The much-talked-about EUR 500 million from the Central Bank of Iceland to Kaupthing shortly before the latter bank collapsed did not (for the most part) go to the UK and into Kaupthing Singer & Friedlander. This is one of the findings of the High Court case in London brought by Kaupthing against the British government. It is interesting to note, according to Visir.is, that the court ruling implies that if the loan had been used to support KS&F, the fall of Kaupthing might have been avoided.
It is clear that the British government’s forced closure of Singer & Friedlander was the last nail in the Kaupthing coffin during the eventful first days of October last year. After this, the company was doomed.
The court ruling pointed out that the UK financial regulator, the FSA and Kaupthing negotiators reached an agreement after exhaustive negotiations on 4-5 October 2008 that Kaupthing would increase Singer & Friedlander’s cash position in stages. The FSA did inform Her Majesty’s Treasury (the UK finance ministry) of this decision.
The EUR 500 million loans from the Central Bank of Iceland came on 6th October. The day before (5th), Kaupthing had promised to pump GBP 186 million into KS&F (around half the loan value) on the 7th October. In reality, only GBP 36 million ended up in London. As previously reported by Visir, the FSA believed that the additional GBP 150 million had been frozen by the Central Bank of Iceland.
But according to other sources, this was not true. Visir.is reports that the entire loan was paid out; but that Kaupthing used the money to shore up its operations elsewhere in Europe. Among others, a portion of the funds went to Sweden and another chunk was used to save Kaupthing Edge in Germany. This comes as a surprise because Kaupthing managers themselves pointed out that Singer & Friedlander would be the key to the bank’s survival.
The nationalisation of Glitnir Bank is also mentioned in the High Court ruling and the strong negative effect it had on trust in the entire Icelandic banking system.
On the day after Glitnir’s nationalisation, on the 30th September, GBP 37 million was taken out of Kaupthing Edge bank accounts in the UK. This massive withdrawal triggered a ‘code red’ on the state of Singer & Friedlander. In response, Singer & Friedlander announced it would increase its funding from Kaupthing by an additional GBP 1.1 billion; but the mother company could not provide such funding.
The FSA later agreed to accept GBP 1.25 billion in smaller chunks, as stated above.
It was at this time that Kaupthing made desperate attempts to sell S&F to JC Flowers. The negotiations failed partly because Kaupthing promised the FSA it would transfer GBP 175 million “within hours” on the 7th October. The funds, however, never arrived.
On the 8th October, the FSA learned of the failed JC Flowers deal, but accepted Kaupthing’s new promise to send GBP 300 million; but that too never arrived. By this time, the patience of the British government was exhausted and later that day the government decided to take over Singer & Friedlander and transfer all its assets to ING Direct in the Netherlands before it fully collapsed.
This timeline of developments seems to be accurate and is backed up by documentation presented during the High Court hearing. However, during the entire process last autumn, Kaupthing leaders were assuring the world the bank’s overall liquidity was strong and the chances of collapse were extremely remote.
“Kaupthing leaders were assuring the world the bank’s overall liquidity was strong and the chances of collapse extremely remote”
Typical bankers. That’s why nobody trusts them anymore. Lies, fraud, bonus, lies, fraud, bonus…
Good article Alex with lots more detail than the English language ones that I’ve read. Thanks.
A catalogue of errors or deliberate?! You’d bet that someone profited from the collapse, especially as it seems that they could have been saved easily, yet the money was channelled elsewhere!
This finally lays to rest the claim by some that Iceland’s problems are all due to the actions of the British.
From one year ago.
Haarde then hit the topic of relations with UK. “…the way we were treated by the British Government last week had nothing to do with salvaging British interests and was absolutely unacceptable.”
“The British Government’s unprecedented actions against Kaupthing in the United Kingdom have led us to review our legal position vis-à-vis the British authorities. To that end, the Government of Iceland has appointed a British law firm, which is now working to prepare a case, and the Icelandic Government has also taken various measures to ensure that the British public is made aware of our point of view.”
and now? the bank system collapsed, the banks and the Gov. are to blame but anyway, it will be covered by the taxpayer….who cares?
send the bankers all to jail, if they are innocent apologise and send them home to their wifes
we care claus – the ksfiom savers in the isle of man whose money was placed by ksfiom in ksfuk – with no compo from uk govt and token from isle of man govt
“Visir.is reports that the entire loan (EUR 500m) was paid out; but that Kaupthing used the money to shore up its operations elsewhere in Europe. Among others, a portion of the funds went to Sweden and another chunk was used to save Kaupthing Edge in Germany”
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So Kaupthing sank, along with this last gasp EUR 500m loan, draining out much of the cash reserves of the Iceland state. They lied and cheated anybody who had the misfortune to do business with them. They acted like charlatans of the highest order and had the outrageous cheek to take a baseless court case against the Brit Gov.
>we care claus – the ksfiom savers in the isle of man whose money was placed by ksfiom in ksfuk – with no compo from uk govt and token from isle of man govt
Hi Steve. I understand that the preferred solution would have been to keep the money in the IoM or to diversify the deposits outside the group.
But, forgetting that for the moment, has anyone worked out whether KSFIOM would have been better off with the money in K.hf or KSFUK?
The other thing that occurred to me is that maybe K.hf wasn’t prepared to allow the funds to sit in the IoM? From this judicial review, it seems that when they transferred money from K.hf to KSFUK, they then transferred most of it back out again to try to plug gaps in other countries.
>draining out much of the cash reserves of the Iceland state
Hopefully the Icelandic government secured that loan on something that held value (not that I know whether it would have been legally possible to do so).
interesting stuff bromley
I think it is impossible to say at this stage whether KSFIOM would have been better off in hf than UK.
This needs a transparent inquiry in relation to KSFIOM and KSFUK.
The UK government will not do it – and the IOM non-public enquiry has whitewash/ cover-up written all over it.
The IOM depositors have been treated disgracefully falling between various goverments with different agendas – all of which have an interest in sweeping ksfiom under the carpet.
I personally suspect some political pressure was applied in putting the ksfiom monies in ksfuk – it doesn’t make sense otherwise.
Surely you cannot think that members of HM Government would act in a way to ensure that money from the IOM bank, be transferred over to the UK banks with anything other than honest intentions.
intentions to keep the kaupthing monster alive until darling was ready for his sting – so that the UK bank collapse he feared didn’t happen before he was ready with his reactive measures.
Fair enough for those already in Kaupthing but unfair on those who put money in after kaupthing was doomed – regulators should have stopped it in spring 2008 rather than ponzi-ing in more money.
Where’s Fisy? Gone quiet ..
Basically this confirms the opinion I already had about the icelandic banking system when I started posting on this forum: a totally corrupt system which could only sustain itself a little bit longer thru frauds.
Found the judgement:
http://www.bailii.org/ew/cases/EWHC/Admin/2009/2542.html
One thing I saw was that, contrary to what Fisy has said elsewhere, the term deposit amounts were not significant. Most of it was instant access: total retail deposits ~£2.7b, of which IA ~£2b.
Also, confirmation of the existence of a run on KSF.