DAG Press Release 24 July 2011: KSFIOM DAG responds to IOM Treasury Minister

Category: DAG Press Releases

KSFIOM Depositors Action Group has written to IOM Treasury Minister Anne Craine to express its extreme disappointment at her outright rejection of its loan trust proposal which would have put an end to the ongoing uncertainty of the 25% of depositors and bondholders who still await the return of a significant part of their savings and who – in the final analysis – will have in no way benefited from the Depositor Compensation Scheme (DCS).

We find the reasons advanced for the Treasury decision wholly unconvincing and note with dismay Ms Craine's view, expressed to members of the Select Committee on KSFIOM, that any such action “would now achieve little”. We would ask for whom it would achieve little. Certainly not the several thousand affected individuals, for whom these words are highly insensitive and offensive.

But Ms Craine's insensitivity and apparent self-delusion seem to know no bounds. Speaking in last week's Tynwald debate on the final report of the Select Committee, she confidently announced that the KSFIOM affair was a “good news story” of which the IOM “can be proud”. Judging from the largely silent majority in what should have been an important debate, most members of Tynwald either agreed with this remarkable assessment or were more than content to go along with the pretence of a job well done. Certainly no-one present was going to take the risk of questioning the weak and narrow findings of the Select Committee. The general air of self-satisfaction and mutual congratulation was no doubt a reflection of inward relief at having saved the essential – at least for now. Mr Lowey's telling conclusion that “the Committee has done a great service to the IOM” leaves us more than ever convinced that the Manx authorities, and Treasury in particular, are far more concerned with promoting the island's image than with defending the interests of the Manx people and the unfortunate customers of a bank that collapsed on its watch. In the longer term, the reputation of the IOM, and notably of its financial sector on which much of the island's wealth and well-being depends, is not well served by failing to fully acknowledge when and where the authorities were at fault.

To add insult to injury, Ms Craine then proceeded to successfully oppose four of the Committee's recommendations (all narrowly defeated) and to propose amendments – all meekly accepted by the Committee chairman Mr Watterson – which seriously diluted several others, leaving some of them with little meaning. Tynwald's failure to support the recommendation that Directors of banks should not be able to serve as FSC Commissioners (and vice versa) is a severe blow for all who, in the interests of good governance, seek to address the issue of perceived conflicts of interests. The elections are coming. Maybe it's time for the unheeded and ill-represented Manx people to wake up and vote in some less self-serving MHKs of integrity willing to act in the real interests of the wider island community.

What, we ask, does the IOM government have to be proud of in this whole sorry affair? The better-than-expected recovery is good news for depositors, but it owes nothing whatsoever to the efforts of the authorities now apparently seeking to claim the credit and basking in the glory of their 'success'. The Treasury loan eventually proposed and approved by Tynwald was required only to allow the otherwise unfunded DCS to live up, albeit belatedly, to its promises to the “fully protected” depositors, while abandoning higher-value depositors and Life Company bondholders to their fate. The Manx Treasury's determined attempts to impose an inadequate and unacceptable scheme of arrangement (SOA) were detrimental to the interests of creditors, both in terms of the consequent delay in commencing the liquidation (and hence in making payments to creditors) and in terms of the costs – borne by the creditors – of the liquidators and their advisers in undertaking work that the creditors neither sought nor supported, and of KSFIOM DAG's advisers in analysing the deeply flawed proposal. The Select Committee has recognised that the SOA should have been abandoned. Instead, it was pursued to the bitter end, with dark hints of a fire sale of assets if it were not adopted. It is telling that the Select Committee makes no criticism of this clear attempt to frighten creditors into voting the “right” way on the SOA.

We continue to contest most strongly the Select Committee's attempts to blame the collapse of the bank exclusively on the actions of the UK authorities. KSFIOM collapsed because it made deposits with a counter-party (KSF UK) which could not meet its liabilities. There is no known record of the compromise which must have been made between the FSC and KSFIOM's directors to allow these deposits to be made despite an unambiguous resolution of the FSC Board that, in view of the rapidly deteriorating situation in Iceland, all exposure to Kaupthing Group should be eliminated. Without that disastrous and imprudent under-the-counter compromise in favour of perceived business interests, KSFIOM and its customers would have been protected from the collapse of Kaupthing. It remains deeply troubling that one of KSFIOM's directors was also the Deputy Chairman of the FSC – exactly the sort of situation the failed recommendation was intended to prevent in future.

It is for all these reasons that we continue to believe that the IOM should accepts its share of responsibility for our plight.

Accordingly we are calling on Ms Craine to reconsider her position with regard to the proposed loan trust and to issue a statement correcting the inaccurate statements made to date with regard to the role of the IOM authorities in the insolvency of KSFIOM. Until that time, we remain committed to highlighting the unnecessary distress that the dilatory response of the IOM authorities has caused to innocent depositors and bondholders and to seeking to avoid a repetition of this state of affairs.

 

KSFIOM DAG Strategy Team

www.ksfiomdag.com

The correspondence between KSFIOMDAG and the IOM Treasury Minister is available here: http://www.ksfiomdag.com/index.php?option=com_kb&task=article&article=161.

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