17-Jan-2009

While Isle of Man is busy saving reputations, depositors are left to watch as other territories quickly enact rescue strategies.

Despite yesterday's affidavits from key Isle of Man (IOM) government players and their hired associates - charged with sorting out the Kaupthing Singer & Friedlander (KSFIOM) debacle for the good of the island and supposedly the good of the depositors - it seems that time is running out to find a solution to save the life savings of over 10,000 depositors. As Anglo Irish (including the Isle of Man branch) turns to the Irish Government for rescue and received immediate support, it seems that no one is interested in securing the future for KSFIOM depositors despite the home-grown IOM events that influenced the fate of this once thriving bank.

Despite goodwill, effort and confidentiality by those representing the KSFIOM Depositors Action Group, they have yet to see anything to convince them that the suggestion of an alternative to liquidation is little more than an attempt to prevent the Depositors Compensation Scheme (DCS) being triggered. The activation of the DCS would not only cost the IOM Government and local banks dearly but would expose the scheme for what it is; namely an inadequate and outdated guise of protection that contains so many provisos and matters open to legal interpretation that the Government is refusing to explain clearly how it would work if it were to be put into action.

Furthermore the damage this could cause to the reputation of the Isle of Man banking sector at a delicate time both in terms of the world's economy and the island's offshore status, with the publication of the Foot Report due in March, could hardly be worse.

Depositors' focus is now turning to the roles played by the bank's directors in this disaster, specifically John Cashen and Donald Gelling. Both Mr Cashen and Mr Gelling have held high office within the Isle of Man's Financial Regulator which may appear to conflict with their duties as bank directors. Despite assurances from the regulator that no conflicts exist, depositors are seeking clarification of the roles played by these directors in the weeks leading up to the bank's collapse.

John Aspden, Chief Executive of the FSC was quoted [1] in October 2008 as saying "Mr Cashen was on the board with KSF and the way of accommodating that was that he took no involvement whatsoever in any decisions in the Commission involving KSF. He properly absented himself." The same article went on to say that "Mr Aspden explained that the 'defensive measures' involved ensuring that KSF deposits were placed with the bank in London and not Reykjavik".

If nothing untoward happened, why have the directors of the bank been surprisingly silent throughout this disaster, despite being jointly responsible with the FSC for the decision to move over 50% of the bank's assets to the UK, resulting in over £500m being trapped outside the IOM regulator's jurisdiction without any protection. Could Mr Aspden explain exactly how these actions have served to protect the interests of depositors?

Given the size and scale of this episode for the Isle of Man regulatory authorities, has Mr Cashen continued to take "no part in the FSC's dealings with the bank"? And if so, would it not make sense to ensure any Vice-Chairman of the FSC is able to fulfil this role properly given this is potentially one of the island's biggest financial disasters?

Depositors have now instructed their lawyers to obtain copies of the minutes of meetings and discussions held between the FSC, the FSA and presumably KSFIOM so as to get a clearer understanding of what led to this catastrophic decision and to clarify exactly who was present at these meetings.

Three months on from the bank's collapse the IOM authorities seem little closer to putting together a comprehensive solution to the crisis facing depositors. Procrastination and internal wrangling on the Isle of Man appear to have hindered any progress and depositors are getting weary of hollow promises of progress.

It's time for the authorities and key players on the Isle of Man to stand up and be counted. The Irish Finance Minister today said: "If a bank fails, the damage to the country, the reputational damage to the country, in trashing deposits and refusing to honour obligations, would be enormous". Does the IOM Government not share this view?

Not only is the future of over 10,000 ordinary savers at risk but so is the credibility of the IOM banking sector and the whole financial services industry that surrounds it. The sooner the IOM authorities wake up to the looming Armageddon on their horizon the sooner they may start treating the depositors of KSFIOM with the respect they are due.

[1] Isle of Man Today 16 October 2008