QUESTIONS & ANSWERS
Last updated: March 2009
Note added: KSFIOM was placed in liquidation in May 2009.
See also Banking Crisis Review Report
What's the issue?
On 9 October 2008, Kaupthing Singer & Friedlander Isle of Man (KSFIOM) was placed into provisional liquidation/administration due to the failure of its sister bank in London, Kaupthing Singer & Friedlander UK (KFSUK). Thousands of British citizens stand to lose their life savings if a solution is not found.
A time line of events leading up to and to date in this Icelandic Saga can be found HERE and is very useful to help understand how we have reached where we are.
Who's caught up in this?
The vast majority of savers in KSFIOM are British citizens. Most of these savers are expatriates, working for British companies, aid organisations, even the British Government around the world, or retirees who are not allowed access to UK banks as they do not have a mainland address. The Isle of Man was the closest thing to home for them. These savers are predominantly of an older age and approaching retirement if not already retired.
How did savers come to be with KSFIOM and not with better known banks?
A significant proportion of savers became customers of KSFIOM as a direct result of the take-over of the Derbyshire Building Society. When their Building Society was taken over by KSF they were offered good interest rates with the new bank together with a parental guarantee from KSFIOM’s parent bank in Iceland. This guarantee, which was widely used in literature to savers, claimed that 100% of deposits would be covered in the event that anything happened to KSFIOM. Others relied on the reputation of Singers & Friedlander, an old British bank dating back to 1920.
You mentioned KSFIOM collapsed because of the failure of KSFUK, how are the two related?
KSFIOM held deposits in excess of £550m with KSFUK at the time that the UK bank was put into administration. Without access to these funds, KSFIOM could not fulfil its obligations to customers and as a result had its banking licence in the Isle of Man revoked and was placed into provisional liquidation/administration.
Why did KSFIOM hold such a large deposit with KSFUK? Was that normal?
No. That was not normal. KSFIOM did ordinarily hold a balance with KSFUK but it was usually much lower. At the 2007 year end the deposits with KSFUK totalled £70m.
John Aspden, the Chairman of the FSC (the Isle of Man financial regulator) has confirmed that, following discussions with the FSA, it was decided that it would be prudent to move more KSFIOM assets from Iceland into London.
So the FSA advised the FSC to move Isle of Man assets into KSFUK?
According to the FSC – Yes! This is the quote from the FSC chairman: “With the benefit of hindsight it might have been better originally if the deposits had come back from Iceland and not been put in London, but at the time this was something that we had discussed with the regulatory authorities in London.”
Ok, but presumably KSFUK collapsed due to mismanagement like the other high street banks?
No. This is a common misconception about both KSFUK and KSFIOM. The fact is that both banks were liquid solvent banks up until October 2008. The attached balance sheet for KSFIOM at 30 September 2008 highlights this point.
So how did KSFUK collapse?
Following the collapse of Heritable and Landsbanki, in early October 2008, confidence in the Icelandic economy was very low but both Kaupthing banks were still in a satisfactory position despite a large number of nervous withdrawals during this period.
On the morning of 8 October 2008 Alistair Darling made the following statement:
"The Icelandic government believe it or not, have told me yesterday they have no intention of honouring their obligations here."
This statement crushed what was left of the faith in Iceland and started a run on KSFUK and KSFIOM. Depositors began trying to withdraw what cash they could and the banks’ ability to service this demand evaporated. That same day, the UK authorities decided that KSFUK was no longer a viable bank and ordered the FSA to seize their assets and place the bank into administration. Those assets included the £550m belonging to KSFIOM. This left KSFIOM stranded and unable to function. It too then collapsed.
So Alistair Darling reported his conversation with Icelandic authorities and that caused the run?
Not exactly. The Icelandic authorities have always denied that anyone ever made the statement as reported by the Chancellor. Recently the transcript of the conversation between Alistair Darling and the Icelandic authorities was released and nowhere in it did anyone make that statement. To this day, the UK government cannot name the person who supposedly made that statement.
So the run that occurred on KSFUK and KSFIOM, and that destroyed the banks, was triggered by an injudicious statement made by the British Chancellor of the Exchequer?
Yes. It would appear so.
But the British Government has already said it would guarantee 100% of all British deposits, what’s the problem?
Incorrect. The British Government has guaranteed 100% of all UK mainland deposits. This guarantee does not extend to the Isle of Man or the Channel Islands.
Didn’t you mention that depositors had a 100% guarantee from the parent bank in Iceland?
Yes. We did have that guarantee. However, not satisfied with his first statement on 8 October (as quoted above) Alistair Darling and Gordon Brown held a joint press conference later the same day in which they declared Iceland to be a bankrupt country and in default. This story went around the world in minutes and effectively finished off the Icelandic economy. Who would do business with a country described like that? This, combined with the destruction of KSFUK was too much for the parent bank, Kaupthing hf (Iceland) and it was taken over by the Icelandic government just before it too collapsed.
So what points would you put to the British Government to justify your belief that they are culpable in this situation?
- The FSA, a British Government organisation, was involved in discussions that led to over £550m of KSFIOM assets being first sent to and then seized in the UK.
- A false statement by the British Chancellor of the Exchequer caused a run on two solvent, liquid banks with some of the strongest balance sheets of any UK bank.
- The British Government failed to secure KSFIOM deposits within its jurisdiction before commencing its offensive against Iceland on 8 October 2008.
- The actions of the British Government not only brought down KSFUK & KSFIOM but also had the result of bringing down Kaupthing hf (the Icelandic parent bank) killing any hopes Isle of Man depositors had of recouping their losses from that source.
So, what do you want from the British Government?
As depositors in KSFIOM we would like the British Government to accept responsibility for its role in the demise of our bank and return all of KSFIOM assets that were held on deposit in KSFUK.
What help have you had from the Treasury or the British Government as a whole?
None. To this day the British Government refuses to admit its role in causing our situation and has not extended any help to the depositors. The Treasury continues to hide behind statements that the Isle of Man is the jurisdiction of the FSC and that it has no say on matters there. It refuses to acknowledge the damage done in London (clearly its jurisdiction) that destroyed the Isle of Man bank.
Our predicament is a knock-on affect of the actions taken by the British Government against Iceland on 8 October and, as such, it must be acknowledged that it is the responsibility of the British authorities to find a fair solution that gives all depositors their money back.
See also Banking Crisis Review Report