Questions for Treasury Minister to be raised in Tynwald

  • investor01
  • 13/10/08 n/a (free)
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Posted: Fri, 26/06/2009 - 10:21

I have been speaking to Juan Watterson and he informs me that he will be asking the following questions of the Treasury Minister on the 30th June :-

How much will the DCS cost the taxpayer, and how much equity would need to be put into KSF to retain it as a nationalised going concern?

Has legal advice been sought as to whether any of the losses suffered by depositors, banks or Government are reclaimable due to action / inaction taken by HM Treasury, or UK or Icelandic regulators?

I think these are excellent and pointed questions and Juan has said that other members of Tynwald will also be asking their own, related ones. I think the first question in particular is one that we have all been asking ourselves on this site.

I suspect that the answers may be the usual blunt, unhelpful affairs that we have seen before. However, the fact remains that within Tynwald itself, questions are being asked that to my mind suggest that this whole affair is being handled badly. This can only help to bring pressure on the IOM Government to swallow its pride and talk to the UK Government and drive through a resolution.

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Updated....Questions to Tynwald 30 June

  • Lucky Jim
  • 13/10/08 31/05/09
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  • Fri, 26/06/2009 - 16:13

Q1. How much will the DCS cost the taxpayer, and how much equity would need to be put into KSF to retain it as a nationalised going concern?

We already know the answers. There will be NO COST to the taxpayer. Indeed there will be no cost to the banks either because the levy on them for the DCS will in fact not be a charge but will be considred as a loan to be repaid (with interest?) from the assets of the bank. (ie: you)

There is absolutely no question of the dead KSFIOM being resurrected. Nationalisation as an option was ruled out ages ago

Q2: Has legal advice been sought as to whether any of the losses suffered by depositors, banks or Government are reclaimable due to action / inaction taken by HM Treasury, or UK or Icelandic regulators?

That will get short thrift! In the chain of who's to blame (Iceland, Alistair Darling, FSA, FSC, Directors) the simple fact is the buck stops four square with the directors & the FSC. With the assent of th FSC it was the directors who made the decision to transfer UNSECURED £532million of KSFIOM assets from Kaupthing hf to KSFUK, knowing as they did that KSFUK was at huge risk if its parent company Kaupthing hf went bust!

The IoM has agreed to an inquiry into the collapse of KSFIOM, but to date it has said this will be in private & its findings will be kept secret! It is in the process of a 4week review of that decision. The DAG will demand the right to give evidence & the findings made public.

The best that our friends in the Tynwald can do is press for a PUBLIC inquiry with the findings being made public.

Now that is something to which I for one really look forward! It will be interesting to see just how the government covers up the damning evidence.

As for HMG, the MoJ is sitting on the fence with regard to the IoM being non-compliant with the views of Gordon Brown & the g20 on the issue of governments protecting savings in the especial context of the global financial crisis.

The MoJ is leaving it to the IoM (as an indpendent adminisitration) to deal with KSFIOM in the manner that Tony Brown told the TSC it would do, namely implement its statutory DSC. The MoJ does not consider that the IoM has done anything of an order to justify intervention under the constitutional powers that it has. The DAG thinks it should. A meeting of DAG reps is being arranged with Straw & Lord Bach to thrash this out (including issues over Iceland & the parental guarantee) The earliest possible date for this will be September.


Lucky Jim your answer to Q1

  • mikeinfrance
  • 12/10/08 28/09/09
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  • Fri, 26/06/2009 - 23:00

Lucky Jim your answer to Q1 is clearly unlikely to be correct since the scenario you present cannot possibly occur other than in the case when the recovery from liquidation is 100%... an unlikely scenario, it would seem, at the present time. Clearly the greater the return through liquidation the greater the amount which the DCS will recover.
It will be interesting though to hear how the treasury minister answers this question.


@mikeinfrance - for DCS recovery doesn't have to be 100%....

  • Lucky Jim
  • 13/10/08 31/05/09
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  • Sat, 27/06/2009 - 07:48

Under DCS:
1. the Treasury puts 'up front' £150million from reserves
2. makes a levy on the banks for the balance

It intends to recover all this from the bank's assets as the government is adamant that at the end of the day neither the taxpayer nor the banks will lose out from this DCS.

The reality is that this DCS is not true 'compensation'; it is solely a mechanism to refund deposits up to £50,000 in lieu of recovery of assets to the same value.

We don't know how much the Treasury will need need to do this (a lot of deposits were well under £50,000) but I believe that it will be in the order of £350million which would not require 100% recovery of assets.

It will be interesting to see if Allen Bell gives the figures on 30 June,


DCS recovery

  • mikeinfrance
  • 12/10/08 28/09/09
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  • Sat, 27/06/2009 - 10:00

The point is that if it's the case that the DCS "stands in the shoes" of each depositor who claims the DCS and then recovers at the same rate the depositor would have done had they not claimed via DCS then if the recovery was say 70% the DCS would have paid out say £50K to a depositor with £50K but would only recover 70% of £50K from the liquidator. I don't know what mechanism there might be for the DCS to recover more than that ? It was estimated many months ago that, if the liquidation paid out nothing at all, the cost to the DCS would be approx £ 250M. From this I can only assume that the cost to the DCS lies somewhere between 0 in the case of 100% recovery and £250M in the case of 0% recovery. Any figure given by Allan Bell can only be an estimate based on an estimate of what the overall recovery percentage might be.
Where your figure of £350M comes from I have no idea.


@ mikeinfrance - that £350 million figure

  • Lucky Jim
  • 13/10/08 31/05/09
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  • Sat, 27/06/2009 - 18:07

Hi Mike,
ref: "Where your figure of £350M comes from I have no idea."

It comes from the the amendment of the Depositors Compensation Scheme Regulations - approved by Tynwald 23 October 2008.

Quote: "As with the Treasury contribution [£150 million], the aggregate of the liabilities of participants [the banks] under the scheme shall be capped. In the case of participants this cap is set at £200 million."


DCS funding cap

  • mikeinfrance
  • 12/10/08 28/09/09
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  • Sun, 28/06/2009 - 11:17

Yes £150M + £200M =£350M This is the maximum funding available to the DCS in its current form. SInce it's already been estimated that, even in the case of 0% recovery from the liquidation ,the DCS would have to pay out around £250M, then the figure of £350M is totally irrelevant, and your reference to it quite meaningless....


If the total recovery from

  • expatfrance1
  • 15/10/08 31/05/09
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  • Sat, 27/06/2009 - 19:17

If the total recovery from KSF assets is just 70% then the contributors to the DCS will have to pay the 30% balance that cannot be recovered from the banks assets. The contributors to the DCS will only receive 100% of their 'loan', or whatever you want to call it, to the scheme if 100% assets are recovered from DCS.

I am not sure where you get the idea that the IOM Treasury and the contributing banks will get all their money back no matter what % of asset realisation is achieved?


Recovery from DCS

  • anrigaut
  • 19/10/08 30/10/09
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  • Sat, 27/06/2009 - 20:28

I believe the real answer is a bit more complicated that.

As I understand it, the DCS Scheme Manager will be able to claim from the liquidation on behalf of each individual depositor who claims DCS and retain up to the amount they have paid out. So, for depositors with 50K or less, the DCS will initially pay out 100% and eventually recover 70% (if that is the total asset recovery) - ie those under 50K will indeed 'cost' the DCS 30%. But for depositors with around 72K or more, at least 50K will be recovered from liquidation and the DCS will thus be totally refunded - ie no cost to DCS (other than a loan). Depositors with 50-71K will 'cost' between 0 and 30%. So the final cost to DCS will depend on the distribution of the eligible claims.

Looked at another way, the scheme is intended to compensate depositors who would receive less than 50K from liquidation - in this example that means anyone with under 71.4K - by topping up to 50K. This real compensation cannot be recovered from the assets (if it were, then the other depositors would be paying for it!). But rather than wait several years to see how much the assets realise and then top up as necessary, the DCS pays out the full 50K (effectively in part a loan) and then gradually recovers whatever has been paid over and above the required top-up.


Expressed as a simple formula

  • Lucky Jim
  • 13/10/08 31/05/09
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  • Sun, 28/06/2009 - 07:37

Expressed as a simple formula , A = x+y
where:
A = KSFIOM assets = >70% of recovery (current estimate)
x = cost of DCS = total payout to depositors with <£50,000.01
y = (A - x)

From this it is self evident that if x = A then there's nothing left after depositors with <£50,000 have been 'compensated' ):

For sake of simplicity I have left out z, the costs of recovery of A, & all the other expenses. z is the one that is going to gobble up y , which is why the Creditors Committee has got to address this factor right from day 1.

If there is an accountant in the house who says this formula is not right, then I am happy to stand corrected if a more accurate formula can be posted ! It might include t, the time taken to recover the assets!!


DCS Funding costs

  • manx-person
  • 17/10/08 31/05/09
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  • Sun, 28/06/2009 - 08:43

Earlier in the thread you stated the cost to the IOMG was zero, then anrigaut explains the position very well.
Then you confuse it again.

i) The creditors committee have nothing to do with the running of the DCS, the creditors commitee can only influence liquidation.

ii)For simplicities sake lets assume 70% recovery, assume no EPS advances and ignore interest expenses for the following scenarios

  1. Depositor with £10K claims on the DCS - cost to DCS £3K
  2. Depositor with £50K claims on the DCS - cost to the DCS £15K
  3. Depsitor with £1M claims - cost to the DCS £nil

So those are the costs to the DCS, but
(a) nobody is obliged to claim from the DCS, no claims means no funding
(b) the government will make a capped contribution in accordance with the DCS regs
(c) there is a bank levy which will assist with its funding

I haven't had a look at the other 'free DAG' site to see if there is similar misinformation stating that 'there is no cost to IOMG' there, maybe someone else could have a loo


Not an accountant, but ...

  • anrigaut
  • 19/10/08 30/10/09
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  • Sun, 28/06/2009 - 08:27

Well, LJ, I'm not an accountant, but I am a mathematician - and your argument appears somewhat circular to me (A = x + y, where y =A - x ??) ! Evidently, as you say, IF x = A .... , but as I see it x will never be equal to A unless KSFIOM recovery is 100%. Maybe an accountant can explain where I am going wrong?

For what it may be worth, here is my version:

For depositors with up to £50K (only):
x = initial cost of DCS = total payout to depositors with <£50,000.01 (= total of their deposits)
A = KSFIOM assets recovered for those same depositors = px where p = > 0.7 (for = >70% of recovery, current estimate)
z = x - A = (1-p) x = final cost of DCS
z = 0 if and only if p = 1 (100% recovery)

This is the cost of compensating <50K depositors. Those with more than 72K will of course cost the DCS nothing in the long run, but nor will they provide the missing funds to refund DSC for the cost of <50K depositors, which seems to be somehow what you are implying. I can write more formulae if you like, but don't think it will add anything...


I love you all !

  • Lucky Jim
  • 13/10/08 31/05/09
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  • Sun, 28/06/2009 - 10:02

"Hello? Hello ? Coooeeeee...! is there an accountant in the house?"

I am beginning to feel a tiny bit sorry for Allan Bell because if it is that complicated to find the right formula from within the DAG I don't think his Treasury is going to be able to give him one for the Tynwald! (:

Seriously, the bottom line is the government is determined that whatever the costs in respect of this DCS it is not going to let it fall on the taxpayer.

As for the role of the Creditors Committee, whilst the Scheme is managed by the FSC (it ought to be managed independently, but it isn't) my understanding is that the CC will not be impotent in the the process of liquidation & the factors that determine how much is recovered & when. For example it must have a say on the issue of costs because in the final analysis it is depositors money that is being spent.

Replacing the liquidator for a start could reduce costs by 25-30%. Either the liquidator has absolute power & control over the liquidation - in which case the CC is just a toothless tiger - or the Creditors Committee has the power to influence what the liquidator does.

I have had no previous experience of 'liquidation' (never had the misfortune to be caught up in it) so if someone who has can tell me that I am missing something then do please put me right!


DCS recovery

  • mikeinfrance
  • 12/10/08 28/09/09
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  • Sun, 28/06/2009 - 14:52

Re Lucky Jim's comment:
"Seriously, the bottom line is the government is determined that whatever the costs in respect of this DCS it is not going to let it fall on the taxpayer."

Could it not therefore be said that since it is quite clear that the DCS can only recover, from the liquidation, 100% of what it pays out if there is 100% return to depositors through the liquidation, it is in the interests of depositors , IOM government, and contributing banks, that the return to depositors is 100%. What therefore is the IOM govt doing to try to facilitate such an outcome ? Nothing as far as I can see. (I assume they still haven't approached HMG re a loan ?)

As far as "finding a formula" is concerned, it would appear to be a pointless exercise since there are too many unknown factors , which can affect the final % recovery, which can therefore only be guessed at, and by all accounts won't be known for years to come

Allan Bell's answer to this question can only be an estimate ( guess) at best. but it will be interesting to see what it is.


DCS Funding costs

  • manx-person
  • 17/10/08 31/05/09
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  • Sun, 28/06/2009 - 10:51

Jim, do you actually listen to other people or read what other people post on these forums at all?
The DCS will cost the IOMG money unless there is a 100% recovery

The extent of the IOMG contribution is capped in the DCS regulations. The timing and profile of any returns from the DCS to IOMG will depend on the profile and nature of the DCS claims received.

in respect of the 20-30% reduction mooted. This is based on comparable hourly rates for other 'top ten firms'

Of course a professional's fees are calculated by rate times hours.

It is easier to control the former rather than the latter...

Your comments in respect of the CC and the DCS are nonsense. Any charges that are be levied by the DCS will be funded from its asset pool. Its source of funding from the liquidation is like any other creditor as a parri-passu dividend.

Did you used to work in Government? You can make statements sound authoritative, yet they have no basis in fact, thats why I wonder.


Lucky Jim

  • chris watson
  • 23/10/08 31/03/10
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  • Sun, 28/06/2009 - 10:32

You state "replacing the liquidator for a start could reduce costs by 25-30%". On what basis are you making this bold assumption?

It seems to me that this assumption runs contrary to common sense. The only thing guaranteed by replacing the liquidator is costs will be HIGHER. There is also the near certain guarantee payments will be delayed. There is absolutely no guarantee that recovery of the bank's assets will be higher, and even if they are, there is absolutely no guarantee the extra recovery will even cover the higher costs associated with the displacement of the current liquidator.

I've been caught up in liquidations before (as a creditor), a long time ago, and I seem to remember everyone involved was upset with the liquidator and the longer the squabble went on, the more the costs racked up, and the less money we got back.

And why is it anonymous individuals such as yourself, who are apparently part of the DST, advising others on the liquidation process when a) you have no money at stake and b) no actual experience of having gone through the liquidation process before (as you freely admit in your post)?!?


anonymity

  • anrigaut
  • 19/10/08 30/10/09
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  • Sun, 28/06/2009 - 10:58

Chris:

For your information, Lucky Jim's credentials are here:
http://www.kaupthingiom-dag.co.uk/

I don't see what knowing his real name would add to this: a name is just a name. Nor do I see why we should refuse the help of non-depositors who have clearly demonstrated their will to help our cause (even if we may sometimes disagree with them).


aringaut

  • chris watson
  • 23/10/08 31/03/10
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  • Sun, 28/06/2009 - 11:06

The fact people wish to stay anonymous is up to them. However, I would prefer to know who I am actually dealing with before taking their advise, especially if they admit they have no experience in the area they are commenting on, yet claim to represent DAG "strategy".

Nor am I telling anyone to refuse such help. But if Grandma Watson had her nest egg tied up in all this (and who is to say she hasn't), I'd be the good grandson and ask her where she's getting all her information from before following a path set down by persons unknown with no monies at risk.


chris w - your grandma

  • manx-person
  • 17/10/08 31/05/09
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  • Sun, 28/06/2009 - 11:28

Of course the opposite is true.
One can't advise someone without knowing their circumstances.
Of course the old adage that free advice is worth exactly what you pay for it is also relevant
If you want to know who someone is before taking their advice then of course thats up to you.
In fact, if you would like some recommendations of suitable people, let me know - I would be happy to make some introductions.


manx-person

  • chris watson
  • 23/10/08 31/03/10
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  • Sun, 28/06/2009 - 11:41

Thanks for the awfully kind offer. Let me think about it and get back to you. Please hold off doing any work on our behalf before instructed, though. I'd not like to be presented with a bill without agreeing to the costs first.