GFSC clarifies misconceptions over Landsbanki Gsy collapse
Wednesday 26th November 2008, 2:00PM GMT.
MISCONCEPTIONS about the collapse of Landsbanki Guernsey need to be laid to rest, according to the Guernsey Financial Services Commission.
Speaking exclusively to the Guernsey Press ahead of the expected publication in early December of Promontory Financial Group (UK) Ltd’s inquiry into how the regulator handled the banking crisis, GFSC chairman Peter Harwood, pictured on the right, and director-general Peter Neville, pictured left, have spoken out.
Mr Neville said many misconceptions about the Landsbanki situation had developed wildly ever since the bank was placed into administration on 7 October and they were simply not true.
The main thrust of them could be broken down into the following three categories:
- The GFSC did not do enough to stop the Landsbanki situation,
- The GFSC has not done enough since Landsbanki collapsed, and
- The GFSC had information that should have been communicated to depositors
However, Mr Harwood said speaking out now was in no way an attempt to cut across or pre-empt any of the conclusions to be made by the independent review team, which is headed by former Bank of England executive director Michael Foot.
‘We are concerned at the number of misconceptions that have come out through letters we have seen,’ said Mr Harwood.
‘If we didn’t address them, then they almost become written in stone.’
Two of the potentially most damaging and wide-of-the-mark rumours that began to spread in the days and weeks after 7 October were that Landsbanki Guernsey had transferred £36m. to its sister bank Heritable Bank in the UK the day before it was placed into administration, and that the GFSC had warned States departments to remove funds from Landsbanki before administration happened. Mr Neville said both were completely incorrect.
‘It’s simply not true to say we told States departments to take their money out of Landsbanki or Iceland.
‘No warnings were given to any States department or any third party.’
He said the GFSC only became aware that Landsbanki Guernsey could not survive during a meeting with its directors on the evening of 6 October, after which it was placed into administration by the Royal Court in the early hours of 7 October.
Mr Neville said the GFSC had done everything in its powers to stop Landsbanki Guernsey customers from suffering losses, but the extent, severity and suddenness of the global financial crisis were completely unpredictable.
This was coupled with the fact that the island had yet to establish a depositor compensation scheme despite the fact that the GFSC had been arguing in favour of one for a number of years.
He said looking back on the steps taken by the GFSC in the build-up to the Landsbanki collapse, it was difficult to see any other decision it could have taken along the way which would have averted the crisis.
The trouble with being a regulator, he said, was that when everything was going right they were said to be doing too much, but when things went wrong, they were accused of not doing enough.
‘Regulators cannot be expected to be better at forecasting than other experts and step in to close down all risks without good reason.’
Had the regulator forced Landsbanki Guernsey to place all its assets in risk-free assets, for example, Mr Neville said the GFSC would have been criticised for being uncommercial and overbearing.
‘We acted very quickly and firmly as soon as there was any threat on the basis of what was known at the time and what was reasonably foreseeable.
‘We have to take into account that if we act in the wrong way, for example by forcing a bank to do something that causes the public or other banks to lose confidence in the bank, we could cause the harm we are trying to avoid.’
By way of illustration, he said that the GFSC insisting the bank’s balance sheet was restructured was not a popular decision with directors, because until that point in May 2008, 100% of funds were upstreamed from Guernsey.
‘In early 2008, the worsening economic situation in Iceland did concern us and we asked Landsbanki Guernsey to restructure its balance sheet. At that time they were not happy because they said the action we were taking was much stronger than any other regulator.’
At that stage, Mr Neville said the GFSC thought the property loans in Landsbanki Guernsey and Heritable would have been enough to repay depositors. And it was following this restructuring of the balance sheet in May that the outlook for the group improved.
Between May and September, it was posting good half-year results and had a stable rating, but then the crisis hit with unprecedented haste at the end of September, which made it almost impossible for the GFSC to do anything that could then have stopped what eventually did happen.
‘Our ability to act was constrained by the fact that, once the depth of the crisis became apparent on 29 September when the Iceland Government took over 75% of Glitnir, if we had taken such action it could well have caused the harm we were trying to avoid.’
Mr Neville said Landsbanki Guernsey had substantial liquid resources and it was believed that if it had to cut loose from its parent, Landsbanki Islands hf, it along with Heritable could stand alone.
‘As substantial suppliers of retail liquidity, these two banks represented valuable assets that could be sold.’
And the takeover of Glitnir had falsely given the GFSC confidence that the Iceland authorities would take appropriate action and rescue LIhf, Landsbanki Guernsey and Heritable if necessary.
‘In the week before the collapse, the signals on Iceland were positive. It was only as late as 6 October, as far as we could establish, that acute liquidity issues emerged.’
Since then, Landsbanki Guernsey depositors have received 30p in every pound deposited with the bank, but are still waiting for news on the rest.
Mr Neville said he was committed to getting the best result possible.
‘I would like to take enough action to get all the money back but I do believe we have taken the right action and as much action as we could as this thing developed,’ he said.
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GFCS has still not explained why it allowed all depositors to be repaid 30% – when the principle universally accepted in European banking is to give preference to individual retail depositors over corporate depositors.
Corporate depositors have a greater ability to claim through international litigation; have greater resources to fund such action; and can offset losses against profit on their corporate balance sheets.
Indeed there has been no publication of the percentage of the corporate liabilities of Landsbanki Guernsey Ltd and requests by creditors for that vital information have been completely ignored.
If the corporate versus retail division at Landsbanki Guernsey Ltd was as per the Landsbanki Islands hf 2007 statement, as much as 65% of the deposits could have been corporate – meaning that the individual retail depositors could have been repaid the majority of their deposits immediately.
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The GFSC says the main thrust of many misconceptions about the Landsbanki situation can be broken down into three categories.
But they conveniently forget to mention a FOURTH point which, although not a misconception is the MOST IMPORTANT QUESTION that needs to be answered:
Why did the GFSC permit the sale of our hard-earned savings to a foreign bank that most of us had never heard of?
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Even though the GFSC set out to quash the many misconceptions surrounding the failure of Landsbanki Guernsey (LBG), it seems to have failed to throw any light on one of the most contentious issues of the whole affair: When did Landsbanki Guernsey (LBG) transfer £36m to the Heritable bank in London, and who initiated the transaction. The transfer of almost a third of LBG’s funds to the sister bank that went into administration is the main reason for the shortfall in the failed Guernsey bank’s assets, preventing the full repayment of savings to over 2,000 LGB retail depositors. Many of the depositors are Guernsey residents, and most of the others are retired British expatriates.
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The GFSC states there is a misconception with respect to the £36 million transferred to Heritable. There can be no question about the importance of this transfer in triggering Administration. We do not know when the transfer took place. The following statement was issued!
The Administrators for Landsbanki Guernsey announced the following at http://www.landsbanki.co.gg: “The Bank had taken measures to diversify its exposure to its parent company in the six months preceding appointment. The main reason for the Bank’s difficulties has been the placing of funds with its UK fellow subsidiary, Heritable Bank, which has now gone into Administration.”
We depositors want these funds returned!!!
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I’m surprised somone hasn’t taken Peter Harwood to task over his comment that “… the GFSC only became aware that Landsbanki Guernsey could not survive during a meeting with its directors on the evening of 6 October, after which it was placed into administration by the Royal Court in the early hours of 7 October”
This is what Mr Harwood told the Guernsey Press (15 October) I quote “He said the GFSC had been made aware by Landsbanki Guernsey before the meeting that it had begun to experience a significant level of withdrawals from its depositors.
‘This information about the bank was communicated to the chief minister immediately before the meeting with States members and repeated to members of the Policy Council at the meeting held later that afternoon,’ he said”
This puts Mr Harwood’s “we didn’t know nothing Guv”comment into a truer time scale. If the communication was transmitted to the Policy Council the news must have been grim.. Perhaps the confirmation the bank would not survive came later in the evening, but the die was cast much earlier in the day.
This makes the need for a truly independent inquiry all the more urgent to ensure that facts don’t get lost in the clever use of words.
Well,clever until someone catches you out.
Finally, this rant by Peter Harwood and Peter Neville does look suspiciously like the GFSC case to Mr Foot. Not much left out!!!
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Lesley – I strongly suspect that it would be totally illegal to favour any one type of creditor over another in these circumstances.
Mark – are you saying that you did not receive the letter from the bank advising you of its change of ownership or that you simply didn’t pay enough attention to its contents or bother to check out the implications of the transaction for yourself ? In other words, if you were concerned then you could have chosen to move your moeny elsewhere. Your degree of hindsight in October 2008 is no stronger or weaker than anybody else’s.
Boris – those are indeed vital questions and I suspect that the answers are the very same answers that the GFSC is asking of its UK counterparts and to which the (printed) newspaper article today referred as being questions which the GFSC felt unable to comment on in the media at this stage, I guess for sensitivity and legal reasons.
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Whatever Peter Harwood might believe there is a prima facie case for a deep invstigation into
* The realistic belief that the GFSC did not do enough to stop the Landsbanki situation,and
* The realistic belief that the GFSC had information that should have been communicated to depositors.
The misconception approach by the GFSC does pre empt the conclusions of the in house appointed investigator.
Mr Harwood’s defence and his previous utterences simply add more concerns rather than to alay fears.
However, I suspect Mr Foot will see things in the way the people who appointed him. This last comment, of course, on npo way pre empts the findings of Mr Foot.
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It is high time that eveybody needed to focus on what is what. People are out of pocket and it is now time that the government laid their cards on the table!
It won’t be much longer before they are forced too!
Then what? Our money will be spent on fighting a losing battle?
Everybody needs to focus their attention and energy on those which wishes to offer comfort whilst holding their hands out. Such a shame that they are the first to put their hands in their pockets to check whether the cash is still there!
Who is looking after who here?
It is every man and woman for themselves, but what ever, steer well clear of GY! I will exclude myself here! We can be trusted but you will have to take my word for it!
How about your business then?
Respcted?
Regulated
This Island is an incredible joke!
The laughter is starting to roll.
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Paul, our little island is run by jokes. Nemely the States has never represented the common man or common depositor that’s invested here. It’s a banana Republic managed for an extreme minority, an establishment cabal.
It’s not only depositors that the States has seen fit not to represent. Local people (consumers) have had consumer law sitting on the shelf for a decade, 40 years behind the UK.
Both consumer and depositor protection comes under the remit of the Commerce & Employment Dept. Yes, like the UK’s DTI, business interests are ‘mixed’ (a stark conflict of interest) into the same Dept. And like the DTI, our Commerce Dept is a bunch ineffective, worthless pen pushers decade after decade of representing the little man.
The next issue is that white elephant the GFSC itself. An empire building quango who if it does not represent depositors and invetsors, who does it represent?
The GFSC response for Landisbanl is the same as that for the Splits Scandal. Hand sin the air, shoulder shrugging, “nowt to do with us Gov!”.
What is the worth of having a Govt quango pouring over every companies files, customer addresses, checking birthdays are correct? Zero. 99.999999% worthless and of no material benefit to anyone on Earth.
What is the worth of the GFSC pouring over depositors to see if its drug money? Zero again. Unless a person is convicted or due for prosecution it’s impossible for any bank or investment house to determine it’s drug money. And no criminal would be stupid enough to use a known convicted person to deposit a penny. The GFSC ‘drug money’ policing is nothing but offensive spin for defending they do nothing of any value.
Finally what is the worth of the GFSC pouring over company accounts. Well just as the Splits scandal, of which an ex-GFSC Chairman was a board member at the time, and the Landisbank collapse, both demonstrates the GFSC are once again utterly useless. The GFSC were ‘playing’ with Landisbanks balance sheet over 6 months before its collapse.
The real answer here is not blaming the GFSC which needs folding by the usless Commerce & Employment Dept.
What is needed is depositor transparency. So instead of the GFSC hiding information from depositors, we have laws that allow depositors to go in themselves to find the truth. Leaving it to penpushers inspecting trivia but missing every major collapse has run its course and now proven beyond all reasonable doubt is a complete waste of £9m per annum and a 100 strong staff of worthless empire builders.
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States Members should take heed of these comments, exercise their authority, salvage Guernsey’s damaged financial reputation and set up a proper enquiry. This enquiry would have a full remit, not one decided by the GFSC, and it would investigate the role and actions of all politicians and public servants involved and not just the GFSC.
Tony Webber
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Johnny B’s appraisal of the GFSC seems a little harsh but apropriate.
The appriasal seems closer to the truth than the GFSC’s own commisioned, and paid for, review will be.
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