UK to lend Iceland £3bn for Icesave compensation

qamwc1

Icesave was mainly a savings brand for Landsbanki. Landsbanki has liabilities to savers - they are not "assets" to sell to UK government. The money you deposited with Landsbanki - will not have been ringfenced - it will be out there working for Landsbanki to pay the interest they were paying and make them a turn as well. In the case of KE the savings accounts were "sold" to ING but ING did not pay - the FSCS/Treasury paid about £3bn to ING to cover the obligations that ING was taken on i.e. the balances due to savers. (I would be surprised if anybody argued that KE had goodwill for which ING should pay!)

Landsbanki UK assets are frozen - they are not placed in a store room somewhere. A freezing order effectively tells UK people/companies/banks etc. if you hold or owe money to Landsbanki do not pay. These people etc. are not going to pay it over to UK government - as the assets still belong to Landsbanki.

There is also the need to establish that Iceland takes on the liabilties that it has a legal responsibility for. Even though UK government picks up the full tab - Iceland will be obligated certainly until the loan is repaid. Let Iceland sort out realising the assets of Landsbanki - that will cost money - and pay the loan back from the realisations. There is no need to get involved in taking over assets - messy and expensive.

agsnu

qamwc1 wrote: »

Icesave was mainly a savings brand for Landsbanki. Landsbanki has liabilities to savers - they are not "assets" to sell to UK government. The money you deposited with Landsbanki - will not have been ringfenced - it will be out there working for Landsbanki to pay the interest they were paying and make them a turn as well. In the case of KE the savings accounts were "sold" to ING but ING did not pay - the FSCS/Treasury paid about £3bn to ING to cover the obligations that ING was taken on i.e. the balances due to savers. (I would be surprised if anybody argued that KE had goodwill for which ING should pay!)

Actually the Government agreed to pay ING the total obligations taken on less £5m - so effectively ING paid £5m to get a cash injection of £3bn or so in savings balances.

MarkyMarkD

This all makes my head hurt - and it shouldn't!

I think the simplest thing to understand is that savings are a LIABILITY for the institution. Taking on that LIABILITY requires the transfer FROM the seller TO the acquirer of an equal and opposite amount of cash.

It's interesting that the Government agreed to transfer £3bn of valuable savings balances to yet another overseas bank. I don't really understand why they didn't offer it to a UK institution who could definitely do with those funds - or maybe they did, and ING bid the best amount? I'm sure that the savers would have felt more comfortable "coming home".

agsnu

MarkyMarkD wrote: »

If Icesave was "only" savings (and obviously, it wasn't, because its accounts wouldn't balance) then acquiring it would cost the whole value of those savings, plus a bit for the value of the business. That's effectively what Abbey paid for the B&B savings book.

Incorrect. The cost of the value of the savings book was footed by the FSCS (and Treasury), not Abbey.

Icesave has £xbn of savings balances, and £xbn of money has been lent to its parent in Iceland.

To buy Icesave as a whole, you have to take on the liability to all the savings customers, and you also acquire the (dubious) asset owed to you by the parent in Iceland.

There is no distinction between Icesave and "its parent". They are the same legal entity, so such a thought exercise is irrelevant.

With B&B, what happened was this:

B&B has £xbn of savings balances, £ybn of other liabilities, and £zbn of assets. (So in theory, the total value of B&B v = z - x - y)

Government takes control of B&B. FSCS and Treasury pay £x billion-£n million to Abbey immediately for Abbey to take control of the savings business and branches etc. FSCS and Treasury intend to recover £x billion from the winding down of the remainder of the B&B business, which Government now own (hoping that z - y >= x).

MarkyMarkD

I deleted my post from which you quoted, before you posted your post! My head was hurting and I was getting confused.

Whether Icesave is a legal entity in its own right or not, is irrelevant. Its savings business has its own balance sheet which has to balance. It consists of savings matched by assets - which are owed by the rest of the Landsbanki group.

agsnu

MarkyMarkD wrote: »

I think the simplest thing to understand is that savings are a LIABILITY for the institution. Taking on that LIABILITY requires the transfer FROM the seller TO the acquirer of an equal and opposite amount of cash.

Cash is not the correct term to use.

Once again, what has happened in the case of B&B, KE & HB is the Govnerment has stepped in, transferred the liability, and footed the bill in the interim.

1. FailingBank has liability to savers.
2. FSA deems FailingBank to be unlikely to be able to meet obligations arising from said liabilities & Government steps in.
4. SafeBank says it'll take on the savings business.
5. Government & FSCS (via pre-funding and/or loan from Bank of England) pays SafeBank an amount equal to the total value of the savings liability.
6. FailingBank now becomes liable to the Government & FSCS for repayment of an amount equal to the total value of the savings liability.
7. If FSCS unable to recover amount owed to it by FailingBank, it will recover the cost from other financial institutions which are members of the FSCS (through increased levies in future years).
8. If Treasury/Government unable to recover amount owed to it by FailingBank, one assumes that the cost will be borne by the taxpayer.

going2die_rich

Reaper wrote: »

Story here. Seems to have gone up from early reports of £100m to £3bn!

Although everybody has been criticising the FSCS I think the real problem is that until now nobody has given them the money to pay out.

Maybe things will start happening now.

It would have been easier telling the Icesavers they aren't getting anything. Save the taxpayer all this burden for the gain of a few.

agsnu

MarkyMarkD wrote: »

Whether Icesave is a legal entity in its own right or not, is irrelevant. Its savings business has its own balance sheet which has to balance. It consists of savings matched by assets - which are owed by the rest of the Landsbanki group.

Except that Icesave savings will have appeared directly as a liability on the balance sheet of Landsbanki Islands hf (as this is the entity which held the deposits). There would be no "loaning" to the rest of the Landsbanki group, unless Landsbanki Islands hf made a loan to Heritable Bank or somesuch.

And anyway, it is relevant - the Government was only able to step in and force the removal of certain liabilities from certain failing banks because of legal powers in the so-called Northern Rock Act, and also FSA regulations etc. These do not apply to Landsbanki Islands hf. The Icelandic government has taken control of Landsbanki, and in fact started transferring assets and liabilities around (creating a "New Landsbanki Islands hf" which assumed control of domestic activities), but as it does not have any foreign currency there is no way it could pay another bank a sum equal to the foreign savings liabilities of Landsbanki (i.e. Icesave).

shindigger

going2die_rich wrote: »

It would have been easier telling the Icesavers they aren't getting anything. Save the taxpayer all this burden for the gain of a few.

Hi,
Who do you bank with?
Where are your savings?
Are they safe?
I hope so.

nilrem_2

going2die_rich wrote: »

It would have been easier telling the Icesavers they aren't getting anything. Save the taxpayer all this burden for the gain of a few.

From that I presume that you don't have your savings with Icesave! :mad:

And the panic caused to savers of other institutions who would draw their cash out fearing a similar fate would not effect the country at all? :rolleyes: