ExpatMoneyChannel Blog

This is the Blog of ExpatMoneyChannel - the first comprehensive personal finance website dedicated solely to the 5.5 million British expatriates who currently live overseas, as well as the tens of thousands planning to live abroad.

Monday 14 June 2010

Promises, pledges and a pile of protection

Go back to 2008 ... it's the visual images that stick in the mind more than the words. The pink and black logo; the meandering queues; the besieged branches; thousands of ordinary savers desperate to withdraw their savings from the once mighty, now seemingly defunct, bank. Northern Rock or financial quicksand?

And then there was Iceland - and that pre-volcanic eruption in its fissile banking sector. The cash had gone up in smoke the way the ash was about to. Ordinary savers left stranded once again. Those of us on the sidelines gawped in horror as our fellow investors faced up to the appalling reality that their nest eggs had gone, vanished, vamoose. They'd been robbed within seconds. Would we be next?

And so it was offshore with the collapse of Kaupthing Singer & Friedlander (IOM). And suddenly expats around the world experienced that same numbing sense of insecurity not knowing what calamitous news they'd be waking up to the following morning. Whose bank would Humpty Dumpty its depositors next? And where, of where, were all the King's horses to help savers ride out the mess they found themselves in? Could any of the great finance houses be trusted? Any statement believed? And it all went on for long enough to compel the rest of us into making panic withdrawals. We scratched around like headless chickens looking for safe havens where none were to be found.

I know from personal experience, because whereas I didn't have have savings with Kaupthing Singer & Friedlander (IOM), I did have some tucked away with another offshore deposit-taker on the Isle of Man. In my case I had a pot of euros and was obliged to go to Offshore Britain with them because no bank in the UK at the time I was looking offered a straightforward euro savings account. And yes, when KSF(IOM) went down, I didn't hang around. I pulled my pot out quicker than any bank manager could say, "one bank collapse doesn't make an industry crash."

This wasn't entirely rational because the reason I'd chosen the Isle of Man over another offshore finance centre in the first place was solely down to the fact that this one offered depositors - the small guys - not just deposit protection, but deposit compensation. Plain and simple. And although I didn't have to suffer the same agony as KSF(IOM) depositors who endured months of insecurity about whether they'd ever see their money back, that situation has now changed; deposits have been restored. So I needn't have worried.

I believe it's time the rest of the expat saving world heard the good news.

Every single depositor with KSF(IOM) qualifying for the compensation scheme (which post collapse was raised from £30,000 to £50,000) has now received that latter sum back. This Island's government proved its maturity and stepped up to the plate by meeting its obligations in full. What's more, the liquidator's work has not finished; there are hopes of going further; the target is to compensate depositors with at least 93p in the £1, whilst hopes remain that eventually the full 100% will be recovered.

So what now? Well, after my recent tour of the Island finding out how the government has honoured its pledges to depositors, irrespective of their nationality or place of residence, and given that my own plans for future spending remain euro-centric, it's time for me to get this particular savings pot back on track. To which end, I'm bringing my next egg back to the Island. My choice is swayed by the one centre that has proved how it behaves when disaster strikes. The Isle of Man keeps to its pledges. As a saver this tells me all I need to know.

And what's my cut off point? It's very straightforward. The regulator guarantees that not a penny less than £50,000 will, in the face of a banking collapse, be recovered for each and every depositor. So, on that premise, not a penny more of that total breaks the ceiling of my deposit with each and every deposit-taker.

The Isle of Man has proved itself by sticking to, indeed improving on, its guarantee to depositors. That's the contract we have as depositors with the regulator. Now all we have to do is interrogate the middle man - the deposit-taker - and to hunt around for the best bargains. Happy shopping!

16 comments:

MJA said...

Hannah

I was surprised that you made no mention of Guernsey, where the Government has so far steadfastly refused to either bail out savers or launch an independent public inquiry into the Landsbanki Guernsey fiasco.

Mark

Unknown said...

Hannah,
As a former depositor with KSFIoM I simply cannot let this 'rose-tinted' appraisal of yours go by without comment. The Isle of Man were obliged to draw on more than one hundred and fifty million pounds of tax payers money in order to fund the 'compensation' scheme - and this because there is no pre-funded monies available. Had another bank failed on the island, the IoM Government would have been overwhelmed. As it was, no matter what the state of play with the UK and Iceland KSF banks, the IoM subsidiary had plenty of liquidity, but unfortunately it had been foolishly deposited without protection in the UK bank with the full approval of that man Aspden. The bank had a very solid loan book, no substandard borrowers here, all high value, short term mortgages. Were it not for these factors the creditors of the bank would still be whistling in the wind. The IoMG is getting its 'compensation' money back from the liquidator and is very fortunate indeed that the returns are looking quite favourable. It doesn't matter that any Government has to wait a few years for the money to come back - Governments come and go and the debt gets repaid or written off - not so for depositors who have only finite lives. Many (majority even) depositors trusted the islands regulator with its promises of 100% compensation through the bank's parent, they used this enticement in much of their advertising, but when push came to shove they called it a 'letter of comfort'. I would not deposit one penny in the Isle of Man or any other offshore bank simply because not one of them has a bank of last resort and their populations are minuscule compared with the debts they could end up owing. It's patently a ridiculous financial gamble that no right-minded thinking individual would ever undertake. Believe me, creditors have much longer and far better memories than any debtor.
Ice

Unknown said...

To a cynically minded ex-KSFIOM depositor your blog couldn't have been written better by the IOMGs publicity agents. The IOM Depositors Compensation Scheme is no different than a Protection Scheme they have just chosen to call it by a different name.

In simple terms all depositors are protected up to the first 50,000 GBP of their lost deposit irrespective of how much is returned from liquidation.

In the case of KSFIOM it took over nine months for depositors to get their 50k or the full amount of their deposit if less from the scheme manager. It was no coincidence that there were no payments by the DCS until the first dividend was paid by the liquidators. If the bank had turned out to be totally bust with no or very little liquidation returns then we would, two years down the line, very likely still be waiting for our fully protected amount while the IOMG tried to raise levies from other banks on the island. As someone else commented, there is no bank of last resort.

It is no surprise that the IOM and other crown dependencies are allegedly losing depositors.

A final thought on your first filmed interview. Why does Mr Aspden, who flippantly blamed KSFIOM depositors (the IOM's customers in their banking dominated market) for their losses, not once look at the camera? Could it be he is reading his responses? An interview or a stage managed production? I can wait to see the sequels.

anrigaut said...

Hannah,

I sincerely hope you will be happy to wait a full year to see a single penny of your pot returned, with no certitude whatsoever that the full £50 000 promised compensation will ever be paid or over how many years, if and when the IOM bank you choose goes belly up. During this time, not only will you have no access to your funds but you will receive no interest.

Because that is exactly what happened to 11 000 or so KSFIOM depositors. About half of them had entrusted their savings to the IOM arm of the Derbyshire Building Society, sold off under the eyes of the regulator to a foreign bank most of them had never heard of and would never have chosen, without so much as a by your leave and with no option to withdraw their funds, less than a year before the collapse. During that agonising year, at least one depositor was moved to suicide.

That the compensation scheme finally managed, one year after the collapse, to pay out the £50 000 (or full deposit if less) in a single payment to all those eligible was made possible only in extremis by the injection of a considerable sum from the IOM Treasury because the other on-island banks, who are supposed to finance the Scheme, failed to cough up the amount required. How often will they be able or willing to do that if there are other bank failures?

Whatever you do, don't even consider putting your money into an insurance company bond. The IOM compensation scheme offers a meaningless maximum of £20 000 'top-up' per life company (to be shared among all their account holders). In other words bondholders are totally unprotected. To date, just 40% of their funds have been recovered by ten Companies on behalf of around 2000 bondholders.

Don't be fooled. You just can't bank on the Isle of Man.

Tricky said...
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Stuart said...
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Tony Cavanna said...

Hannah,

You say the IOM "Stepped up to the plate"? They don't even know where it is.

This is what really happens to depositors with failed banks on the IOM.

A paltry 'early payment' of 1,000 pounds for Christmas.

Another 'early payment' 6 months after the bank's collapse, this time for up to 10,000 pounds.

An attempt to foist a scheme of arrangement that was very complicated and offered returns no better than liquidation regarding the timeliness or amount returned. It also sought to take away depositors' few remaining rights. In this case it was so badly thought out that it was shot down by a single depositor. Depositors had to pay for the cobbling together of this scheme.

Your deposit becomes an investment and the return of your deposit is called a 'dividend'. And the regulator blames you for making an unsound investment in a bank they were supposed to be regulating. I was a customer with KSFIOM not a shareholder.

It took 11 months to get the first payment from the liquidator. Those who elected to receive their payment direct from the liquidator were paid BEFORE those who elected to receive their monies via the DCS. It's apparently going to take the best part of ten years, from the bank's collapse, to receive less than 100% of what we are owed.

Why bank somewhere where the regulator only plays at being one?

Even if the balance of my money plus interest plus compensation (that is proper compensation that's not funded with my own money) were returned to me tomorrow I'll never bank on the IOM again.

Have you checked the Parental Guarantee given by your institution? The IOM regulator accepted a dud one from Kaupthing Hf.

Banks should be allowed to fail. The regulator said so himself at the Compliance Institute Conference in January 2009.

Tony.

peter said...
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flying pig said...
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Unknown said...

“Those of us on the sidelines gawped in horror as our fellow investors faced up to the appalling reality that their nest eggs had gone, vanished, vamoose.”
Hannah,
You and Mr Aspden have referred to the people who deposited money in the IOM bank as “investors”. I find this, coming from two financial experts, very worrying. When people buy a high risk investment they are warned by the FSC, who are there to protect investors, the value of stocks and shares can go down as well as up. Perhaps Mr Aspden and his regulators should warn savings depositors that their savings can be easily lost overnight when banking on the IOM.
I was attracted to the IOM by their 100% guarantee which turned out to be worthless. The biggest mistake of my life, I will never bank there again.

Unknown said...
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Integrity said...
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Jerrawee said...

Your commentary does not tell the full story of what a disaster it is that has been created by IOM Inc. If I take into account the very poor conversion from South African rand to UK pounds and even worse the depreciation of that currency to Australian dollars and then the lost interest over time, I am down 100's of thousands of dollars, never to be recovered. It is honestly so depressing to see life savings and future plans destroyed and every day to live with this and see the perpetrators get off scott free

Mark said...
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Kevin said...
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Mudkid said...

Hannah

Can you imagine what it is like to reach the end of your working life and find your life savings gone?

Can you imagine what it is like to have the people you entrusted your life savings too call you - as Mr aspden called the IOMs depositors
'uneducated investors'?
and that 'some banks should be allowed to fail?'

Cab you imagine what it like to have your life on hold for years in the hope that you will live long enough to see some of your savings back in a greatly depleted form perhaps some day in the future?

Can you imagine what it means to not have the money to buy a place to live?
Not becasue you have been wasteful but becasue you placed your savings in the Derbyshire building society IOM and its gone?

Can you imagine then being reviled by the smug inhaibtants of the IOM - read Manx forums if you really want to know how they feel about the people who deposit money with them and how they all look upon depositors as stupid fools who 'deserve' to lose their hard earned life savings?

Can you imagine a government who could have easily taken a loan to help pay out the depositors and probably would make a profit on the deal - ( KSF has a blue chip loan book )relieving the depositors of years of anxiety but no sat smugly on their little island not willing to risk an inch of skin for the people who have for years been loyal savers with them?
But the IOM has shot itself in the foot - deposits are down and people have taken note that the the IOM has consideres them fools and 'uneducated investors' and have taken their savings elsewhere.

Anywhere is better than a perfiodious little island that not only denies any resposnsibility for what went wrong but pours scorn on the people who did no wrong but trust them.

An island that has done as little as possible to help the depositors and everything possible to slide out of helping them.

An Island that has allowed its loyal depositors many elderly and retired persons to struggle and sink when it could have done so much more and raised its profile as a morally reposisble financial centre.

No it had the chance and blew it.