“There has been a great deal of work done on this issue and we are nearer than ever to working this out,” said Steingrimur J. Sigfusson, Iceland’s Minister of Finance in regard to negotiations with the Netherlands and UK authorities on funds from Landsbanki’s old Icesave savings accounts in those countries.
Sigfusson told Morgunbladid that among the solutions under discussion with the Icelandic negotiating committee (under the leadership of Svavar Gestsson) is whether takings from Old Landsbanki loans can be directly used to pay off debts from Icesave.
According to the Finance Minister, it is still unclear how much the Icelandic treasury will have to pay in the end. The final figure will depend on exactly how the Icesave debts are repaid and at what rate. “The first figures suggested a bill of 150 billion kronur; and then that figure dropped to 70 billion. It is still very unclear,” he said.
“It is still very unclear”
It would be wrong to rush it, after all it’s only been 7 months so far…
When is the Icelandic government going to honour the guarantee given to Kaupthing Isle of Man depositors? I understand the government introduced a new law in October last saying that all Hf’s assets would be used – in priority- to repay individual depositors in Kaupthing Hf. This is completely contrary to all usual insolvency procedure and most unfair.
If the main streem media in Iceland don’t “realize” how useless this Red-Green coalition is ( of course they know ) they have lost they gate keeper idea as the people have already figured it out about around April 1 when this ridiculous extension of exchange control until November at earliest told that they no interest in sorting out the accounting of the banks.
Partly because they fire people with knowledge to make sense of it and party because they not want to clean it up quickly so they can force thorugh this EU membership.
I said it before and I say it again, Steingrímur as Minister of Finance is idiot appointment of the century — and only reason people vote for Left-Green is that he is against EU membership and known as man of principles.
They have screwed up this bank auditing and reconstructing and paying foreign bond holder more than even I thought was possible.
And I had very low expectation to begin with ..
http://www.icenews.is/index.php/2009/04/21/imf-iceland-delay-“not-really-a-problem”/#comment-73063
steveservaes, you know where you money is.
It is in bank account controlled by UK FSA and Treasury in Kauthping Singer and Frieldander — in the UK:
http://www.icenews.is/index.php/2009/05/19/iceland’s-kaupthing-bank-talking-tough-over-debtors/#comment-76806
I can tell from you posts that you see solution to predicament of KSF IOM depositor as political one.
In that you are no doubt right — but the pressure should be made on Brown and Darling who are the ones that had you money siezed.
And they are the ones that can get you it back.
Otherwise you have to wait for whole long process of you KSF monies eventually making way back to Kaupthing hf and then back to you. Which is just not practical.
You will suceed by pressure on Brown and Darling — as they are the ones that control you money through this UK FSA administration order.
If they had political sense they would get KSM IOM money back to you fast.
But we know they don’t have any sense. But maybe you can make them scared and look bad enough that they will return it.
Thanks for comments Fisy.
However, Kaupthing hf gaves us the promise to guarantee our deposits.
If they are insolvent they are insolvent but the Icelandic government should not change insolvency law to give Icelandic citizens precedence over the funds of HF meaning we stand to get nothing from HF.
The KSFUK is a different matter.
Do you think that once the Icesave deal has been made Kaupthing HF’s action against the English state will be dropped?
Again, Fisy, no KSFIOM money has been seized. As KSFUK is dissolved, KSFIOM will be settled along with the other creditors. Kaupthing doesn’t come into that particular equation.
Neither does the UK government. If they were to intervene, it would have to be directly from UK government funds as they simply cannot interfere with an insolvency. Politically, I doubt it would be worth Labour’s while, as well as being morally questionable.
I’ve not seen anything from Old Kaupthing confirming that they intend to honour the guarantee, so I suspect that it’s fair to assume that they won’t (it’s entirely possible that they’re legally not allowed to).
But why deal with facts when you have an opportunity to bash Darling and Brown? :)
re Bromley’s comments –
i) I think the moral aspect is that while Gordon made such a fuss about eg the US benefiting from Lehman money being fired across the Atlantic at the last minute (giving a better pot in US insolvency and a worse in the UK one)he sought to achieve the same thing with KSFUK, in that they did a sting on KSFUK part of which involved dropping their standard updating to the Manx regulator of what the situation was at that Manx, so money from the IOM stayed in it and was seized.
ii) Also – the seizure of KSFUK was under special powers to protect the UK banking industry. Hence it was akin to a requisition in time of war, where the state would be expected to compensate. Instead, the Uk wants to lump this loss onto the retail depositors of KSFIOM.
iii) Further – in the event the KSFUK can only pay back 50p/£1 this suggests its regulation by the UK FSA has been shocking. One could argue a moral case (and maybe a legal one) for the UK govt having to compensate those losing from this. Ironically, instead we see the UK seizing the IOM money (OK- failing to observe the established inter-regulator dialogue that subsisted, so as to achieve the “sting”) in order to bump up the UK insolvency pot, to the principal benefit of the UK Govt, who are the chief creditor, having decided, for political purposes, to pay off the UK retail depositors in full and stand in their shoes. So we see the UK gov, who should be ‘fessing up for FSA failure to regulate, having to compo the UK depositors for political reasons, but considering it OK to seize IOM funds to pay themselves back for some of this compo.
Of course we don’t know all the facts since it is all “top secret” and hence transparency and fairness are set aside for this matter.
To steveservaes:
>>>>When is the Icelandic government going to honour the guarantee given to Kaupthing Isle of Man depositors?
The short answer:
Never!
The long answer (in 13 points :-)):
1. First of all, the guarantee was not given by the government of Iceland, it was given by the private bank Kaupthing hf. which is now in administration and will be dissolved sometime in the future (a very complex process with lot of still unresolved issues).
2. The assets of old Kaupthing hf. were NOT used to repay individual depositors in Iceland. In fact, the depositors in Iceland were never really paid out anything. Instead, the people were convinced by the Icelandic government not to withdraw all their money (and also restricted by law from doing so) so its still all in the banks.
3. It is a quite well known fact, that banks in general do not keep their deposits in the bank, but rather use them to make loans to their customers. In fact the actual money kept by the bank is typically only a very small fraction of their outstanding liabilities (deposits, borrowings). Therefore, unless the bank is quite small compared to the underlying economy, it is NOT a real option to pay everyone their deposits. If you want to read up on history of bank failures here is a transcript of FDR famous Bank Speech, which is in many ways still quite relevant today:
http://www.fdic.gov/about/history/3-12-33transcript.html
4. During the crash in October last year, the Icelandic government was faced with unprecidented problems and no realistic or good solutions. The total liabilities of the Icelandic banks were in the tune of 35 Billion Euros in deposits (about 1/3 of the deposits were in ISK) and 50+ Billion Euros in borrowings, while the government had foreign reserves of about 2 Billion Euros and total tax revenue of about 5 Billion Euros per year (using the old exchange rate with Icelandic kronas, using the current exchange rate, its now about 3 Billion Euros). It doesn’t take a lot of effort (math) to realize the Icelandic government had no real means to take over (they foolishly tried) and cover the banks, hence the whole thing crashed in about a 2 weeks after the first bank (Glitnir) reported problems.
5. The emergency laws that were passed in the beginning of October 2008, had several aspects many of which are hotly contested still today:
a) They gave priority to depositors over other creditors (which understandably are not too happy about this).
b) They created 3 new banks that took over the Icelandic operations (in ISK) of the 3 old banks, both assets and liabilities (almost every foreigner thinks this was either illegal or unfair or both, but the Icelanders think this was necessary to keep some banking system running in Iceland).
c) They formed administrative committees that are currently overseeing disolving of the old banks (some of these committees have been doing very stupid things, including selling some assets at firesale prices).
d) They appointed international accounting firms to calculate how much the new banks would owe to the old banks, that is the fair value difference between the assets and the liabilities taken over (this is mostly done but the final reports have still not been published).
6. The whole big argument last fall about the 20K Euro deposit guarantees that Iceland would have to cover was only about 5-6 Billion Euros total. It goes without saying that Iceland as a country would never be able to pay even a fraction of these deposits, so everything depends how much of the assets is possible to recover.
7. We now know much better about how much the assets (loans to customers) are worth than we did last year and its not a pretty picture. The rough estimate is that about 2/3 of all customer loans are lost, which comes to about 50 Billion Euros for all three banks. This is an extraordinary amount for a country with a population of only 300000 people (about 165000 Euros per person, including all the retired people and the children).
8. It is not clear yet, exactly how the 50 Billion Euros was lost, but it will probably be some combination of: a) funding the Icelandic vikings, b) loans to foreign companies, c) mortgages and real-estate loans, d) consumer loans, e) loans to holding companies in tax havens, f) outright fraud, and finally g) just sheer incompetence and greed of the bankers.
9. With all those losses on loans, Iceland will be lucky if there are enough foreign currency assets available just to cover the 20K deposit guarantees, it was forced to take accept in November last year. You may have noticed that UK and Netherlands had to lend to Icelandic government all the funds to cover those guarantees, since Iceland had not any foreign currencies to cover those itself. You may also have noticed that the actual final agreements have not yet been signed with those countries, since the Iceland has no ability to cover even the interest on those loans, let alone the repayments, and they are therefore still arguing over it.
10. The Icelandic government has already taken on debt that is more than the whole GDP of Iceland, and with the massive recession that is currently gripping the country, is now already forseeing yearly deficits that are about 20-25% of its tax revenues.
11. The two main export goods of Iceland, fish products (42%) and aluminium (33%) are both suffering lower prices and less demand, hurting the ability of Iceland generating foreign currency revenues. If the world recession continues it likely that export revenues of Iceland will continue to shrink. On the side of imported goods, the news is more positive. Compared to last year, imports are now down approximately 45% so we at least for the moment have now a positive trade balance.
12. The Icelandic Central Bank is still maintaining heavy restrictions on foreign currency movements and the exchange rate. The main catalyst for the large amount of glacier bonds in ISK that are still held by foreign owners and cannot be exchanged back to Euros.
13. Most loans to Icelandic companies and people are either indexed for inflation or to linked to foreign currencies. With the contraction of the Icelandic economy, this simply means that most companies and people that have loans are either already bankrupt or going bankrupt. There is actually a relatively good chance this will eventually lead to total bankruptcy of the whole country, although everyone is of course hoping this will not happen.
From this long list of points, it should therefore be relatively easy to see that Iceland does not have any possibility to find somewhere the extra few hundred million pounds that it would take for it to be able to cover the KFIOM deposits. It really doesn’t matter who is right and who is wrong, it just has no ability to pay it, and it most probably never will.
Bjarni
I actually forgot to mention one of the main loan types that is causing a lot of losses:
8. h) loans to the bank owners/stockholders, secured only by by the stock itself.
Since the stock for these banks are now basically worthless, these loans were nearly 100% lost. In most countries, these kind of loans would have been considered illegal. It remains to be seen whether they are actually illegal also in Iceland.
Bjarni
@steveservaes. I just joined DAG to have a quick look at the forum. No doubt you’re aware of this, but there’s a hell of a lot of info that’s been provided by Mike Simpson via frog’s summaries of conference calls.
http://chat.ksfiomdepositors.org/blogs/frog
Looks like I was wrong about the parental guarantee. MS is expecting it to be treated as an unsecured creditor.
Bjarni – good to see you again :) .
To Bromley86:
>>>>Bjarni – good to see you again :) .
Glad to be back :-)
I have been busy for the last few months, but at the same time been keeping an eye on the discussion here to see if there were any interesting topics popping up.
I kind of miss the fierce and challenging fact-based debate on important issues, we had on numerous occations last fall. Some of the discussion now seems to have degenerated a bit into both name calling and accusations, which doesn’t solve anything and is simply not that interesting to me.
I was quite impressed with the detailed reports from Mike Simpson for the KSFIOM depositors you provide link for. It contained a lot of straight-up factual information, that is probably very useful for the people involved.
I wish the government(s) here in Iceland and the administration/resolution committees for the banks here, would learn something from this on how to communicate better with the people. It would help clear up lot of the confusion and anger thats still out there.
Bjarni
Its all part of a grand scheme.
Read “The Creature from Jekyll Island”.
Crash the western economies and save them via the UN, IMF, World bank ect… to get them to accept global government and reduced soveriegnty. They exploit fears of global warming to place crippling restrictions on western nations why not applying any of those standards to the poorer manufacturing nations. The end result does not reduce polution, it simply exports industry offshores further weakening the countries.
The international bankers work together with world leaders who are members of the elite club, run by secret societies. Wild but true.
In america bernanke is recommending medicine (MASSIVE stimulus) that has NEVER worked in the history of man and it has been tried by many countries over the last few centuries, why would it work now? So are many other western governments. This crisis is just beginning.
www.freedomforceinternational.com, (by g. edward griffin, author of the creature from jekyll island)(be sure to examine the unfilitered news)
www.campaignforliberty.com (ron paul oriented)
Bjarni,
Indeed, very good post. People like you , Bromley, Easy and Mike (Nordic analyst) just show the facts the way they are, supported by hard facts and figures. Others on this forum still seem to be in denial mode or they are merely busy demonstrating that other countries are in an equally bad state as Iceland (they are not) or that the EU is so terrible and the euro is so weak (it is not, certainly not compared to the ISK) and these discussions only go on and on in constant perpetual circles.
Niels , we all realize the the situation is very bad, we also wonder what regulation system brought us to this point, then we look at the future and the pros and cons of EU ,there are many reasons not to join but no one has made any argument why we should join, probably for a very good reason,
all of this does not really matter at this point
we are now at war, a financial war that is just as dangerous and destructive as a physical one,
and in a war you make your own rules,
we will pay debts and losses of the banks from assets sold from the banks and money recovered from financial criminals related to this scheme
what remains will be written off, if someone does not like this they can invade Iceland or shut the h*ll up.
Axel,
I understand your point of view.
But even in a war there are ‘rules of engagement’ (for instance: do not torture prisoners of war) and ‘rules of international justice (for instance: do not invade a neutral country)’.
In practice such rules are only used against the losing side and if you regard the present situation as a war than Iceland is on the losing side as well .
This is not fair off course, especially not towards ordinary icelanders who have no responsibility for the present mess, but unfortunately things work this way.
Basically Iceland will be faced with a huge burden of debts for many years to come.
You have been bringing up a lot of good points about the bizarre financial dealings that were going on even right before the start of the collapse.
Is the great investigator from Akranes already making progress?