SUMMING UP THE LOAN BOOK 2011

  • IceCrusher
  • 14/10/08 25/10/11
  • a depositor
  • Offline
Posted: Fri, 10/02/2012 - 15:10

FOREWORD: After writing the following forum-piece a month ago I considered that it was probably overly long and difficult to comprehend so decided against posting it. Having re-read it, I have decided to ‘print and be damned’ anyway; there is little enough relevant comment on the DAG site now so it’s probably something for the stalwarts to get their teeth into. My approach differs from Gordon’s -- and because one sagacious scribe once noted that ‘comparisons are odious’ -- I will say that ‘differs’ doesn’t mean anything other than that; Gordon and I reach similar conclusions by dissimilar routes. I make my comparisons and calculations measured against the original projections posted by the JLs at the outset of this lamentable liquidation so that we can see how reality compares with their forecast; that’s all.

SUMMING-UP THE LOAN BOOK 2011
Thanks to Gordon 45 for his meticulous work on the liquidation figures. We move closer to agreement in our estimations and mutual concern with the High Value Loan. I would just like to mention the unsung heroes of this shameful saga; the mortgagors of KSFIoM many of whom have repaid their loans ahead of time and by so doing have brought early alleviation from great concern to many creditors. Well done and thank you to those upright borrowers.

To date, the JLs have posted write-offs of £2.6m, but unpaid debt still rolls into the future. Some 2 1/3 years have passed since the first dividend was paid, but net losses admitted by the JLs remain less than 1% of the Loan Book’s initial value.

An original forecast of scheduled returns was posted by the JLs in August 2009 and as repayments fulfil each year’s estimate, so new returns move towards satisfying the succeeding year’s forecast. For example: the JLs’ original repayment schedule anticipated returns totalling £139,612,008 for 2011, but 16 months later in December 2010 there still remained £135,062,065 to be repaid during the coming year. Early repayments had been largely countered by deficits during the previous 16 months and only £4.550m was returned ahead of schedule. However, by the end of 2011 this had risen to a total of £129.919m of the original payments due, leaving just £9.693m to roll into 2012. All repayments scheduled for return between August 2009 and December 2011 have now been repaid with the exception of this £9.7m. During 2011 a total of £165,641,269 was repaid to the Loan Book whereas the original schedule projected returns for the same period of £139.612m. Some £40.272m was recovered during the 12 months ending 31st December 2011 from loans that were otherwise due from 1st January 2012 onwards.

The JLs’ earlier report anticipated a low return on the Loan Book of 84.83% and using this figure we can calculate the returns anticipated by the first schedule by decrementing each year’s original forecast by 84.83%, which when summed together comes to £352,892,800 (84.83% of £416m). For 2011, the original schedule forecast a return of £139.612m, of which 84.83% is £118.433m. Monies returned in the 12 month period ending 31st December 2011 came to £125.369m which together with the early payment of £4.550m (see above) sums to £129.919m (93.06%). The JLs thereby gained £11.486m more than their low-case estimate for returns due in 2011.

The sum of scheduled repayments due from the start of the liquidation until the end of December 2011 was £257.193m whereas monies actually due and repaid in this period came to £247.5m (shortfall of £9.693m on 100%). Decrementing all forecast returns by the JLs’ 84.83% for the period up to 31 December gives us £218.176m, i.e., by this date the JLs had anticipated a shortfall of £39.016m (£257.193m minus £218.176m). They originally set aside £14.9m for set-off claims and £2.6m in write-offs so actually improved on their estimated shortfall by £21.5m. In fact during this period a total of £332.875m was repaid – some £114.669m more than their lowest estimate at this juncture. £85.375m came via early repayments from the years 2012 onwards, and the remainder comes from estimated losses not materialising.

At this stage, £257.193 should have been repaid if each year had produced 100% returns, so in that respect (because of the early repayments) we are £75.683m ahead of schedule. It is possible that due to unknown switching of early-paying/late-paying mortgagors, some of the £29.3m may have been transferred (as opposed to rolling-over) into the future; this is beyond our current reckoning, but it is a consideration.

The JLs’ original Aug 2009 forecast scheduled £107.80m for repayment during 2012, but by Dec 2010 early repayments had reduced this debt to £77.703m and by November 30th 2011, that figure was cut again to £46.887m. Early returns totalling £60.913m reduced the scheduled return for 2012 from £107.8m to £46.9m to which is now added the 2011 shortfall of £9.693m bringing the latest (known) sum due for repayment in 2012 to £56.58m. The first schedule projected repayments of £158.807 to the Loan Book from 1st Jan 2012 to the end of the liquidation, but again many mortgagors have repaid their loans ahead of time and cut those repayments due by £75.683m to just £83.124m.

The total debt (gross) repaid to year’s end is £332,875,478 – which is just £20m short of the JLs’ £352,892m low estimate. £416m minus £352.9m contemplates a deficit of £63.1m of which only £2.6m has currently been lost to write-off. In addition to this write-off, the £14.9m allowed for set-off claims has risen to £15.2m (see below for discussion of this topic). It might be easier to envisage that the original Loan Book value of £416m has been reduced by this aggregated £17.8m and that foreign exchange benefits currently offset these write-offs and set-offs by £15m. The Loan Book is therefore effectively worth £413.2m at present. This reveals that we need to get back a little more than just the outstanding loans to achieve 100%; this might be possible via interest payments or forex. At this juncture there is only £83.12m left to repay over the next 26 months (March 2014 is when the JLs indicate the liquidation should be complete with the exception of ‘loose change’) and unless all bad debt has been saved until last, it is extremely unlikely that all £60.5m (£63.1m-£2.6m) will be written-off. It is perhaps time for the JLs to consider revising their lowest estimate upwards. If the JLs’ lowest percentage estimate were applied to the remaining debt of £83.12m then £70.514m would constitute the final return to the Loan Book; the resulting loss of £12.610m would be subtracted from £413.2m (effective value of the Loan Book) resulting in a final figure of £400.590m which represents 96.3% of the original £416m. This depends upon forex benefits remaining in our favour.

At the end of 2011, £83.12m of Loan Book debt remained unpaid (20% of £416m). Further repayments of £20m will reduce that debt to the JLs’ low-case estimate of £352.89m. However, even if half of the outstanding £83m were to be written-off we would still achieve a tad more than 90% of the original Loan Book value providing that Foreign Exchange differentials remain at current levels (not assured) to counter set-offs and write-offs.

I believe that the top 10 loans could be as high as £60m - £65m (quite a chunk tied-up in the single High Value loan) with a further £18m to be repaid by the bulk of borrowers with lesser-value loans. G45’s conservative consideration of a 50% shortfall on the top 10 loans and 10% on the lesser-value loans is reasonable and in my example (using the last forex/write-off/set-off figures) would produce a loss of £34m leaving a net repayment of £379.2m = 91.15% of original loan book value (given the proviso above). A figure of around £30m crops up throughout these various calculations and it a figure that could represent the High Value Loan, but we await word from the JLs on that.

Set-off is a consideration, but less so now that the percentage value of returns to unsecured creditors continues to rise. For example, if a borrower of £1m was also a depositor of £1m, then set-off would have applied and this entity would have received 100% early-on in the liquidation process. A depositor of £1m who had no loan with KSFIoM has now received £832k – some £168k short compared to the borrower with set-off. The JLs posted set-off losses of around £15m since the beginning of the liquidation and there has been no great change. As returns rise above 83.2% the difference diminishes; if returns were to reach or exceed 100% the shortfall due to set-off effectively disappears as the rest of us catch-up.

We can only hope that in the next Report to Creditors, the JLs post transparent facts and figures regarding the high-value loans; the amount of deferred debt; a proper evaluation of expected shortfalls; and their latest estimate of liquidation costs (which must soon be due a further increase as a function of rising returns). The liquidation gets shorter, the court cases fewer – yet their costs go higher. How they imagined that £15m was going to last all the way through to the original finale in 2018 I don’t know. They’ve increased their costs by almost 56% after 3 quick years, so I suppose we should be thankful that a few years have been shaved-off the revised expected duration of the liquidation.

I believe the above calculations to be accurate and reasonable, but they are my own personal interpretation of events so always take professional advice.

Ice

4.642855
Your rating: None Average: 4.6 (14 votes)

Comment viewing options
Select your preferred way to display the comments and click "Save settings" to activate your changes.

Hi Ice, I'll just put the link in here rather than posting...

  • follow_the_tao
  • 11/10/08 31/05/09
  • a depositor
  • Offline
  • Sat, 18/02/2012 - 23:57

the whole article:

http://www.rollingstone.com/politics/blogs/taibblog/why-wall-street-shou...

Yes, I know it isn't immediately relevant. Yes and No. But read it! You'll enjoy it because you enjoy the fact that not exactly everybody is missing the bigger picture. And Taibbi's style is the best gonzo.

I should have posted this after Brabanders reply to my last post. That is why I'm posting this here. Would the few remaining kindly read one of the best and accessible critiques of the reasons behind our fracaso and try and understand.

Yeah I know you're sympathetic Icecrusher, and frustrated. Like I am. We're just waiting for everyman.

Occupy!


Rolling Stone

  • Brabander
  • 15/10/08 31/05/09
  • unspecified
  • Offline
  • Sun, 19/02/2012 - 14:10

Great article ftt!
Having worked all my life in the engineering industry I wholly endorse the contention that the financial services industry has grown much too big for the country's health. Its senior employees have distorted the economy by over rewarding themselves thus creating a massive disparity of salaries between the real wealth producers in this country (the producers of tangible products) and the service providers.

By definition service providers are there to oil the wheels of the wealth producing mechanism. We have permitted the creation of a situation where this wealth creating mechanism has been clogged up by far too much oil and it is now malfunctioning. We should have drained the oil (as it had become a cess pool) and started afresh. Intead we have printed hundreds of billions to further fund the bankers and, in the process, we have devalued all that we have diligently saved for.

I am very pessimistic about any changes in the UK any time soon as the City is very close to the centre of government, both physically and psychologically. Westminster seems to be both unwilling as well as incapable of making any real changes. All we get is rhetoric!

Despite my pessimism we have continued to invest in my family's engineering business (high tech capital equipment) as there are clients for our products in countries which are still successfully growing their manufacturing industry. We almost regards any potential orders from UK clients as an accident as UK industry (the real one) finds it still difficult/expensive to raise funding for this.

This subject is obviously my hobby horse.


Thanks ftt for the link and

  • anrigaut
  • 19/10/08 30/10/09
  • a depositor
  • Offline
  • Sun, 19/02/2012 - 12:36

Thanks ftt for the link and Ice for the pertinent highlight.

"How many times can a man turn his head, and pretend that he just doesn't see? ..."

The answer may well be "blowin' in the wind", but how many are listening - much less acting?


@f.t.t - had to copy this bit!. Ice

  • IceCrusher
  • 14/10/08 25/10/11
  • a depositor
  • Offline
  • Sun, 19/02/2012 - 04:25

"A banker's job is to be a prudent and dependable steward of other peoples’ money – being worthy of our trust in that area is the entire justification for their traditionally high compensation.

Yet these people have failed so spectacularly at that job in the last fifteen years that they’re lucky that God himself didn’t come down to earth at bonus time this year, angrily boot their asses out of those new condos, and command those Zagat-reading girlfriends of theirs to start getting acquainted with the McDonalds value meal lineup. They should be glad they’re still getting anything at all, not whining to New York magazine."


Thanks Ice

  • bellyup
  • 10/10/08 09/01/10
  • a depositor
  • Offline
  • Thu, 16/02/2012 - 07:06

Thanks Ice


60%

  • thesunnysouth
  • 10/10/08 31/05/09
  • unspecified
  • Offline
  • Sat, 11/02/2012 - 15:32

Ice,
i am unsure if you or Gordon can answer this question but I understtand the apprehension relating to returns is mainly due to the Top ten borrowers. My understanding is that a year or so ago the JLS undertook a review of borrowing to ensure that the assets to loan valuation was kept at a maximum of 60%. If this is the case even with costs incurred in liquidating a borrowers assets surely we must be in a position that even if a borrower does default then we would expect a full return in due course?
Thanks for all the efforts of those of you who continue to keep us updated.
John


To - thesunnysouth - 60% LTVs

  • Gordon 45
  • 22/10/08 n/a (free)
  • a depositor
  • Offline
  • Mon, 13/02/2012 - 12:58

Hi John,

Tried to make some comments last night, but it blocked me out and I lost what I had written, so gave up for the night. But back on today.

Got to say that I agree with Icecrusher, re LTVs ratios. applies to UK property. Kept under constant review by JLs, if breaches re interest or loan repayments the JLs take various actions like applying higher interest rates , make part loan repayments, obtain new revised valuations or take legal action to take over control of the property. And as Ice says - it is only worth what someone is willing to pay.

But the outstanding loan book as at last July's progress report showed that Property overall was worth 65.7% of all loans, Aircraft 4.8%, yachts 15.7%, Portfolios 11.2% and Cashbacked & Unsecured 2.2%. Of the 65.7% relating to Property - 53% was in London, 28% elsewhere in UK and 19% foreign. In relation to London valuations had moved ahead from 2009 to June 2011.

RE 10 largest loans, the one remaining £10m> I think between £17-26m, must be in London so perhaps less to worry about than being elsewhere.

Foreign loans - one property in Spain is now the KSF's name - but JLs expect a substantial shortfall in recoveries - if they manage to sell it -so Ice - bang on.

But there are other concerns like the aircraft worth £7.45m and yachts £24.26m. Remember 1 aircraft impounded - not sold yet as far as I know.

We need the 9.1.2012 progress report to see what it says, because the above info was based on the last report 6 months ago covering £154.1m outstanding in loans and we are now down to £82.052m in loans - a big difference.

And the fact that loans due back in GBP are only woth 36% of the £82.052m, even with 'hedging' may have an effect if, as Ice says, people cannot pay up. So more than just he 10 large loans John to think about.

Hope my thoughts are helpful if not all positive,

Gordon 45


@thesunnysouth 60%

  • IceCrusher
  • 14/10/08 25/10/11
  • a depositor
  • Offline
  • Sat, 11/02/2012 - 16:22

Hi John,

I believe the JLs intended to monitor the loan to value ratios (on UK properties) where the ratio exceeded 60%, perhaps they continue to do this. Where there are falling property prices the loan to value ratio may increase and thereby exceed this parameter in which case mortgagors are requested to make capital payments (normally these loans repay interest only until the debt becomes due) so as to bring the loan ratio back in limits. I'm not sure if this requirement is legally binding on the mortgagors finding themselves in this position, and it also appears to be directed only at UK housing property. This would appear to leave non-UK loans and non-housing related loans out of the equation. In any event, if a borrower falls into default then the related asset will only realise whatever someone else is willing to pay for it -- there is no 100% guarantee involved. As you say, there could be aggravated costs in selling a property/properties in a deflated market. Perhaps Gordon 45 may have something to add to my personal interpretation.

Ice


Thank You Ice. The

  • peter and louise
  • 18/10/08 01/09/09
  • a depositor
  • Offline
  • Sat, 11/02/2012 - 10:48

Thank You Ice. The bewildering, ever-changing picture staring us in the face morning, afternoon, and night, now, because of your efforts allows us to understand the bigger picture and make some sort of sense of what has been going on all this time. The big borrowers stand between us and our getting back our 100% returns and the Liquidators are all we have to fight our corner. The price we pay for debtors' defaults is as infuriating as the Liquidators' expenses we have to endure. A truly hapless situation to be in. Never again!! Even so, as the months and years unfold we seem to be inching closer towards the mark. My fingers remain crossed. Nothing else to do now but to watch and wait. Thank you again Ice for all your efforts. Kind Regards. Peter and Louise.


To Icecrusher

  • Gordon 45
  • 22/10/08 n/a (free)
  • a depositor
  • Offline
  • Sat, 11/02/2012 - 10:33

Hi Ice,

An excellent piece of work. As you say I work from another direction to try and give as accurate a final estimate as possible, with the intervening dividends as I think they might occur. In order to try and help people plan through this scenario.

But all my info does come from the very beginning including Mike Simpson's intial issuing of Figures, way back in Jan 2008.

but as said, what you and I are showing, predicting, comes ever closer once again.

Well done again,

Gordon 45


Thanks Ice

  • sambururob
  • 10/10/08 n/a (free)
  • a depositor
  • Offline
  • Sat, 11/02/2012 - 09:14

Excellent work Ice.
Effort is always appreciated.
Rob and Wendy


THANKS TO GORDON AND ICE

  • mikepapa
  • 10/10/08 n/a (free)
  • a depositor
  • Offline
  • Mon, 13/02/2012 - 20:13

Dear Gordon and Ice,

As always, many thanks to you both for your continued analysis and projections.
Personally, i find both of your opinions gives me a much better understanding
as our 'saga' continues to unfold.

Kind regards,

Mike


THANKS

  • everhopeful
  • 11/10/08 n/a (free)
  • a depositor
  • Offline
  • Sat, 18/02/2012 - 04:13

Likewise a big thank you to both of you again.

James