Depositors with Isle of Man branch of collapsed Icelandic bank could wait 8 years for money, according to administrators

News - Savings

Written by Ray Clancy

Wednesday, 30 December 2009 18:03

Depositors in Kaupthing Singer & Friedlander Isle of Man may have to wait until 2017 to recover money lost following the collapse of the Icelandic bank, it has emerged.

A total of 4,000 depositors and bondholders have been told by the bank's administrators PricewaterhouseCooper, that they face a delay of up to eight years in the recovery of their money. They have also been told that based on current projections, they will only be able to claim back up to 80% of their funds.

The Icelandic bank’s Manx subsidiary collapsed 14 months ago when the island’s Financial Services Commission expressed concern about its exposure to the struggling economy of Iceland. That prompted KSF IoM managers to transfer about £550 million, or 50% of its assets, to Kaupthing UK, assuming that it would be safer there.

Soon afterwards, Kaupthing UK was put into administration and the Isle of Man funds were frozen. KSF IoM was placed in liquidation in May this year. But while those who held deposits in KSF UK have received full compensation, the Isle of Man depositors have only received a maximum of £50,000 so far from the IoM depositor’s compensation scheme.

Bondholders who held investments in KSF IoM through 10 different life companies are yet to be compensated.

The investors blame IoM officials and say that many have no confidence in their money being safeguarded. ‘The constant refusal by any associated party on the IoM to take responsibility for the collapse is completely unacceptable,’ said Sarah Chantrey, a spokeswoman for the KSF IoM Depositors Action Group.

She added that assets under management and administration on the island have fallen to $34 billion as at the end of June 2009, down from an all time high of $59 billion in June 2008. ‘This would suggest that people have lost confidence in the IoM’s abilities to safe guard their money and we would strongly urge anybody considering placing money with one of the islands institutions to reconsider,’ she added.

Meanwhile UK MPs are being asked to support an early day motion which blames the collapse of KSF IoM operation on the FSA’s decision to revoke the Icelandic bank’s UK deposit-taking licence.

The motion also attacks offshore life companies for their role in what Liberal Democrat MP Bob Russell alleges was ‘mis-selling’ of their products, which he claims included misleading description of deposits in Kaupthing as ‘low risk’. He wants the UK government to intervene directly and for the Isle of Man authorities to ensure all depositors receive full compensation, in line with UK depositors.

His motion also says the 10 life companies that ‘mis-sold over 1,000 bondholders in KSF IoM should re-evaluate their businesses and marketing practices and recompense policyholders accordingly.’ And it urges UK's Ministry of Justice to explore ‘whether the Isle of Man has the necessary skills, experience or processes in place to ensure effective self-regulation, as well as the conflicts of interest of those holding positions in the Isle of Man's political, judicial, regulatory bodies and financial services industry’.