Which Icelandic Bank Depositors Will Get Their Money Back Before Christmas?

Posted 03/11/2008 - 17:12 by VikingRaider

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2008-11-03 08

The 200,000 Icesave customers who had their savings accounts frozen can now look forward to payouts before Christmas, according to the Financial Services Compensation Scheme (FSCS), which is guaranteeing that all deposits will be returned in full.

But the news is less cheering for the thousands of British savers who had their money in two offshore banks that were backed by the now defunct Icelandic banks Landsbanki and Kaupthing Singer & Friedlander (KS&F).

Those who have money in KS&F Isle of Man bank have at least been given a temporary stay of execution: the bank has been told it now has an additional month in which to find a buyer and so safeguard its savers' deposits.

But those whose money is with Landsbanki Guernsey face the very real prospect of losing the vast majority of their savings, after the bank's administrators confirmed there are only sufficient funds to pay 30p for every £1 saved. An action group formed by its outraged savers is now lobbying the UK, Icelandic and Guernsey authorities to secure a more substantial payout.

If you have money in any of these institutions, the information below gives a more detailed update on when – and if – you can expect to see your savings again.

Icesave customers
The FSCS has confirmed that the first payments to Icesave customers will start in the second week of November, payments will be phased but the vast majority of customers are expected to have their money back by the end of this month – in time for Christmas shopping.

Savers don't have to complete a lengthy claim form, instead payments will be made automatically into their "linked" bank account – which was set up when the account was opened. The FSCS said it hoped this "accelerated process" will speed up payments and make it easier for customers to access their money.

It will shortly be contacting all 200,000 Icesave customers to explain how this process works and to let them know when they can expect to get their money back.

All Icesave accounts were frozen in the UK on October 7, when its parent bank, Landsbanki, went into receivership in Iceland. After it emerged that the Icelandic compensation scheme had insufficient funds to meet its guarantees the UK Government stepped in, saying it would protect all UK savers in full.

Usually a maximum of just £50,000 is guaranteed under the FSCS but this limit has temporarily waived due to the "exceptional" global circumstances which caused a number of Icelandic banks to fail.

The Treasury has confirmed that those who had an cash Isa with Icesave will not lose their tax-free wrapper, and will be able to transfer this money into another Isa.

For further information call the FSCS on 020 7892 7300 or visit www.fscs.org.uk
Heritable Bank & Kaupthing Edge customers
Customers with both banks have seen their savings transferred to the Dutch bank ING Direct.

Like Icesave, Heritable was owned by Landsbanki, and Kaupthing Edge by Kaupthing Singer & Friedlander (KS&F). As the money has now transferred savers should be free to access their money as they wish.

However, an estimated 1,200 savers have not been transferred because they did not have internet accounts (ING Direct is an internet-only bank). The FSCS has now sent claims forms to these customers so they can get this money back. In addition, about 2,000 small businesses who had their money with these banks should also receive claims forms.

To qualify for a payment small businesses must have a turnover of no more than £6.5m, a balance sheet of less than £3.26m and no more than 50 staff.

Again, in both cases those with more than £50,000 on deposit will be fully protected, as the Treasury has guaranteed sums above this amount. Initially all claims will be handled by the FSCS and you will not need to make a separate claim at this time.

If you think you qualify for a payment but have not received a form, contact the FSCS on 020 7892 7300.

Offshore savers
The Government's promise that British savers would not lose a penny following the collapse or the Landsbanki and KS&F does not unfortunately extend to British citizens living overseas who have their money in the offshore subsidiaries of these Icelandic banks.

Many of these savers – who have continued to pay tax on their savings in the UK – had little option but to open an offshore account as British banks no longer accept customers who do not have a current UK address, thanks to stringent money-laundering rules. They now stand to lose a substantial chunk of their life savings.

The FSCS does not cover any offshore banks, the Icelandic authorities do not appear to have the funds to support these subsidiaries and the compensation schemes in these locations are at best extremely limited and at worst non-existent.

Worst hit are those with money in Landsbanki Guernsey, which was originally owned by the Cheshire Building Society, hardly the epitome of a high-risk institution. At present there is no statutory protection scheme in Guernsey and the administrators of this bank have told depositors that there are only sufficient funds to pay 30p for every £1 saved.

Unless the authorities on Guernsey or in the UK change their stance this means savers will lose 70pc of their life savings.

Last week the Chief Minister of the States of Guernsey stated that it will not provide money to compensate these savers. And because the Channel Islands are not part of the European Economic Area there is no requirement for the Icelandic authorities to protect the first €20,277 (£15,986) of consumers' money.

Savers are concerned that shortly after LG went into administration £36m was transferred from it to Heritable Bank – also then owned by Landsbanki, and now also in administration. LG savers want to know whether this money can be returned to boost payouts for its depositors, particularly as Heritable savers are protected in full in the UK.

An action group has been set up for affected savers. Contact www.iwantmymoneylandsbanki.com
The situation is moderately better for those with the Isle of Man subsidiary of Kaupthing Singer & Friedlander. The liquidators have been given another month to find a buyer for this business and so protect savers' deposits. It was originally owned by Derbyshire Building Society and was only bought by KS&F last year.

There is an Isle of Man compensation scheme, which too pledges to protect up to £50,000 per person. But this scheme is funded by a levy imposed on other banks and building societies in this jurisdiction. As the maximum that can be asked each year is capped, the authorities admit it could take years before savers who have lost money get the maximum £50,000 back in full. There is no protection for savings above this limit.

Offshore savers are keen to point out that they are not rich millionaire businessmen using offshore accounts to reduce tax bills or gain higher interest rates. Instead, most simply invested the proceeds from the sale of their home when moving overseas, often on retirement, and have been using the interest this generated to pay a modest pension.

Only those who were wealthy enough to also maintain a property in the UK would have been able to open a British bank account. Many are also aggrieved that when the Government rescued Northern Rock, savers in its offshore subsidiary – also based in Guernsey – did not lose their money.

Daniel Herzberg and his wife Lucy Kinnison opened a savings account with Cheshire Guernsey five years ago when they moved to Spain.

As they did not have a UK address they were unable to open an account on the mainland. But since then they have continued to pay taxes in the UK on savings held in this account.

“Two years ago the bank was taken over by Landsbanki and we carefully read all the literature about this new bank. We were repeatedly reassured that our savings would be safe in Guernsey. How wrong we were,” said Mr Herzberg.

To rub salt into the wound, Mr Herzberg is furious that just days before the collapse he wrote to the managing director of Landsbanki Guernsey asking about the security of his family’s savings. In an email received on Friday October 3 he was assured by the bank’s MD that all was well, the parent group remained robust and stood behind this subsidiary.

Incredibly, he was told: “Landsbanki is strong enough to withstand a severe shock to the financial system because of its strong capital ratios.” On the Monday, he learned LG had been put into administration. The bank has received no financial assistance from its parent group – which has been taken over by the Icelandic authorities.

He adds: “We feel we have been totally deceived by the bank. To add to this we are in shock that neither the Guernsey nor UK Governments are protecting their depositors at this time, when world leaders around the globe are pumping billions of pounds, dollars, euros and yen into the banking system.

“How I am ever to teach my son that it is the right things to do, to work hard, to save your money for a rainy day and to trust that experts in their fields will do the right thing?”