I am pleased Guernsey is making the right noises when it comes to transparency. It is in the interest of the free market that no accounting ‘holes’ are hidden in order to make the right choices. Would anyone invest in a company if they knew they were so dependent on others lending you enough every month to stay afloat?

Report abuse

Report abuse

It states

“One London-based analyst at a large investment bank who followed Kaupthing, Glitnir and Landsbanki for many years is unsurprised at the some of the revelations. It is the ratings agencies and financial supervisors who must take the blame for failing to spot some tell-tale signs that some unusual activity was occurring, he claims.

“If you took one careful look at the annual reports you could see that loans to related parties was extremely high,” he says. “Any normal bank might give his chief executive a mortgage but running into billions is certainly unusual. But getting money on the international markets was cheap and there was no penalty for not being a proper bank – as I don’t believe these were.”

One headache that may have caused the regulators to back away was the banks’ complex ownership structures involving a constantly shifting mess of investment vehicles and holding companies. All the banks appear to have sold and re-sold stakes, shifted around top management staff and lent each other’s owners large amounts.

By Christmas 2007, a handful of analysts were beginning to suspect that something was up. It looked like the Icelandic banks were finding it even more difficult than most to raise money on the international markets, turning instead more European depositors to fund their loan operations. This gave birth to Landsbanki’s Icesave and Kaupthing Edge.

Per Lofgrem, an analyst for Morgan Stanley, wrote at the time: “New funding has not come from traditional sources. The acquisitions of Derbyshire Building Society and Robeco [a Dutch bank] were made in order to get hold of their deposit bases. We also believe that the bank would have used better-known markets than Mexico to issue debt if more conventional markets were open.”

Others warned investors strongly to stay away from them. Andreas Hakansson, an analyst for UBS in Sweden, repeatedly wrote client notes stressing that the complexity and vulnerability of the banks.

Kaupthing Edge started marketing to British savers in February 2008 and was fast building up a deposit base. And all, including Glitnir, had been recommended by advisors to local authorities as a good high-interest place to put their savings.

As Kaupthing, Landsbanki and Glitnir appeared to be on the brink of collapse in the autumn of last year, an army of spin doctors tried to persuade the UK that the banks were the target of a media conspiracy to discredit them”

The shame is that the GFSC still blames FSA for not telling them what was going on.

The known facts and the content of the Telegraph report shows just how the regulators failed depositors.

From the utterances of he new GFSC man it seems the lessons might not been learnt.

Report abuse

Arnald

Spot on

Report abuse

Potential customers for anything are able to browse the likes of Which? for info and compare user test ratings for tvs and the like. They do this by understanding how they work and applying everyday usage to gauge how they perform. When you invest in a Retail Fund you are given the bits and pieces, and with a bit of nous, you can see what’s what. But not a deposit. You get an interest rate. You know what that is. You are also aware that a DPS exists but the incidents are so rare and NEVER mentioned (previously) in any correspondence other than a reference to a law (probably).

You don’t get information about how integral your deposit is to the wider actions of the bank. A TV becomes yours, if the company goes down you still have a TV.

This corporations have no public accountability. They do what they want within the lax regulatory constructs in order to drive massive profits for themselves. If they are overexposing themselves to risk then it should be published. It is still client money. There should be enough capital at any given time to be able to repay all deposits.

If an instituion wishes to play high stakes monopoly then it should make it’s own arrangements to raise cash, if it desires our input then it should make it quite clear what it’s doing. Otherwise retail banking should be as straight and boring as it comes. It’s a service not a casino.

As the banking crisis shows, these ‘masters of the universe’ who, incredibly, are still in their jobs, still getting hundreds of millions, still claiming that they know best, are simple con artists. Absolutely no different to any other snake oil merchant.

It’s people’s money. They should call the shots.

Report abuse

The answer can be found in the evidence of the GFSC to the Commons Select Committee. Some might recall the then Director General say that the GFSC was relying on the FSA for information on the Icelandic banks. It was a surprise to the GFSC when the proverbial hit the fan because the FSA hadn’t told them so.

All of this despite

1 There was sufficient evidence available to the GFSC to show the fragility of the Icelandic banks and economy, especially when one is constantly reminded of the expertise at the GFSC. Many of the posters to this forum were aware, from sources available to them, of the dangers of leaving their money with Landsbanki. Makes the GFSC reliance on the FSA (known to many as the Fundamentally Supine Authority) to the select Committee as feeble in extreme.

2 The GFSC had already concerns about the effect of upstreaming at Landsbanki.

3 The GFSC of all people should have been aware of the dangers of the banking model of Landsbanki. After all one of the Commission members was a director of Northern Rock when it floundered.

Whilst it is fashionable to criticise those depositors who entrusted their money with Landsbanki, even if they hadn’t done their homework they can still feel justified in the belief that the regulator let them down, despite the review of the regulator, commissioned by the regulator itself, and conducted by a former regulator.

Report abuse

I agree that the deposit/investment discussion is misguided. Those who argue that the LBG depositors had themselves to blame claim that they were chasing high rates and therefore accepted high risk. A high rate deposit account in Bank X is no more or less risky than a 0% current account at Bank X – if the bank goes bust the exposure is the same regardless of the rate of interest in any given account.

To that extent, bank deposits are not like investments and the depositors are not gambling in the same way as people who buy shares in emerging markets companies.

However, where many of the LBG depositors have it wrong is that they seem to assume that because it was a bank deposit that they could expect all of their money back come what may. Some even seem to think that their money should be sitting in a vault in St Peter Port (or even London for that matter). This is a complete misunderstanding of the fact that a bank deposit is nothing more than a loan to a private financial insitution. If the institution goes bust it cannot repay your loan.

If the institution is solvent but relies on parent guarantees to repay its loans, and the parent goes bust, then the institution cannot repay your loan.

No money was stolen – the person that the money was lent to just cannot repay because its parent went bust.

We should not be talking about whether the depositors were to blame in making the deposit, nor demanding payment from the States merely because the money is no longer in the bank (as clearly there is no right to compensation unless the States were at fault – there is just an understandable wish to be repaid by someone). What we should be talking about is how the situation was allowed to happen and whether anything that could and should have been done was not done. If there was fault on the part of the States, then there is an argument for compensation. But if it was one of those things that no-one here could have prevented, then the argument should be had in Iceland and London, which is where the problems started.

Arnald – you call the way that banks treat deposits misselling and describe it as a big con. I don’t think it is because most people do know that banks are not guaranteed and do not keep money in a vault. Why else have depositors protection schemes? What about when BCCI went bust (with no-one expecting the state to pick up the tab in those days)?

Report abuse

Report abuse

Report abuse

Report abuse

Report abuse

Another real insult is those prosperous banks setting out restrictive criteria on borrowing, telling viable small businesses that they have to pay much, much more for operating loans, and stopping funding if the margins are not high enough, citing ‘business plan shortfalls’ as a reason.

Where were the auditors to assess the going concern of these institutions? For how long were the toxic ‘assets’ hiding the fact that key accounting prudence and viability were threatening the structures? Would they have been allowed to carry on with the extreme leveraging and exposure to risk like they did?Why is it deemed acceptable for a sign off on a subsidiary when not taking to account the other aspects of the business it is linked too?

Why isn’t there transparency in the selling of these ‘deposit’ products mentioning that the cash is not held here in Guernsey, but used in global casino investments, to benefit only the bosses and shareholders in other countries, whilst avoiding tax there and paying next to nothing here?

And on top of that, the same managers of the failed institutions are still running the global operations – we may be somewhat isolated (and insulated) from the inevitability of real economies in decline, but whilst the ‘masters’ are celebrating the return of risk taking, and the prestidigitation of turning the proceeds of our daily stresses and labours into tax-dodging, state-begged, morally-dubious mega profits caused by sudden market dominance and a whole raft of state insurances on the bad debts (at least in the UK) overseen by their incompetent and flawed short-termist models.

If preserving the failed business models of the global entity take precedence over protecting the depositor in one of the subsidiaries, then surely it becomes that jurisdiction’s responsibility, knowing this, to impose local legislation demanding that if these places want to take advantage of our highly competitive business environment, then they should adopt some ‘best practice’ and pay insurance equivalent to the riskiness of their total operation. The riskier the gambles, the more local capital they must hold.

It shows how far we have gone when we accuse those who have lost life savings of trying to smear the local jurisdiction they lost them in. If it had been Cheshire Building Society, with all the ‘old fashioned’, safe reputuations that the old mutual model used to maintain, would we be mocking then? I reckon not, I reckon there would be an outcry in how a building society could be so mismanaged.

Individuals should not suffer because of a lack of systemic controls. Audits and registration should only be signed off if corporate governance includes treating the customer as priority.

It is not just the Landsbanki depositors that have lost out – the same failings are ruining ordinary folk all over – LBG highlights our involvement.

Report abuse

Your 10.16am post is excellent and totally appropriate.

Report abuse

Can’t the LBDG take any courage in the fact that the CM is meeting with the Icelandic reps? It may not be happening as quickly as you might like, but all meetings with other countries take an awful lot of time to match diaries and go through diplomatic protocol loops.

If it were me and my money at stake I’d be a hell of a lot more supportive of any efforts. Especially so as you know full well that Guernsey has no legal obligation to anything at all.

Report abuse

All of the marketing literature, be that full page ads in the GP or online activity stated ‘deposit’ in ‘bank’ at ‘fixed rates’ for a ‘fixed period’.

It may now be academic but one of the dynamics of this affair is that what was clearly marketed as a deposit, for a fixed term with the ability to withdraw that after the set period has now been defined, by some, as an investment.

Irrespective of the legal idiosyncrasies of the Landsbanki product range there is absolutely no doubt in my mind that the people who were attracted by the promotional activity considered themselves depositors (no risk) and not investors (low to high risk).

That subtle shift from depositors, now becoming investors can only add more salt to what is a very open wound for some people. There are some very normal every day people who have been greatly effected by this and, purely on a human level, I don’t see the point of trying to make there plight any worse by mean spirited academic comments.

Caveat: I had no money with Landsbanki and don’t know anyone that did.

Report abuse