Some thoughts on E&Y (KSFUK) Progress Rep[ort issud on 3.11.2011

Hi All,

Now posting my thoughts on the E&Y (KSFUK) 7.10.2011 Progress Report as an attachment in order to keep the format, hopefully. Decided to go ahead and issue my thoughts rather than wait and make things more complex by waiting on JLs Oct data, data on the dividend by 27.11.2011 and any answers by JLs to my questions inc 10 largest loans.

I felt this Report was less positive in many ways, but E&Y still raised the estimated final dividends for unsecured creditors from between 78 – 86p/£ to 79 – 86p/£. So based on 1% of £246.1m = £2.461m or 0.2719p/£ to us over our Liquidation

I still think there is a possibility that E&Y (KSFUK)’s lower estimate can match the 84.83% of our JLs lower estimate on the loan book. But this report and other data out recently regarding Icelandic Courts with the Landsbanki ruling does not seem good news for either KSFUK or KSFIOM regarding returns from Kaupthing hf. But the Landsbanki ruling and data within the KSFUK Progress Report does suggest there will be some cash available to the Kaupthing hf ’Winding up Committee’ to distribute to non-priority unsecured creditors (us).

Other not so good news from E&Y concerns ‘write offs’. It has always appeared that E&Y and our own JLs have taken different approaches with regard to how they have handled defaulters within the Administration of KSFUK and the Liquidation of KSFIOM. Up until now both ways have appeared to work equally well. But there was a sudden jump of £257m in ‘write offs’ within KSFUK within the past 6 months bringing their ‘write off’ total up to £337m or 7.92%of their unsecured creditors loan book c£4,255m at present. Whereas our ‘write offs’ within KSFIOM are still at £2.6m of c£905m or 0.2873%. A substantial difference. The only good point in this is, as I have stated on many occasions now, E&Y are working with a 22% excess in loan book values over requirements whereas our JLs only have a cushion of 8% in book values over cash required. And as Icecrusher and myself have stated recently there has to be some sort of increase in our ‘write offs’ over the coming months – lets hope any are fairly low in value.

E&Y are continuing to downsize their company portfolio within the KSFUK group through Voluntary liquidations, Compulsory Liquidations, transferring companies to within another group company, Compulsary Administrations and the planning for another four companies to be put into Voluntary Liquidation. And also looking for the opportunity to sell on viable companies if the chance comes. So very few companies left within the KSFUK group not in one of the above categories. I count 7 out of 30. So they are pushing hard but incurring ‘write offs’. They are also continuing to sell on finished developments or trying to get planning modified to change existing part built or unbuilt developments with a view to making them more appealing to would be clients. But again not finding it easy.

And you will see a fair number of yachts and planes still there in their books, added to that is the split in their Property Loan book, 46% in the UK and 54% overseas – my view is that is not good. Whereas it appears that our property portfolio is mainly UK and mainly in London and south East of England. In E&Y (KSFUK) Private Banking, the Property aspect is worth 41% mainly in UK residential mortgages, but LTV (loan to value ratios are rising.

So latest data, to me, not overly encouraging, but they have raised their lower estimate very slightly and not lowered their higher estimate of 86p/£.

They have not given any dates re any more future dividends, but do say they are conscious, that an indication of the timing of the eighth dividend is required by creditors in view of financial planning and/or statutory accounting purposes. In my current Table 11 spreadsheet I am still allowing for 2 x 5p/£ payments from E&Y (KSFUK)in 2012 to our JLs, one by June 2012 and the second by December 2012.

So I still hope we are heading towards an overall return from E&Y (KSFUK) of around the same as our KSFIOM Loan Book, 84.83 – 91.1% and according to my calcs between 95-100% to us from our JLs. But that is obviously looking at the best scenarios.

You may not agree with all or part of the above and that is understandable, because it is as usual made up of fact, hoped for returns, guestimates into the future, no big losses on our 10 large loans and my own interpretation of how things may pan out. And also I have found it harder to extract information from this Progress Report and to try and condense it into meaningful information to pass on to my DAG Colleagues. Hope you get the gist of what I am trying to put forward.

But stay positive – 83.1% (GBP) at least by end of November,

And as usual,

God Bless,

Gordon 45