositors;
4. to provide information on any discussions between HM Treasury, the FSA and the Isle of Man authorities on the failure of KSF; and
5. to assess whether the actions of UK authorities triggered the administration of Kaupthing, Singer & Friedlander Isle of Man (KSF IoM).

Officials have reviewed internal papers as well as information in the public domain to inform this report.

Under the final point, is included the following succinct analysis:

Indeed, following market uncertainties about the Icelandic banking sector, in March 2008, the FSC expressed its concern about KSF IoM’s exposure to the Kaupthing Bank group. Throughout late April and May 2008, the FSC and KSF IoM negotiated the means by which KSF IoM should eliminate its exposure to Iceland. In May 2008, they agreed with the decision of KSF IoM to place a significant portion of their funds with KSF. Whist this removed direct exposure to the parent company; it did not remove indirect exposures to problems with Icelandic banks. Ultimately, it was significant exposure to Kaupthing Bank hf, which failed when it could not meet its liabilities that lead to the failure of KSF IoM.

The IOM of course does not agree. Amazing as it may seem to some (though not I suspect to DAG members!), the IOM Treasury Minister has announced that the FSA notice to KSF (UK) "shows the Isle of Man operation was doomed because of decisions taken off-Island" and thus somehow absolves the IOM authorities and bank directors of all blame: http://www.isleofman.com/News/article.aspx?article=46294&c=pending

The FSA certainly has a lot to answer for in the whole fiasco, including allowing the Icelandic crew to take over S&F in 2005 despite grave warnings from Tony Shearer and other S&F executives that they were not fit persons to run a British bank. But in the final analysis, KSFIOM was ultimately doomed because its directors also chose to ignore the warning signs and, seemingly with the tacit agreement of the FSC executive, placed a big chunk of its funds in a doomed bank (KSFUK), despite the FSC's insightful resolution of May 2008 that all exposure to Kaupthing group should be removed. Responsibility for that fateful compromise, putting (as it turned out, ill-) perceived commercial interests above those of depositors, lies fairly and squarely on-island. It's high time they owned up to it.

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KSF’s final days revisited – in a very incomplete version ...

  • anrigaut
  • 19/10/08 30/10/09
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  • Tue, 17/07/2012 - 19:24

... by the FSA and the Treasury.

http://uti.is/2012/07/ksfs-final-uk-days-revisited-in-a-very-incomplete-...

Sigrun Davidsdottir's latest thoughtful blog begins:

"Almost four years after the demise of Kaupthing Singer & Friedlander, the Financial Services Authority and Her Majesty’s Treasury have finally chosen to throw light on the final days of KSF. Their reports are poor, do not mention key issues related to the collapse of the bank and do not inspire confidence in these two institutions. True, KSF was only a small player in the UK market but it had £2.5bn in deposits from UK deposit-holders when the bank collapsed."

and concludes by highlighting the case of KSFIOM:

"A part of the KSF saga, told in the Treasury report, relates to KSF in the Isle of Man, which was a direct subsidiary of Kaupthing Iceland and not of KSF UK. As early as Spring 2008 KSFIOM was required by the FSC (IOM Financial regulator) to zero its exposure to the Kaupthing Group, and yet the directors continued to forward deposits to KSF UK, where they remained exposed to the Group. KSFIOM’s accounts (September 2008) show £557 million with KSF UK. Had the regulator enforced its requirement and the directors adhered to it then KSFIOM would in all probability still be trading today. Again, broken promises on behalf of a Kaupthing bank and no stringency on behalf of its regulator.

The close connection between KSFIOM and the island’s regulator is of interest. One of the KSFIOM’s non-exec directors was also vice-chairman of the FSC. What seems normal in the Isle of Man would not be acceptable in London.*

All three reports – the two UK reports and the SIC report – show clearly how during the last days the Kaupthing management day after day made promises, which were never fulfilled. That is in accordance with the banks’ behaviour towards regulators in Iceland and their unwillingness to supply full information until the very end. As an explanation of what went wrong in KSF, the Final Notice and the Treasury report definitely don’t tell the whole story of why KSF collapsed, which transferred the burden of KSF-related deposit guarantees to the UK tax payers.

*In 2010, the KSFIOM Depositor Action Group sent a response to the Tynvald’s (the Parliament in IOM) Select Committee on KSFIOM, with valuable insight into the Isle of Man operation. Another valuable source of material re the KSFIOM is the website of the Depositor Action Group."

The rest of the article is well worth reading. Well done Sigrun!


"All clear for KSF (IoM) " says IOM Treasury Minister

  • anrigaut
  • 19/10/08 30/10/09
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  • Sat, 30/06/2012 - 09:38

Now reported on iomtoday:
http://www.iomtoday.co.im/news/isle-of-man-news/all-clear-for-ksf-iom-1-...

Have commented. How about a few thumbs-up?! And maybe other comments?


Thanks for the support and

  • anrigaut
  • 19/10/08 30/10/09
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  • Tue, 03/07/2012 - 09:35

Thanks for the support and contributions to date. Seems the opposition has given up - or lost interest.

It won't change anything. But putting on record our denial of Eddie Teare's distortion of the facts seemed necessary - and we even got some IOM support.

http://www.iomtoday.co.im/news/isle-of-man-news/all-clear-for-ksf-iom-1-...


Public inquiry into wrongdoing and ethics of bankers: petition

  • anrigaut
  • 19/10/08 30/10/09
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  • Fri, 29/06/2012 - 15:55

Not entirely on topic, but for anyone (British citizen or resident) wishing to sign a petition for a full public enquiry into the activities of UK banks and the role of the British Bankers Association, the link is here:

https://submissions.epetitions.direct.gov.uk/petitions/35421


Fit persons to run a British bank?

  • Valentine
  • 18/10/08 31/05/14
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  • Sat, 30/06/2012 - 05:08

In the light of very recent revelations, it would seem that it was not only the 'Icelandic crew' who were not fit to run a British bank, but most of the people who WERE running British banks at the time as well.
In fact, Bernie Madoff (with everybody's cash) would have been a better bet - wouldn't he?

I will try to sign the petition while continuing to look for a safer place to keep my money - Somalia beckons.


Indeed, Valentine ...

  • anrigaut
  • 19/10/08 30/10/09
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  • Sun, 01/07/2012 - 08:39

... those who were - and still are - running British banks:

http://www.ianfraser.org/the-wages-of-sin-bankers-on-the-fiddle/


Banking’s ‘Milly Dowler’ moment

  • anrigaut
  • 19/10/08 30/10/09
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  • Fri, 29/06/2012 - 19:04

Related to above, this is well worth a read (IMHO):

http://www.ianfraser.org/bankings-milly-dowler-moment/

Previous excellent blogs on the same site which make specific reference to KSF and to Tony Shearer's warnings to the FSA include:

http://www.ianfraser.org/why-we-need-a-proper-independent-inquiry-into-u... (to which I added comment)

and

http://www.ianfraser.org/if-hector-sants-gets-the-pra-job-itll-be-the-ul...)


Kaupthing UK directors agree to forego top UK jobs

  • glen07
  • 21/10/08 n/a (free)
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  • Fri, 29/06/2012 - 04:51

Kaupthing UK directors agree to forego top UK jobs

http://www.reuters.com/article/2012/06/26/kaupthing-directors-idUSL6E8HQ...

LONDON, June 26 | Tue Jun 26, 2012 8:14am EDT

(Reuters) - Three directors of the British arm of collapsed Icelandic bank Kaupthing have agreed not to hold senior British bank positions and have escaped a fine at the end of a three-and-a-half year regulatory investigation into the high profile banking failure.

The Financial Services Authority said on Tuesday it would have imposed a "significant" penalty on Kaupthing Singer & Friedlander (KSFL) for having failed to ensure it could meet its liquidity needs at the height of the 2008 financial crisis -- were KSFL not already in administration.

Instead, it said the bank's former chief executive Armann Thorvaldsson, former non-executive chairman Sigurdur Einarsson and former non-executive director Hreidar Mar Sigurdsson would not hold senior roles at authorised British institutions for five years - albeit mainly retrospectively - from Oct. 8, 2008.

"The FSA considers KSFL's failings to be serious as they occurred at a critical period for the financial markets and at a time when the FSA was particularly concerned to ensure it was fully informed about all banks' liquidity," it stated.

The failure of Wall Street giant Lehman Brothers on Sept. 15 2008 caused a crisis of confidence worldwide. In Iceland, where banks had been expanding fast, the government was forced to bail out third-ranked bank Glitnir just two weeks later -- the first of the three to buckle.

KSFL, which provided a range of services including a high interest internet-based savings account called Edge that held over 2.5 billion pounds ($3.9 billion) of deposits at the time, promptly moved its liquidity status to "code red".

But the FSA stated that during four critical days between Sept. 29 and Oct. 2, the UK subsidiary failed to consider or properly monitor a special financing arrangement with its parent company in Iceland under which it could draw up to 1.0 billion pounds at short notice if it needed to.

The FSA said it did not believe KSFL had deliberately or recklessly breached regulatory rules, that KSFL had cooperated with the probe and had not previously been subject to disciplinary action. Therefore it had decided on a public censure.

Other British and international overseas agencies are continuing investigations of parent Kaupthing Bank. ($1 = 0.6427 British pounds)


To glen07

  • Gordon 45
  • 22/10/08 n/a (free)
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  • Fri, 29/06/2012 - 19:52

Hi glen07,

Just on to thank you once more for your very informative information into this whole debacle. Yourself and Anrigaut give out some fantastic but horrendous information in the dealings of these banks, bankers and our 'friends' in the IOM.

Thanks,

Gordon 45


Banned Kaupthing Directors Could Run a Bank Again in 16 Months

  • glen07
  • 21/10/08 n/a (free)
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  • Fri, 29/06/2012 - 04:53

Banned Kaupthing Directors Could Run a Bank Again in 16 Months

http://hereisthecity.com/2012/06/26/banned-kaupthing-directors-could-run...

by The Guardian

The senior management of the UK arm of the collapsed Iceland bank Kaupthing could start to run a bank again in 16 months time, once a ban imposed by the Financial Services Authority runs out.

Following an investigation into the way the operation managed its financial affairs, the City regulator said the three former directors had agreed not to work for five years from the date the UK arm, Kaupthing Singer and Friedlander Limited (KSFL), was placed into administration on 2 October 2008. This suggests they have just 16 months left of the ban left.

The FSA said that it had not found any regulatory breaches against the three – Sigurdur Einarsson, the former non-executive chairman, Hreidar Mar Sigurdsson, former non-executive director and Armann Thorvaldsson, the former chief executive – but that they had agreed not to hold any "significant influence function" for five years from the collapse.

The three, though, would have to reapply to the FSA which would then determine whether to grant them the necessary authorisations to start holding a top role in a bank again.

The FSA's decision notice found that the UK bank breached its rules requiring business to be conducted with "due skill care and diligence" over the way it handled an agreement with its parent company in Iceland which could transfer £1bn to it at short notice over a four day period in the autumn of 2008.

This special financial arrangement, known as a "liquidity transformation arrangement", enabled the UK business to take funds from its parent company but the FSA found that between 29 September 2008 and 2 October 2008 KSFL "did not give proper consideration to or properly monitor" this arrangement.

"[The] financing arrangement with its parent was an important element of the firm's survival in times of crisis and this failure alone would have led the FSA to impose a significant financial penalty were it not for the fact that KSFL is in administration," the FSA said.

UK investment bank Singer & Freidlander was bought by Kaupthing in August 2005 but the business ran into difficulty shortly after the collapse of Lehman Brothers in September 2008. It moved to a so-called "code red" on 29 September 2008, the day that the third largest bank in Iceland, Glitner, collapsed.

This "code red" effectively activated the bank's emergency liquidity arrangement but the FSA concluded it was not monitored closely enough by the UK management for four days to 2 October.

The firm told the FSA on 30 September that it had activated the liquidity arrangement. But, the decision notice said: "The FSA nevertheless considers that KSFL's conduct fell below the requirements and standards of the regulatory system in that it did not exercise due skill, care and diligence by failing to consider promptly and properly whether liquidity stresses in its Icelandic parent Kaupthing Bank would have a detrimental effect on its own liquidity position, as a result of which it failed to keep the FSA updated in relation to concerns about Kaupthing's liquidity".

The FSA said that the £1bn should only have been included in KSFL's calculations for liquidity purposes if the management believed it could be relied upon.


To Anrigaut

  • Gordon 45
  • 22/10/08 n/a (free)
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  • Thu, 28/06/2012 - 19:39

Hi anrigaut,

Just on to thank you once more for the very informative information you provide on these topics along with Glen07.

Gordon 45


Very neatly put Anrigaut.

  • follow_the_tao
  • 11/10/08 31/05/09
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  • Wed, 27/06/2012 - 17:05

And Bob Diamond (Barclays) just got fingered for Libor manipulation,

The problem is the slowness with which these white collar criminals get identified. Just slow enough to let them bury their ill gotten gains.

I've mailed the above to a couple of politicos in the IoM. Along with my own sentiments. So many redundant lamp posts.

Won't get fooled again?


The connection with the regulators.

  • follow_the_tao
  • 11/10/08 31/05/09
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  • Mon, 02/07/2012 - 03:29

http://www.telegraph.co.uk/news/politics/9369042/Bank-of-England-dragged...

These guys were in it together!!!!!!!!!!!!!!!!!

It was a very cosy club, Possibly. What other reasonable interpretation do we have?

This was disaster management behaviour. The IoM, the UK, the US, Europe, all the bankers conspired.

Bell lied.

That is the bottom line.

Anybody that believed Bell was an idiot ( Don't I recall that "Expat" was right in there with him?). That fits with our analysis doesn't it?

So what exactly are our council of warriors doing right now? Gavin?

Do you finally get it readers. Old school to the front! Now is the time to fight.