International Adviser 18 Nov 09: Saga of KS&F(IoM) collapse plays out in Tynwald

Hearings into the October 2008 collapse of the Isle of Man branch of Iceland’s Kaupthing Singer & Friedlander have captured the attention of IoM residents and KS&F(IoM) depositors, many of whom feel the full story has yet to be told.

The Select Committee of Tynwald hearings, held in Douglas last Friday and on 28 October, represented the first public statements by Kaupthing officials about the events leading up to the collapse of KS&F(IoM), which left more than 10,000 depositors without access to their savings.

The hearings are set to continue on 4 December, when Treasury Minister Allan Bell is due to appear.

Among the key points to emerge from the first two sessions is that the amount of deposits moved to KS&F(IoM)’s ‘sister’ bank in London was only £360m, not the £500m-plus that had been reported.

The money, moved just ahead of the bank’s collapse, was never returned to the island’s branch, which is now in liquidation and in the process of attempting to compensate depositors.

Also clear from the two days of hearings so far is that Isle of Man regulators and the Kaupthing executives in charge during the bank’s final days believe inadequate information from the parent bank and UK officials, along with circumstances beyond their control, were to blame for the collapse.

In a statement ahead of his testimony, Donald Gelling, a non-executive director of KS&F(IoM) at the time of the bank’s collapse, outlined a sequence of events that he said led up to Kaupthing's end on 8 October.

These, he said, included a transfer in April 2008 of £185m “in the form of a secured equity repurchase agreement" to Kaupthing’s UK arm, followed in June by another transfer of the island branch's assets, this time of £175m, from Kaupthing Iceland to KS&F(UK), to meet an FSC requirement that the IoM bank “remove all remaining potential exposure to Kaupthing (Iceland)”.

This £350m, Gelling noted, was “substantially different...to the sum alleged by various parties up to now”.

He continued: “At all material times leading up to 8th October 2009, KS&F(IoM) was a solvent and viable business. It was fully in compliance with its regulatory obligations and its licensing requirements.”

Thus it was on 8 October,  he went on, “without warning or having given notice of their intentions to the FSC or, I must say, KS&F(IoM)”  the UK Treasury and the FSA "combined to order the transfer of the majority of KS&F(UK)’s retail deposits" -- including those belonging to KS&F(IoM) -- to ING Direct, and placed the UK arm of Kaupthing into administration.

When the Icelandic Kaupthing entity then declined to “honor its parental guarantee” to its Isle of Man operation, Gelling said he and his fellow board members had no choice but to appoint a provisional liquidator on 9 October.

“Against that backdrop of economic turbulence – unprecedented, I would suggest, in recent times – the collapse of KSF (Isle of Man) was precipitated by the unforeseen and unilateral action of the UK  authorities,” Gelling's statement concluded.

Possible conflict
At another point, John Cashen, deputy chairman of the Isle of Man Financial Supervision Commission (FSC), was asked to defend his position as a non executive director on the Kaupthing board since 2005, which some critics of the handling of the bank’s collapse have argued represented a conflict of interest.

While acknowledging that the matter was “sensitive”, Cashen, a former chief financial officer in the IoM Treasury for 10 years until 2001, explained that in his role at the FSC he received no briefing papers relating to the bank, and “took no part in discussions on matters relating to [Kaupthing Singer & Friedlander]”.

Also testified at the second hearing were Aidan Doherty, managing director of Kaupthing Singer & Friedlander at the time it fell, and Andrew Davies, who resigned from the Kaupthing board in November 2008.

John Aspen, chief executive of the FSC, was the chief witness during the first hearing, which lasted almost three hours.

According to Juan Paul Watterson, chairman of the Select Committee looking into KS&F(IoM), the query will focus first on the cause of the bank’s collapse and the role of the FSC in protecting depositors’ funds, after which it will turn its attention to the “credibility” of the island’s depositors’ compensation scheme and any other relevant matters. 

Transcripts of the two sessions may be found at  http://www.tynwald.org.im/papers/early/committee/eptksf281009.pdf  and http://www.tynwald.org.im/papers/early/committee/eptksf131109rha.pdf .

Calls for Landsbanki hearing
News of the Tynwald hearings sparked renewed calls by depositors caught up in the failure of Guernsey’s Icelandic bank, Landsbanki, for an equally extensive and public inquiry there.

As recently as last month the Landsbanki Guernsey Depositors Action Group, which represents depositors in the failed Guernsey institution, sent a petition to all States of Guernsey deputies calling on them to demand “a full public inquiry” into Landsbanki Guernsey’s collapse.

Mark Ashbey, a member of the LGDAG, said the Isle of Man deserved credit for its "willingness to allow a Tynwald Select Committee to publicly examine the causes behind Kaupthing’s failure” and whether possible shortcomings on the part of the  island’s  regulator contributed to it.

link here

Hits: 1210