Summary of Conference Call with Mike Simpson on the 1st May 2009

  • frog
  • 10/10/08 13/09/09
  • a depositor
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Posted: Tue, 12/05/2009 - 22:41

Dear all,

Here is the summary of the call with Mike Simpson on the 1st May.

Regards to all

General Questions

  1. What is the current cash balance for the bank?
    A: £140M with an indication of more to come specifically from the CDs.

  2. How much interest has been earned so far?
    A: On the bank deposits £600K, around £6.4M on the loan book. Some small capital repayments due end of June. Capital repayments mainly occur in 2010 and 2011 .

  3. Any news about the KSFUK deposit from E&Y?
    A: E&Y’s figures are heavily caveated as they are looking to the future and expect a 10% dividend in June or July. At the moment, it isn’t clear what the claim will be as the amount owing by KSFUK isn’t yet agreed with E&Y. The 10% will be based on the agreed balance so would not be 10% of £550M but likely a smaller figure due to set-off etc. Set-off amounts will be hopefully clearer soon. With set-off the balance will be around £330M. Clause 27 is still in effect and requires approval from the UK treasury to release the funds to KSFIOM, but Mike Simpson does not expect that permission to be withheld, but the permission will still have to be sought Mike Simpson says that ‘everyone involved, from the UK government and others’ believe that the money coming to KSFUK is for the benefit of the depositors and other creditors. He is hoping that the UK dividend will be included in the first payout.

  4. What is the latest status on the sale of the loan book and any other interest in the purchase of the bank?
    A: The loan book; no futher interest in buying the loan book right now. Managing the loan book out over the term still is the best option. With respect to the bank as a whole, he was hopeful that a return from KSFUK would re-kindle interest, but there is nothing to report as of now.
    Open Questions

  5. What happened to the update that was withdrawn?
    A: There was an issue with the statement that was put up on the site, and then withdrawn – there will be another statement put up soon.
    The spreadsheet that modeled the payments is something that Mike Simpson is keen to put up on the site [Where is it?]

This Week’s Questions

  1. On page 44 of the Explanatory Statement, Part F, section 33.12.2 it states the individuals with £50,000 or less will be repaid within two years of the scheme becoming effective. This should read within one year as is indicated elsewhere throughout the document. Oversight no doubt.
    A: This is a typo. With regard to the Creditors’ Committee makeup, and other items will require clarity. If there are clause changes, they will be presented in roadshows and this will be the primary vehicle in communicating changes also changes will be put on the bank website. A description on how changes will be communicated will be put on the website.
  2. Has the LP put it to IOMG that it may be worth them purchasing the bank rather than wasting its taxpayers’ cash on the SOA? For the relatively modest sum (approx 100 million) it could rescue its banking industry (circa 70 BILLION) and probably make money on the deal with the returns from KSF UK likely to be more than 50%. The IOM depositors would probably remain loyal to the new bank and lots of bondholders are locked in to long-term bonds so a run on the bank is unlikely. Existing depositors may even be willing to support such a scheme and leave their money in for a period of time. 
 This idea was suggested ages ago I know but it still seems the common sense approach to me. They may try and hide behind the lame excuses offered in the past but surely this option is not insurmountable, as other governments have done it.
    A: This has been discussed early on in the process and also in the last few days, and the IOMG is keen to work with 3rd parties to resolve the situation but are not considering nationalization.
  3. In the case of liquidation (SOA voted down), what is the LP's current best estimate of
- a) the minimum initial percent dividend and
- b) the most probable initial percent dividend
 when would he expect these dividends to be paid?
    A: The initial payment (in the explanatory statement) is 14% and that is based on cash in hand. If the liabilities of the bank change, then this can alter this, but if more money comes in within time, then it will go up. The 14% does not include the £10M for the CDs disputed in a court case. The intent is to chase after the other £35M outstanding and Mike Simpson says that the statement is significant enough to believe that the other £35M will be forthcoming without any more court cases. If the CDs amount comes through, the distribution should be possibly above 20%.
  4. Can he confirm that this dividend part of the first distribution (i.e. before any top-up) would be the same under the proposed SOA? If not, please explain...
    Also in the balance sheet on page 57, it makes little sense. In comparing it to the first one he published (looking only at the book values) - suddenly £154M has appeared as a asset - being the repo agreements with KSFUK, so the assets go from £982M to £1,104M.
    Bearing that in mind, and with the liabilities being the same in both sheets, the bank goes from having net assets of £76M in the first statement - to a liability of £186.2M - surely it should be net assets of £198M? One of these is wrong - and I believe it is the latest one...
    A: The first distribution would happen at the same time regardless of whether SoA or Liquidation. With regard to the balance sheet in the explanatory statement, the repo agreements have appeared as an asset from the original balance sheet put out last year. There is an issue in the spreadsheet and there are set-off issues surrounding the repo agreement. The spreadsheet is wrong.
    Mike Simpson said that they will be looking at this and providing a more accurate spreadsheet.[This is a key point, because even with only 50% recovery from KSFUK, the bank has enough money to pay off all its creditors 100%!!!]
    James Ferris said that the balance sheet does contain errors and they are working through it, but any calculations used for dividend payments were not calculated using this balance sheet but from cash on hand and other info. The net liability line is definitely wrong. The asset realization percentages (74% up to 88%) include likely costs in administering the bank unwinding. There are provisions in the estimate for loan defaults. The calculations on realization are market sensitive and are not available right now. Mike Simpson will not share the info with the DAG lawyers due to the rules that they have to share the info with all creditors.
    There will be a marginal differential between a SoA and Liquidation, but it will not be significant.

  5. When replying to e-mail queries wouldn't it be more efficient, and less expensive in administration costs, to reply by e-mail? Are there legal restraints preventing you from using this method? Rather than sending what appears to be an irrelevant generic two-page letter as an answer to queries, wouldn't it be simpler to say "I don't know" or "I do know the answer to your queries, but am not allowed to tell you at this time"?
    A: A large amount of responses are done by email, but some correspondence has to be done by mail based on the circumstances. Sometimes the answers are not straightforward and they do need caveats on the answer. On a typical letter there are standard paragraphs, but the letters are normally specific responses to the questions.

  6. We know this:
    No. Of Customers No. Of Accounts Amount (£)
    Individuals 5,248 6,538 303,391,801
    Joint 3,114 3,937 174,397,037
    Company 797 1,242 108,515,768
    Trust 229 372 17,664,124
    Insurance Companies 1,970 1,970 289,876,074
    11,358 14,059 893,844,804

Source: Bank Records
And we also know that 7297 accounts have balances of less than £50K and worth £109M, with 3200 accounts having greater than £50K worth £770M (Conf call with LP on 12th Jan) and that 2,000 depositors will be fully paid out with EPS2 (the £10K payment)
This means that there are 5297 accounts with less than £50K and 3200 accounts with more for which company accounts and life accounts must be in there - so the Insurance companies have 6 votes but £300M of the class 2 position, while individuals would have 1200 votes and over £300M of the value. This really contradicts the generally perceived position that the Insurance Companies have the bulk of the cash but not the votes....
Q for Mike Simpson is - is this correct, or if not, could he provide the true vote distribution for all 3 classes.
A: Total deposits from the life companies is about £270M and slightly more than 6 votes – but not much more. James Ferris maintains that it is difficult to access the voting position as the number of accounts don’t directly equate to the number of votes. The SoA requires the votes of the individuals to carry the vote through both in value and in number. The true vote distribution is not clear because of the change in voting classes and PWC are waiting on the voting forms to calculate the distribution. PWC are working to get this but don’t know when they will have the information available. [I get the impression that they will not have the info available until after the vote]
7. Can MS please provide a simple spreadsheet to allow depositors to make a proper comparison (of the estimated timing and amount of each payout) between the SoA and DCS Liquidation routes?
A: The explanatory statement contains the graphs, and the dates for the dividends for the SoA and liquidation being the same.
8. FX holders could actually be paid out in the currency of their original deposit, at least for the first payment. Would this be possible? And if not why not?
A: In liquidations the payments are always paid out in Sterling – if SoA, the terms also state payment in Sterling. The Liquidation date will be around the 27th May if the SoA isn’t voted in. If the scheme is voted out Mike Simpson understands that there would not be another SOA offer in between the 19th and 27th May.
9. Regarding the future appointment of a Liquidator or Administrator, please confirm the basis upon which the firm will be appointed. In particular, will the appointment be determined by a "beauty parade" to determine which firm offers the best value to creditors considering both fees and experience.
A: On liquidation, the process would follow the rules of the companies act. The LPs would organize a Creditors’ Committee to decide on how to go forward. Itr is generally accepted that the LP rolls on to be the Liqidator.

  1. I may have misinterpreted the SoA but I believe that the payments at the distribution dates are maximi. 
My question is what will happen if additional funds are available for distribution on the various dates, which would exceed the maximi specified in the SoA. 
For example on the first distribution date, under the SoA the maximum distribution would be £20k.
    A: This was a reference to the original scheme, that has changes and the maximum cash that can be distributed will be distributed. There is no desire to sit on creditors’ money for any longer than necessary.
  2. Please ask about the distribution to joint account holders under liquidation and SOA. Percentages were specified in Lovett’s 3rd affidavit i.e. 12.5%, 7.5% etc. Do these % still apply, as they were not specified in the latest affidavit? 
In the case of joint account holders would the distribution be 12.5% of the total in the account or 12.5% of the total in the account to one account holder and 12.5% to the other account holder as well (dream on), assuming that these amounts are higher than the minimum SOA/DCS payout. If the joint account holders have, say 3 accounts, how will this affect the distribution? eg.12.5% of all 3 accounts?
    A: The joint account holders’ value would be split (normally 50:50) and the percentages paid would be based on their individual share. Similarly for three depositors they would split the value 3 ways and the percentage applied to each of them.
  3. If the amount available for distribution by July 2009 is higher than the %s specified in the Lovett affidavit, who will decide what and when these funds will be distributed?
    A: As above
  4. If I recall correctly, at the tele-conference on 6th April Mike Simpson advised that under the SOA interest payable to depositors up to 8th October 2008 would be part of the principal for reimbursement. However, this appears contrary to Clause 27.1, which limits interest to 5%, or the contract rate whatever is less. Can he clarify the position under the SOA (and under liquidation)?
    A: If interest has been applied to the account then it is capitalized, but if it hasn’t then it will be limited to 5%. This follows the rules as per a liquidation. This means that interest payable will be the same regardless of whether a SoA or liquidation is chosen. Individuals can claim for the full amount, but the payments will be based on the above – and interest will only be paid if the bank pays out 100%.
  5. Is it the case that under liquidation depositors' entitlement to interest would continue until maturity of their time deposits or the (future) court ordered date of liquidation of KSFIOM whichever is the earlier? What is the case under the SOA?
    A: Grouped together below
  6. Under Liquidation would depositors be entitled to interest after the date KSFIOM went into liquidation until their funds were returned to them? If so how would the interest rate be determined?
    A: Grouped together below
  7. Under the SOA would depositors be entitled to any interest after 9th April 2009 (mentioned in Clause 27.2)? If so how would the interest rate be determined?
    A: Interest will be paid to creditors as described in section 11.3.5 talks about what happens if the claims are paid in full. In this case, the interest will be paid to scheme creditors at the contract rate. This is the same for both the SoA and liquidation.
  8. Is there any material difference between interest entitlements under the SOA and Liquidation?
    A: No material difference.
  9. I should also like to ask Mike Simpson when he would be issuing a comprehensive status report (similar to the recent report issued by E & Y about KSFUK?
    A: E&Y were required under UK law to do this – under IOM law there is no requirement to do this and PWC are wary to do things that increase costs if it is not required. PWC will probably discuss the format of such a report with the Creditors’ Committee (probably sometime in June)
  10. What are the costs to date for the services of the LP and his staff excluding all work conducted on the SOA?
    A: PWC are in the process of updating the costs.
  11. What are the costs to date for the work conducted by the LP and his staff on the SOA?
    A: Less than £1M, though legal costs will come in here, but expecting less than £1M.
  12. Is it intended that the LP will invoice the IOMG for work conducted on the SOA? 
 If it is not intended to claim back depositors' funds paid to the LP in expenditure on the SOA, will he please provide detailed reasoning?
    A: The government is covering its costs and the deemster approved the general principle that the company should bear its own costs as the work on the scheme is being done for the benefit of the creditors. I challenged this as being having no benefit for class 2 depositors and that the bank should charge the government. Also the creditors were not asked if they would approve the exploration of a SoA. Mike Simpson said he was certainly happy to discuss this with the IOM Government.
  13. From what web site are Legal Proxy Forms available from Internet? 
 After completing Legal Proxy Forms and appointing my Proxy Representative could Signed Legal Proxy Forms be e-mailed and to what e-mail address?
    A: The forms can be emailed, but PWC still need the originals (to scheme(?)singers [dot] co [dot] im). PWC would normally need the originals but PDF copies via email may be accepted – but the originals should also be posted. It is anticipated that PWC will recommend to the deemster that emailed copies be accepted. The question will not be asked of the deemster directly prior to the voting. If the emailed copies would alter the result of the vote then this would be an important issue, then PWC believe that the result of the vote would wait until the paper copies are received.
  14. E & Y estimate that the total distributions at KSF will be a minimum of 50%. Given the tightly-interwoven nature of the relationship between KSFIOM and KSF is there any reason to anticipate that the total distributions at KSFIOM will be more than 50% due to other deals between them?
    A: The repo agreements were made though KSFUK and any shortfall would be paid out pari-passu with the other creditors. The repo agreements are treated separately to the cash balance with the bank. The collateral shares will be worth what PWC can get for them. Any shortfall in the collateral, then the difference will be claimed against KSFUK. The collateral involved contains some large shareholdings and there isn’t a very active market for them so it is difficult to value the recovery from these. With regard to the UK loan-book, PWC have no other info as to the makeup of the loan book.
  15. The E&Y also reports that the setoff attempts by UK Building Societies have failed. The report has also stated that the setoff position between KSFUK and KSFIOM will soon be settled. Are you still confident setoff will apply?
    A: Yes – still confident.
  16. The E&Y report states that the CDs bought on behalf of KSFIOM will be fully returned to KSFIOM. Is this true then that the 50M GBP+ of CDs are now going to be returned and what is the timescale as I understand the CDs were short-term
    A: On timeframe on recovery, but expect the money to come in soon
  17. When will he know more about the other disputed CD's?
    A: As above
  18. Under the present SoA, can the parental guarantee from Iceland still be enforced?
    A: Yes. The claim can be enforced. PWC have triggered the claim for £940M although Mike Simpson doesn’t think that there is much money to be had. Mike Simpson had never seen a Parental Guarantee that has been secured, and this one is unsecured as a matter of fact.
  19. In the interests of full disclosure, and given the forthcoming vote on the SOA, please can you now disclose the legal opinion you obtained from UK counsel on the status of in-flight transfers? This will then allow depositors in this situation (approx 10% by value of all depositors) to make an informed decision on whether to accept the SOA and its limitations (under Clause 8) on depositors taking action on assets, which may belong to KSFIOM held in KSF London. Otherwise, the LP is in effect encouraging those with in flight claims to reject the SOA, push for liquidation and then, via the Creditors Committee, require the Liquidator to disclose this document at a later date. Claiming "client privilege" is not an appropriate response to this question, since it would be easy to overcome this and provide all depositors with the full information they deserve to make an informed decision.
    A: Awaiting judgment which is likely in the next few days. Mike Simpson will not provide his legal advice to creditors as he cannot waive legal privilege and in the best interests of all creditors he will not do this otherwise it will provide information to those challenging the issue in court. The case in court is really a test case.
  20. I understand from previous conference calls that it has not been possible to find a buyer on reasonable terms for the Loan Book albeit it is regarded to be of "good quality".
    A:As above. The loan book is still regarded as good quality – the economic conditions have affected the people who have loaned money and PWC have been talking to the loan book customers to ensure that they will be repaid.
  21. Is it the case that the interest rates being charged on the loans is much higher than would currently be the available in the market for new loans? And if so, is there any scope for facilitating individual borrowers remortgaging their loans with others and hence for earlier repayment of loans to KSFIOM? Obviously individual borrowers could not be forced to remortgage but it would appear to be financially beneficial for them and allow earlier repayment to depositors.
    A: This is possible but these loan book customers may not be able to get new loans. There is a panel of other banks who PWC are talking to in order to re-finance their loans early.
  22. Does the latest news from e&y mean Mike Simpson now recommends liquidation over SoA?
    A: Yes. The IOMG have indicated that 70% is the highest that they will be prepared to go. The benefit is that if something goes wrong then there is a benefit to creditors
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Parental Guarantee?

  • investor01
  • 13/10/08 n/a (free)
  • a depositor
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  • Wed, 13/05/2009 - 13:37

I seem to recall reading on here that the DAG team were concerned that under the SoA, the parental guarantee would be regarded as fulfilled by the Icelandic authorities and that they were seeking urgent legal advice on this point.

Above it states: -

"Under the present SoA, can the parental guarantee from Iceland still be enforced?
A: Yes"

Is Mike Simpson's word good enough or do we know if our legal team is still concerned about this? I think it's important as although there are probably only a few Krona and a couple of buttons in the pot at the moment, this may change if EU membership comes knocking...


@Parental Guarantee?

  • Knife Edge
  • 10/10/08 31/05/09
  • a depositor
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  • Wed, 13/05/2009 - 13:54

This subject came up at the London roadshow - see my summary here: http://chat.ksfiomdepositors.org/forum-topic/roadshow-how-did-it-go

As far as I know, we haven't had an answer yet - but I wouldn't take Mike Simpson's word for it above on the basis of the response at the roadshow.

KE


Thanks frog.

  • Wombat761
  • 30/01/09 20/03/15
  • a depositor
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  • Wed, 13/05/2009 - 12:53

Thanks frog.


PWC figures

  • Brabander
  • 15/10/08 31/05/09
  • unspecified
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  • Wed, 13/05/2009 - 10:10

Frankly speaking the PWC figures are a mess and I have no confidence whatsoever in their competence.
Perhaps the explanation is that they have been FORCED to totally concentrate on the SoA and they have therefore neglected their principal job which is safeguarding the interests of the creditors.
1. Their balance sheet of 31 March is a joke as it is full of major errors
2. In Simpson's affidavit of 2 April there was £147m cash, now this has reduced to £140m! At the same time there have been further loan book repayments and interest payments. What is happening?
All we know is that we, the banks creditors, are currently funding massive expenses and we have no control over these (£1m related to the SoA may only be the tip of the iceberg.

There is no doubt that perhaps with the exception of those with £50k or less at stake the bank's creditors have been treated extremely badly.
I repeat again for those who want to listen: "if the bank had been liquidated we would have had legal recourse!" Now we are just lambs being led to the slaughter.
Hopefully this farce will end very soon now!


M. Simpson

  • follow_the_tao
  • 11/10/08 31/05/09
  • a depositor
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  • Wed, 13/05/2009 - 07:05

I post this secure in the knowledge that I don't have the capacity to cross question dear Mr Simpson. This is no doubt to M.Simpson's advantage, I personally don't take prisoners.
But I find, and this is a personal opinion, that his spirit and command of the detail, and his willingness to provide information without hiding behind every obscurantist defence available to be pathetic. PWC obviously agree as he has been given a 'bodyguard' in the form of Ferris, who does appear to be more astute, not necessarily more useful as he's more competent, but at least a more useful sparring partner.
Mr Simpson seems to be trying to put forward the impression that we're on the same side. He doesn't convince me. I can see he is trying hard, I give him 50% for effort, but this guy is low-grade PWC and PWC know it.
As PWC will read this, my suggestion to PWC is they act before there is a debacle and replace him.
Perhaps with a change of personnel PWC might demonstrate their integrity, that is if they have any.


Liquidation over SOA

  • D RAM
  • 13/10/08 01/08/14
  • unspecified
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  • Wed, 13/05/2009 - 05:53

Thanks for the summary but the answer to Q 22 appears incorrect. Mike Simpson continued to favour the SOA over liquidation not ( unfortunately ) the other way round !

Regretably the performance of Mike Simpson on these conference calls does not, in my opinion, inspire confidence ( and I see from reports that he did not inspire at the London Roadshow). Possibly he is competent but is nervous in public ? He hesitates and waffles and doesn't even appear to have quite basic information ( after working with his team since 9 October 2008 ! ). His responses to the questions put to him give the impression that they have been suddenly sprung on him and he appears to lack initiative or any enthusiasm to follow up actively eg can we have any confidence he'll genuinely fight in our corner to get IOMG to reimburse all KSFIOM's costs in relation to the SOA ? It has been raised with him repeatedly in the conference calls but he gives the impression of having difficulty in even grasping the merits of our case ! I'm willing to bet he'll come back and lamely advise that IOMG decline to pay and that will close the matter as far as he's concerned.

There is also the matter of the disappearing "Update" of 28th April ( with no explanation ) and missing spreadsheet , "errors' on spreadsheets ( after a team of 30 persons has been apparently working since 9th October ! ), vagueness about the content of the SOA ( after his team has incured about 1M sterling of costs working on it ! ), and his continuing support for the SOA albeit it now appears ( from reported PWC advice at the London Roadshow ) to offer only marginal benefit to those depositors below 50,000 and little if any benefit to others. ( I hazard a guess that if he had clearly stated he could not support the SOA in its current form then the IOMG would have taken this on board and offered more equitable terms ).

Frankly in my mind there is a large question mark over Mr. Simpson's performance, not least whether he is in fact acting in the best interests of the depositors ( as I understand he is bound to do ). Whereas I can see the wisdom of retaining PWC, who should by now have built up considerable background knowledge, it appears to me that the continued ( costly ) involvement of Mike Simpson should be reviewed.


You're right - typo on my

  • frog
  • 10/10/08 13/09/09
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  • Wed, 13/05/2009 - 14:37

You're right - typo on my part. Mike Simpson still recommends SoA over liquidation for 2 reasons:

  1. Higher initial payments until 70% back
  2. If 70% is not reached, then more money to creditors.

Duplicate

  • frog
  • 10/10/08 13/09/09
  • a depositor
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  • Wed, 13/05/2009 - 15:01

Duplicate