Sigrún Davíðsdóttir's Icelog

Does anyone remember Icesave?

with 7 comments

It’s as if Icesave has completely evaporated from the agenda in the three countries involved – Iceland, the UK and the Netherlands – but the accounts haven’t yet be settled. Iceland still owes money to the UK and the Netherlands as the two countries compensated the deposit holders according the EU insurance guarantee regulation.

The IMF has recently passed fund’s programme on Iceland to the next level. The prerequisite had been to solve the Icesave dispute – since it is a major economic variable – but Iceland found a way to satisfy the fund’s demand though nothing has been resolved. As so often, Iceland seems hell-bent on wriggling out of the Icesave fetters rather than solving the matter. It remains to be seen how the matter evolves now that there is a new government in place in the UK.

I’m not convinced that a Tory + LibDem government will make a difference for Iceland. According to a source who has raised the Icesave dispute with a leading Tory minster the answer was that the Tories shared Labour’s view on Icesave and didn’t really see any reason for a special lenience towards Iceland.

The report of the Althingi’s Investigative Commission tells a rather aggravating story of how Icesave was handled but in Landsbanki and elsewhere. Contrary to Kaupthing that founded its internet accounts as a UK subsidiary that consequently was guaranteed by the UK deposit guarantee scheme Landsbanki established Icesave as a branch. That gave Landsbanki greater freedom to move the Icesave money around, i.a. to lend it out in Iceland, exactly what the UK FSA was worried about but didn’t hinder.

The report shows very clearly that Landbanki’s management was time and again asked to change the Icesave set up. In early July the FSA thought it had an agreement in place with Landsbanki, intended to be fulfilled by the end of 2008: the bank promised to move Icesave into a UK subsidiary, to cap interest rates – and to limit Icesave to £5bn.

But Landsbanki thought otherwise. The Landsbanki management was willing to consider moving the accounts into a subsidiary but unwilling to cap to either interest rates or the amount they took in. The Landsbanki management seemed to be sure that Icesave was under the Icelandic deposit guarantee scheme that according to EU rules guaranteed deposits up to €20.000.

FSA now threatened the bank to use its powers to protect UK deposit holders. The Icelandic Central Bank and the Icelandic Financial Services Authorites, FME followed these exchanges of view. Some Icelandic civil servants contemplated whether Icelandic authorities could intervene, no action as taken and at a political level the problem didn’t seem to exist.

Early September 2008 trade minster Bjorgvin G Sigurdsson and chairman of the FME Jon Sigurdsson met with the Chancellor of the Exchequer Alistair Darling. Darling’s impression was that the Icelanders didn’t understand the gravity of the situation. And probably they didn’t: although there were different views on Iceland’s legal obligations to to guarantee the €20.000 that EU rules demanded nothing was done in Iceland to clarify the issue – an utterly shocking disregard of the alarming effects that Icesave cave to have for the Icelandic economy.

But FSA didn’t make use of any drastic means, only kept threatening Landsbanki that sought legal opinion on the FSA’s power to coerce the bank into seting up a subsidiary. The bank’s legal advicers doubted that the FSA had the authority to order the bank to take action and the bank continued to resist the FSA demands. In the end the HM Treasury did inded take action and made use of an anti-terrorist legislation to freeze all Icelandic assets though the intention was only to freeze Landsbanki’s assets.

The report shows clearly that Icelandic regulators didn’t pursue the matter with Landsbanki. Funnily enough, the FSA was more adamant in this matter – certainly not because they were dying to pay but because they wanted clarity – than Icelandic authorities and politians that seemed blissfully unperturbed by the possible consquences of Icesave.

In the aftermath of the collapse, Bjorgolfur Thor Bjorgolfsson who with his father owned 40% of Landsbanki vehemently claimed that the bank had done everything in its power to move Icesave into a subsidiary and solve the burden of Icesave on the Icelandic state. The Report tells a very different story: the bank did everything it could to counter FSA’s attempt in this direction. In this matter, as in many others, Bjorgolfsson’s account isn’t trustworthy.

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Written by Sigrún Davídsdóttir

May 19th, 2010 at 11:55 pm

Posted in Iceland

7 Responses to 'Does anyone remember Icesave?'

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  1. Apparently in 2008 there was indeed discussion in the Icelandic govt about deposit insurance legislation being passed in Iceland. Unfortunately the committee to discuss it was spread across three ministries (commerce, industry and the PM i.e the central bank). Additionally the committee was lobbied very strongly by the banks not to introduce the bill. Rather a decision was taken instead to commission international PR agencies to convince the world that Iceland was stable.. Error of judgement is not a strong enough term.

    David Berry

    21 May 10 at 12:04 pm

  2. British onshore savers in IceSave were reimbursed 100% instead of the £50,000 guaranteed in UK within weeks. The PM, Chancellor and FSA strongly pursued Iceland for reimbursement, manipulated IMF loan conditions and maintained righteous indignation claiming, “No British saver will lose money.”

    On the other hand, British depositors in Landsbanki Guernsey [LG] – largely comprised of pensioners from the Channel Islands or British Expatriates who, (as research shows) thanks to HM Government’s ‘blind eye’ towards Banks’ and Building Societies’ policy (unsupported by statute) of refusing onshore accounts to British Expatriates, had nowhere else to bank their pension-boosting Sterling savings. Further research confirms that the UK is the only country of 34 so far surveyed which refuses its own Expat citizens the right to bank in their home country.]
    Despite a constitutional duty to protect the property of British citizens in the Channel Islands Brown and his cronies allowed LG savers to become collateral damage. While there was much posturing from Guernsey’s Chief Minister and his well-controlled Deputies, no tangible support was forthcoming apart from a very belated trip to Iceland, in between other international ‘jollies’ at Guernsey taxpayers’ expense, some eighteen months after all the other delegations and representatives involved had done so.
    The Winding Up Board of Iceland has granted the UK and Netherlands preferred creditor status. Claims from the 1,800-odd LG savers – unaided by any government as there’s no mileage in it – were arbitrarily rejected with no explanation. This is despite the promises made in what was advertised at the time of opening our accounts, as a Bank Guarantee. After the Administrators were called in, this turned out to be a ‘Letter of Comfort’ and in any case, Guernsey’s Financial Authorities had failed to ensure it was signed.
    Many of LG’s depositors are in serious financial straits as a direct result of Landsbanki and Iceland’s regulatory failures.
    Remember Icesavce? You bet your sweet life!!

    Emma B

    21 May 10 at 2:06 pm

  3. It will take many decades for UK, EU and Guernsey savers to forgive and forget the harm perpetrated by maverick Icelandic banking raiders, aided and abetting by their politicians and businessmen. Your current President Grimsson was one of the cheerleaders at the time. The very least you could do is honour your EEA deposit compensation commitments. The saddest thing is I don’t believe unrepentant Iceland has learnt any lessons. You have amply demonstrated that you cannot be trusted. Shame on you, Iceland. You will remain a pariah nation until you come to terms with the harm you have done.


    21 May 10 at 5:33 pm

  4. The British Government does not give one high hoot about any of its citizens abroad, whether they be retired pensioners or expatriates working abroad. Why would they, up until just recently Gordon Brown the reddest or the red brigade, would have done well under a communist sate system. That’s not saying he did not do very nicely for himself. The British does not look after its people well abroad, once you leave the UK for whatever reason as far as the government is concerned you are no longer their responsibility as is the case with any UK pensioner that chooses to live in most of the world without any right to an increase in the paltry pension that the UK offers for 45 years of hard labour. Guernsey savers were left high and dry not only by the UK but by that useless government actually on Guernsey. I lost not only in Guernsey but in the IOM as so many of us did and will never get my savings back nor be able to enjoy my retirement that I had saved so very hard for. These politicians and banking supervisory bodies are only there for one thing, to line their own pockets and nothing more. They are the crooks here besides the corrupt Icelandic businessmen who clearly planned this outrageous fraud which has been committed with these banks. Shame on the British and shame on the Icelandic governments for using just a few mostly retired honest people as collateral damage. I am no longer proud to be British I am ashamed of such a gutless country with corrupt and selfish politicians who themselves have proved to be greedy self procrastinating morons.

    Broke and Cold

    21 May 10 at 9:31 pm

  5. The British Government had (and still has) a constitutional duty to assist Guerney in its dealings with Iceland over the collapsed Guernsey Landsbanki Bank and its lost deposits. The Government had kept tight lipped, however a report 18 months on from the collapse now shows the Government did precicely nothing!! The same goes for the Guernsey Government. Depositors have been squeezed out of any creditor status which could enable them to get money back from the Icelandic Winding Up Board. The Administrators and the Winding up Board’s advisors for Landsbanki, are both the same company Deloitte. It smacks of cronyism or worse.


    22 May 10 at 8:26 am

  6. The Icesave debacle will never be forgotten by the 1600 Landsbanki Guernsey Depositors, nor will they forget the way they have been treated by Iceland, The UK Government, The Guernsey Government and the Guernsey Financial Services regulator. The majority of the Landsbanki Guernsey depositors were pensioners who had deposited their savings with the Cheshire Building Society. This was taken over in 2006 By Landsbanki Guernsey and at the time depositors were informed of guarantees by Landsbanki Islands hf (the mother company) and letters of comfort. Guernsey’s regulator had at that time a good reputation and depositors saw no reason to move their money. On October 7th this suddenly came to an abrupt end when Landsbanki Guernsey went into administration and depositors lost all of their money. The same happened with Icesave in the UK and Heritable bank in the UK, the difference being that they were compensated 100% by the UK Government. Guernsey’s Government did nothing, in fact it went out of its way, after two initial meetings with depositors, to avoid them and has done so ever since. The Guernsey Financial Services Commission, apart from writing a letter to Iceland in Nov 2008, have done nothing. The Landsbanki Guernsey Depositors have had to rely soley on the Administrators to regain as much of their money as possible, this currently stands at about 67.5%. The depositors approached the Icelandic Winding up board with a claim but have been told that the guarantte was not worth the paper it was written on, on top of that the Guernsey Financial Services Commission failed to ensure the document was signed. We are presently awaiting the decision from the WUB as we have appealed.
    Guernsey’s Government refuse to hold an independent inquiry into the circumstances leading up to and following the putting into administration of Landsbanki Guernsey on the 7th Oct 2008. Ample proof has been produced to warrant such an inquiry, but the authorities ignore it. Inquiries have been held in the Isle of Man,also by the UK Treasury Committee and the UK Ministry of Justice, all found many shortcomings with the UK Financial Services Authority who the Guernsey Financial Services Commission had placed all their faith in to the detriment of their own due dilligence.
    You ask if this has been forgotten, not until the Landsbanki Guernsey Depositors get Justice.
    There are websites that comment regularily on the subject at:

    Gary Blanchford

    22 May 10 at 10:24 am

  7. There is a further website to the above post:

    Gary Blanchford

    22 May 10 at 10:28 am

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