WERE ASSETS RINGFENCED IN UK BY IOM DIRECTORS?

  • IceCrusher
  • 14/10/08 25/10/11
  • a depositor
  • Offline
Posted: Tue, 18/11/2008 - 15:19

Just listened to a manx radio clip from Tynwald where following Allan Bell's reading of a set-piece statement, MHK David Cannan takes him to task regarding the deposit of over £500,000,000 in Kaupthing UK and makes the point that KSFIOM Directors should have exercised due care in this regard and that the assets should have been ringfenced; Bell agrees with Mr Cannan and stutters out the revelation that due care was taken and as far as they know this was exactly the action that was taken.

Earlier in the clip there is mention of it being unclear "how those funds were deployed as its [KSFUK] own assets is not known."

Is this not a bombshell of a release! Why has it taken 5 weeks for someone to say the assets were placed correctly in the London bank, but were deployed by that bank as their own for reasons that have not been made clear?? Someone has to get to the bottom of this, it's looking more and more sinister...

http://www.manxradio.com/readNEwsItem.aspx?id=28158

http://www.manxradio.com/oNews/uploaded/audio/jr-tynwNovember180552.wma

IceCrusher

5
Your rating: None Average: 5 (1 vote)

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

Ringfenced--who knows?

  • srcoates
  • 10/10/08 31/05/09
  • a depositor
  • Offline
  • Fri, 21/11/2008 - 21:22

It seems from the documents filed at Companies House on Wednesday by Ernst & Young that they are undecided on what basis the deposits were made by IOM in London as evidenced by details on PDF file page 15. See this link to the file

http://chat.ksfiomdepositors.org/forum-topic/ernst-young-statement-ksf-uk

Furthermore the administrators are tasked with an overiding duty for the first six months of administration to prioritise the facilitation of the transfer to ING, relegating the normal duties of an administrator to second place. Later in the document (PDF file page 16) they are saying that there is a strong liklehood of a dividend (note this will be Xp in the £--my words) to unsecured creditors.

Can anyone explain to me what is meant by, in Appendix B (PDF file page 24) the 'Summary of KSF Loanbook' pie chart, Subparticipation IOM 14%?


Kaupthing UK document

  • Alastair
  • 10/10/08 30/09/09
  • a depositor
  • Offline
  • Fri, 21/11/2008 - 22:23

Where are all the accountants (professional and amatuer) to analyses these numbers. Participation on the site is certainly down markedly.

I guess the balance sheet doesn't tell us to much but it does show 17% +/- in cash hopefully not much of this was in Iceland (FSA??) or will be off-set. In which case that should be a good start. Better still they do seem to have left open the relationship with KSF IOM and the cash held on their behalf.

Of the remaining assets anything else is guess work but I assume a default rate even in the current climate can be guessed at and would it be fair to assume that there would be significant security underpinning most of the loan book.

It would be great if someone out there with the relevant knowledge could give us a considered view of the documents.


WERE THE ASSETS TRANSFERRED TO THE UK RING-FENCED?

  • Expat13
  • 19/10/08 31/05/09
  • unspecified
  • Offline
  • Fri, 21/11/2008 - 20:25

Re Ice Crushers comments dated November 18th, 2008

If the KSF IoM assets transferred to Kaufthing Bani in the UK were ring-fenced why is it we are having such a hard time trying to get a handle on the lcation of these assets.
With all the reckless lending to the rich and famous by the Kaufthing Bank in the UK, KSF IoM assets could well be tied up in loans. Just food for thought.

BM


icecrusher, can i tell you

  • expat
  • 10/10/08 31/05/09
  • unspecified
  • Offline
  • Fri, 21/11/2008 - 20:08

icecrusher, can i tell you that that very question has been asked by the iom team so often its amazing, i have heard that it is ringfenced, i have heard it is in trust, i heard that is not the case! I have never seen anything to support the point that it was ringfenced or otherwise! I often wonder about the sealed order though.
i spent weeks trying to fathom it out and all i can ever come up with is that the fsa probably knew that an icelandic torm was brewing and wanted control of all the assets. that is i hasten to add just an opinion and i never unearthed anything one way or the other. its one of the reason this affair needs a real enquiry in my view.


transfer of 557M

  • Codpeace
  • 23/10/08 30/11/12
  • unspecified
  • Offline
  • Tue, 18/11/2008 - 16:45

Do we know when the transfer was made? Was it one transaction or many? Would this help us by showing that they knew what was happening and took advantage of the funds in IOM - I still think that other forces were in play to get as much cash in the UK and this left us in a hole..


£557M transfer

  • mikeinfrance
  • 12/10/08 28/09/09
  • a depositor
  • Offline
  • Fri, 21/11/2008 - 17:42

In reply to your question "Do we know when the transfer was made?" I came across this today:
http://www.iomtoday.co.im/politics/FSC39s-role-in-KFS-saga.4682317.jp

Although it was published on 11th Nov it's the first time I've seen it.

relevant extract:

Treasury Minister Allan Bell, replying to further questions from Mr Cannan, insisted that the FSC did not issue a formal direction for KSF (IoM) to transfer £500 million from the parent Kaupthing bank in Iceland to the London subsidiary.

But he said from the end of March to mid April discussions took place between the FSC and the bank on reducing its net exposure to Iceland and on May 7 a letter was issued to the bank requiring that exposure to Iceland should be removed.

Mr Bell continued: 'During the rest of May and into June, the exposure was eliminated and replaced with an exposure to KSF in the UK, except for a residual claim on Iceland which was allowed to remain on the understanding that it was offset by an equivalent amount of borrowing.


557m

  • Codpeace
  • 23/10/08 30/11/12
  • unspecified
  • Offline
  • Fri, 21/11/2008 - 19:14

Thanks for the link and the information. I surmise from this that it was done some time ago and It still looks as thought the FSC had a hand in what was going on and they, in all probability, were being led by FSA.

In light of the withdrawal demands being made by depositors why did Doherty not recall some, if not, all of these funds to protect the bank that he was responsible for? Would this not be expected and reasonable if the bank you were running was having such demands?

Do we know if he actually did request such a transfer from UK?

It seems that forces were in play to keep the funds out of our reach......


£557M

  • mikeinfrance
  • 12/10/08 28/09/09
  • a depositor
  • Offline
  • Fri, 21/11/2008 - 20:11

My understanding is that Docherty claims that he knew nothing of the impending fate of KSFUK regarding its being taken into administration so when that did happen on 8th Oct. the £557M was effectively frozen and therefore inaccessible to KSFIOM.Docherty says in his 2nd.affadavit "In the normal course of its business the company maintained liquidity by manging from day to day its deposits with KSF in London.The arrangements in place with KSF allowed the company to pay its debts,including its liabilities in respect of depositors,as and when they fell due." ...He goes on to say say he tried unsuccessfully to get funds from Kaupthing in Iceland.

One question would be "what exactly were the "arrangements in place with KSF" that he refers to" ?
Another would be "since the FSA was fully aware of the presence of the £557M in KSFUK why did they not advise the FSC and/or KSFIOM that they were planning to put KSFUK into administration,thus allowing the funds to be moved to IOM" ?
Then of course there's the question of why sealed papers were used!


Majority of withdrawls through KSF UK

  • Alastair
  • 10/10/08 30/09/09
  • a depositor
  • Offline
  • Fri, 21/11/2008 - 19:27

Just a thought but since I assume the majority of the withdrawls where being made in GBP and these went through KSF UK where they just expecting to draw down on the 557m rather than transfer it back.


Tony Brown thinks not

  • Bottom Dollar
  • 17/10/08 31/05/09
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 16:07

On 05 Nov, this was the opinion of the chief minister:

"In reply to a question from David Cannan (Michael), he confirmed that the money was now in the hands of the UK bank's liquidator.

Asked whether the money could be recovered, Mr Brown replied: 'I suspect we will be unsuccessful but that doesn't stop us putting the argument.' "

So perhaps we shouldn't read too much into Allan Bell's stuttering response on the clip. Unless they now believe differently to what they believed 05 Nov.


Who believes what though...

  • IceCrusher
  • 14/10/08 25/10/11
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 16:29

There seems to be a standing disagreement between Mr Bell & Mr Brown. The former has recently posited his opinion that the funds will be recovered and that the DCS will not be necessary!

The IoM have sent three delegations to London now and offer very little in reward for their travels. Mr Tony Brown even met with Jack Straw, but the report was hardly spell-binding. However, this radio clip is the latest release from the IoM Govt. and could be the result of the slow drip-feed from Ernst & Young. It could also coincide with the IMF news as well effectively putting a few £million back in HMG's pot.


Very Confusing. In Allan

  • expatfrance1
  • 15/10/08 31/05/09
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 15:51

Very Confusing.

In Allan Bell's prepared statement he says that apparently the deposits in KSFUK were not ring fenced.

Then in his answer to Mr Cannan he implies that they were protected in some way.


maybe not sinister

  • skintagainnow
  • 10/10/08 31/05/09
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 15:37

look on the bright side, this maybe a way of the governmentS to come out of it, KSF IoM is a secured creditor therefore the deposit will be returned and not go into the general ceditors pool.


Maybe not sinister

  • Saddest
  • 23/10/08 31/05/09
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 15:40

Doesnt it sound like they THOUGHT they did that, but in reality, they find themselves in a different position i.e. something has not gone according to plan


Just listened to it again and

  • skintagainnow
  • 10/10/08 31/05/09
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 15:49

Just listened to it again and the last statement is "as far as they were aware at the present time, that's exactly what the directors did".

If anyone is looking for a way out via the backdoor - then what better way to term it as a return of a secured deposit.

+

thinking & vibs :-)


Just listened to it again and

  • manksman
  • 01/11/08 31/05/09
  • not prepared to answer
  • Offline
  • Tue, 18/11/2008 - 16:29

My thought is that Mr Bell is saying
1. The money in KSF UK was not ring fenced (ie ranks as an ordinary unsecured deposit)
2. The Directors of KSF IOM thought they were protecting the money by taking it out of Kaupthing hf and sending it to London. (But only in the sense that KSF UK was likely to be safer than Iceland - and this may yet prove to be true - depending on how much KSF UK sent to Kaupthing hf)

If I am right, this is not a change on what I already thought.)


Duty of exercising care, ringfencing etc new

  • IceCrusher
  • 14/10/08 25/10/11
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 17:11

Is it possible that Mr Bell interrupted Mr Cannan at that specific point so that he could interject a comment about the Directors having exercised due care (in changing location, if that is the inference) before Mr Cannan could directly specify that it was the Directors duty to ensure the assets were ringfenced? (Thus avoiding an answer to that more difficult question).

Any ideas why, from the prepared statement, Mr Bell made comment of the deployment of the asset as their own (UK bank). It sounds contradictory, if he says it was not ringfenced, but goes on to say they deployed it (as though they should not have).

This was an awful lot of money - representing most of our savings if you will - and I for one (and Mr Cannan for another) am extremely interested in how it came to be in the UK bank, unsecured, at a time that was extremely fortuitous to the Treasury.

Sealed Orders of the High Court; failing to bring John Aspden before the bar to answer questions on the FSC's involvement; raising the DCS immediately the bank failed; adding a taxpayers burden of funding the DCS to the tune of £150,000,000; failing to properly report any details of multiple visits to London; no dialogue from the LP and more, just doesn't add up in a way that makes me feel comfortable; these are just my feelings and my opinions.

Ice


transfer of 557M

  • Codpeace
  • 23/10/08 30/11/12
  • unspecified
  • Offline
  • Tue, 18/11/2008 - 17:54

Totally agree with you - particularly your third paragraph - Such a large sum of money being transferred, and although I do not know when the transfer took place, the IOM had surely seen an increase in request for withdrawals and due diligence would surely be for them to hold the funds to meet the demand. not send it elsewhere.


I agree Ice, Far too many

  • skintagainnow
  • 10/10/08 31/05/09
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 17:29

I agree Ice, Far too many unanswered / half answered questions, the lack of info from PWC doesn't concern me - been through two liquidations as a creditor and never had timely answers from the liquidators, in fact lucky to get a single letter except the initial of "acting for" "you'll be informed in due course" gumff.

As with the IoM, KSF UK appeared to be still taking in £m's in deposits in the months prior to October, so bailing out the UK arm by IoM is fairly unlikely, investing in some of UK's loan book is a possibility, as is just having a simple deposit account the same as any other commercial depositor. The reference to being aware of ringfenced, duty of care etc,. we would need to know what the FSC directions were to KSF directors, details of the loan / deposit arrangement from IoM to UK, none of which are going to be made public in the foreseeable future.


Just read up on inter-bank

  • skintagainnow
  • 10/10/08 31/05/09
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 16:53

Just read up on inter-bank lending,

This one is the Libor :-

This definition is amplified as follows:-

1) The rate at which each bank submits must be formed from that bank’s perception of its cost of funds in the interbank market.

2) Contributions must represent rates formed in London and not elsewhere.

3) Contributions must be for the currency concerned, not the cost of producing one currency by borrowing in another currency and accessing the required currency via the foreign exchange markets.

4) The rates must be submitted by members of staff at a bank with primary responsibility for management of a bank’s cash, rather than a bank’s derivative book.

5) The definition of “funds” is: unsecured interbank cash or cash raised through primary issuance of interbank Certificates of Deposit.

Therefore based on 5) basically either the directors knew it was ringfenced or they didn't - there's no real half measures or grey area.
Standard interbank loans would be unsecured.

Gone through a lot of other bits and bobs but so far not come up with anything better than above. If my understanding of Allen Bells remarks are correct :-

They thought (KSF IoM directors) the deposit was ringfenced and they possibly put a security in place, but KSF UK used the funds in their general banking activities, thus the case will need to be addressed in the UK high court to determine where the fault lies ie:-
with IoM directors who may or may not have put the correct procedures / securities in place
with UK bank staff who ignored or were unaware of the securities attached to this deposit.

Plenty room for thought and further investigation, but I still say a good back door route to get the funds back without HMG having to do another about turn / open the door to future claims / offer to bail out depositors.


Manksman, I agree with your

  • manx-person
  • 17/10/08 31/05/09
  • not a depositor
  • Offline
  • Tue, 18/11/2008 - 16:43

Manksman,

I agree with your comprehension of the statement.

I think you've explained it well. He also added that as far as he was aware the directors of KFSIOM considered that by depositing the money with KFSUK they were discharging their 'duty of care'.


Ring Fencing KSF IoM Funds Transferred to UK

  • Expat13
  • 19/10/08 31/05/09
  • unspecified
  • Offline
  • Tue, 18/11/2008 - 17:53

Why would KSF IoM transfer funds to the Kaufthing Bank in the UK which was just as risky as keeping the funds in the IoM. If the Kaufthing Bank in Iceland went belly up all their subsiduries would have their assets frozen and be taken into administration. What KSF IoM did was like jumping from the frying pan into the fire. In my view KSF IoM and the IoM FSC are definately at fault.


In itself just because a

  • manx-person
  • 17/10/08 31/05/09
  • not a depositor
  • Offline
  • Tue, 18/11/2008 - 20:31

In itself just because a parent company goes into liquidation, it doesn't necessarily mean all of the subsidiaries go into administration as well.

It depends on whether there is a financial dependency on the parent. It isnt always the concern. Keeping the subs running and making profits to get paid back to topco to meet its creditors in due course isnt that uncommon.

What isn't know is the exposure of the UK operation to the Icelandic operation.

If as, some suggest, there had been for some loong time 'special measures' in place by the FSA to reduce the exposure to the Icelandic parent then there could be more available assets than you might imagine to meet any creditor demand.

No one will know this till EYs provide some further info.

My original comment was just me giving my view of what Mr Bell meant; not commenting either way on the quality or otherwise of the decisions of the directors of KSFIOM or the FSC.


Interpretations...

  • IceCrusher
  • 14/10/08 25/10/11
  • a depositor
  • Offline
  • Tue, 18/11/2008 - 17:33

I don't disagree with that elucidation, but I do think Mr Bells response is open to interpretation; Mr Cannans thrust was clearly towards the duty of the bank's directors with particular regard to ringfencing the assets, Mr Bell neatly side-stepped and parried the question very well to avoid a discussion on whether the Directors should be held accountable (IMO).

Ice


Interpretations

  • manx-person
  • 17/10/08 31/05/09
  • not a depositor
  • Offline
  • Tue, 18/11/2008 - 20:55

Well the question on whether the directors are in breach of their duties is one for the Courts I guess; and If Mr Simpson during the course of his investigation into the banks finds any such breach of duty then they will report this to the FSC who will (and indeed have in the past) consider the case for making an application for the disqualification of the directors and/or making a "not fit and proper direction" as appropriate.


Interpretations...

  • manksman
  • 01/11/08 31/05/09
  • not prepared to answer
  • Offline
  • Tue, 18/11/2008 - 20:46

Why move money from Iceland to London ...
It is very true that if KSF UK had lent large sums (relative to their capital/assets) to Kaupthing hf (eg the £500m from IOM! and we don't know if FSA allowed them to) then KSF would be bound to fail also - but it may actually be that Kaupthing hf is owed money by KSF UK, we just don't know. The run on the bank after Mr Darlings comments may actually be the reason the bank had a problem.
The involvement of the FSA should have meant that KSF UK was safer than Iceland, except that the HMG have not treated KSF UK as it did Northern Rock ie bailed it out. I think it would be unusual for the bank to have ringfenced such a large sum, especially when KSF IOM must have been charging market rates (unsecured funds) to be able to pay depositors interest.
Without knowing if the Directors of KSF IOM knew what KSF UK's net position with Kaupthing hf was and was likely to be it is hard to be dogmatic. If the money was moved from Iceland to London for it to then be sent straight back to Iceland does not seem like much lowering of risk, but maybe even then it is better than nothing - because the KSF UK balance sheet assets may well be stronger than Kupthing hf overall. If it proves impossible to get any money from Iceland then there will be a share of what is left in London. We will have to wait and see.
If KSF UK are owed money by Kaupthing hf, or there is a minimal balance then that in theory would have made KSF UK a good option - back to Mr Darling and the sealed court papers.
Finally, if Mr Bell actually had reason to believe that there money was ringfenced I believe he, the Directors or the Provisional Liquidator would have been saying something about it. They have never said anything except it is the Isle of Man money in London, and that is not ringfencing.


Ringfencing: cod politics, directors duties & the £550M question

  • Knife Edge
  • 10/10/08 31/05/09
  • a depositor
  • Offline
  • Thu, 20/11/2008 - 09:22

I've just come into this discussion after the website being down. Can I humbly throw in my view of the likely dynamic surrounding the transfer of £550M, which is as follows:

  • in most jurisdictions, shareholders can appoint and dismiss directors of their companies in some way or another. Let's assume that's the case in IOM, as is likely to be.

  • KSFIOM was of course a wholly-owned sub of Kaupthing hf in Iceland and part of the wider Kaupthing group (or family, if you will)

  • we know that KSFIOM directors consulted generally with the FSA and perhaps the UK authorities before making the £550M transfer, but not in terms of ringfencing the deposit (from comments made at TSC hearing)

  • if you were a KSFIOM director, and you were faced with your bosses [and I use the word deliberately loosely] knocking on the door saying "send us some cash", which is the easier and better answer -

    (a) "I don't have it because I sent it to our sister company in the UK" (while knowing that having spoken to the authorities there and been told that UK is a better regulated jurisdiction than Iceland and that the tripartite authorities will do their utmost to ensure a stable system etc etc - please note I wasn't party to a conversation and nor do I have any special knowledge, this is just imagined on the basis of what I've read and seen); OR

    (b) "I don't have it because I deposited it with countless other counterparties in the interbank market who we don't lend to because we don't fancy their creditworthiness"*; OR

    (c) "Get stuffed matey, this cash is staying here in IOM and if that makes the whole Kaupthing ship to sink, then so be it"

I suggest that (c) is a completely unrealistic outcome - at best they could have said "Erm, we need to think about that" and stalled for a day or so. With hindsight, that may have been enough, but of course hindsight is always perfect. (a) seems to me to be a perfectly justifiable response in the circumstances - and I don't like saying this, it just seems to me to be the case. Perhaps they could have deposited it in the BoE, I don't know, but politically that may have been whatever the equivalent of a red rag to a cod is.

  • it is extremely unusual for an intercompany and intragroup loan to be secured so the £550M most likely is not ringfenced (as is backed up by most of the involved parties' comments on the subject). I don't attach too much weight to Bell's response in Tynwald, since it is explicable on the basis of what I've written above.

  • There may be some (slightly tenuous) legal argument about a constructive or resulting trust attaching to the transferred cash, but I don't doubt for a second that this has been fully explored by the LP and IOM authorities, with a negative outcome.

  • it is always debatable whether the directors acted in the best interests of the company (which is the fiduciary duty of directors) with the benefit of hindsight, but I'd think that - absent further information, which is not forthcoming at the moment - they have a plausible case for saying that in the circumstances they did the most prudent thing possible.

  • saying all of the above gives me no satisfaction or pleasure whatsoever, as it all leads to a negative outcome for me as a depositor, but we have to be realistic. I don't rule out asking the question of whether the directors breached their fiduciary duties, but this is (yet another) area of relatively obscure legal debate that we simply don't have the facts available to assess, and there are other more fruitful (political) avenues to explore right now.

KE

  • aka as the credit crunch. Note there has been a suggestion elsewhere (eg in the TSC hearing) that the directors should have managed their counterparty exposure by making multiple deposits of the £550M with numerous banks.

Ringfencing: cod politics, directors duties & the £550M question

  • manx-person
  • 17/10/08 31/05/09
  • not a depositor
  • Offline
  • Thu, 20/11/2008 - 09:36

I agree with all of what you have said.
Even if the directors were in breach of their fiduciary duties this doesn't help get back the cash.
I think that rather than being asked to 'send their cash' they were just placing the dposits they had received.
I am not sure whether there had been any cash calls from Iceland or UK - its just they needed to place the funds received from depositiors somewhere I guess.


Ring-fencing

  • Captain Mainwaring
  • 11/10/08 31/05/09
  • a depositor
  • Offline
  • Fri, 21/11/2008 - 01:11

http://www.ksfiomdepositors.org/public-page/quistlcose-trust

Is well worth a read. What would make the deposit in the UK subject to such a trust?


Why send to Iceland anyway?

  • frog
  • 10/10/08 13/09/09
  • a depositor
  • Offline
  • Thu, 20/11/2008 - 20:35

I would guess that the money would get more action in London than in Iceland - it is after all a financial centre, so it would have more flexibility for investment to be in the UK. Also, it wouldn't surprise me that Kaupthing UK has more cash than liabilities for the following reasons:

  1. Kaupthing hf would send cash to Kaupthing UK for investment in world markets - and also other Kaupthing subsidiaries would do so too (didn't ours?!)
  2. The UK government hasn't been asking the Icelandic government to cover the compensation for the Kaupthing UK depositors - only the Icesave ones. Maybe they know they don't need it (and so do the Icelandics).
  3. Kaupthing UK has had very limited exposure to toxic loans - they said it and the last accounts showed it (the credit crunch actually started in Aug 2007)

Why send to Iceland anyway?

  • manksman
  • 01/11/08 31/05/09
  • not prepared to answer
  • Offline
  • Fri, 21/11/2008 - 10:51

Some of the Icelandic banks in the UK were only branches, which means that the UK DCS does not apply to them, but the Icelandic one does. KSF UK was is a UK company and part of the UK DCS and the Icelandic DCS does not apply. Just my understanding of it.