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Posted 20/10/2008 - 12:20 by ripped Off

Banking crisis: Treasury Minister warns this week is 'critical'

Allan Bell: This week is critical

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THIS week is critical.
That's the stark message from Treasuy Minister Allan Bell who says a quick solution needs to be found to resolve the financial crisis brought on by the collaspe of the Island's Kaupthing Singer & Friedlander bank which left 10,000 cusomers owed a total of £840 million.

He said a buyer needs to be found for KSF (IoM) and its frozen assets retrieved to avoid the bank being wound up at a high court hearing on Friday.

But Mr Bell said he was 'less pessimistic' than he was earlier last week that the crisis would be resolved.

It would be difficult to sell KSF (IoM) Ltd, a subisidary of the parent Kaupthing Bank in Iceland, while the bank's assets are still frozen in London – and that issue can only be resolved by political, diplomatic and possibly legal means.

Confirmation that the UK would act on the Island's behalf in negotiations with the Reykjavik government, words of confidence from the Icelandic prime minister that depositors would get their money back and a possible multi-billion dollar loan by the International Monetary Fund for this key strategic ally are, however, all giving renewed optimism.

Mr Bell said: 'This week is critical. We need to get some real progress in the negotiations between the UK and Iceland on our behalf. We need to find a solution to this unfortunate issue as quickly as possible. We need a clear idea of the way forward before Friday to avoid the bank going into liquidation.

'This was not the fault of banking supervision or local circumstances. It was purely the intervention of external forces.'

Chief Minister Tony Brown said the UK Government had acted in its best interest to put the KSF London operation in administration.
'Unfortunately we got caught up in it,' said Mr Brown. 'It is vitally important to get a solution to the problem that was not of our making to ensure a swift conclusion to this crisis.'

Some £2.7 million of government funds deposited in KSF (IoM) Ltd are frozen in London. A number of banking institutions have expressed an interest in buying all or part of the business.

Mr Bell said: 'The key to the whole thing is unfreezing the assets held in the UK. The would make the whole thing far more viable. The bank was not in financial difficulties. It was one of Island's oldest banks, well established, well run and very profitable.'

If a sale if not achieved, the bank will be wound up and its assets sold off. The Island's newly upgraded compensation scheme will also kick in, giving depositors a maximum of £50,000 compensation.

'At this stage it is difficult to comment how much money may be required to cover this,' Mr Bell said.

He admitted negative publicity about offshore banking over the last week had not been helpful and much had been based on a 'complete misunderstanding', with the Island depicted as a sterotype tax haven rather than a well-regulated finance centre.

He said the crisis had resulted in some funds leaving Isand-based accounts but money had also been transferred to the Island from other jurisdictions such as Guernsey and Jersey which don't have depositors' compensation schemes.

'We don't get daily figures so we don't yet know the net impact of this,' he said.

But Mr Bell said the economy remained strong, with unemployment low and the house market buoyant.

'It would be naive to think that there would be no impact of world events in the Isle of Man. Next year will be an extremely difficult year for everybody. At some point there will be slowdown and I would expect some growth in unemployment.'

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