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A small glimmer of sunshine amongst the Icesave gloom and doom

Amidst the general furor over Icesave in the last few weeks and months, there is a related matter that has gone almost unnoticed: that of Kaupthing Edge.

Buoyed by the runaway success of Landsbanki’s Icesave accounts, which collected a whopping 4.4 billion pounds in its first 12 months of operations in the UK [and a further 1 billion euros or so in Holland in its five months of operations there], Kaupthing bank set up a similar online bank called Kaupthing Edge in October 2007. It was initially rolled out in Finland, and by the time mother ship Kaupthing sank in October 2008 it was operating in 11 European countries. In some of those countries Edge operated as a subsidiary of Kaupthing, in others as a branch. And as you will surely know if you’ve been paying attention, there is a vast difference – namely that branches are covered by the Icelandic deposit insurance scheme [and therefore the Icelandic taxpayer if all else fails], whereas  subsidiaries operate effectively as other national banks in those countries where they are based, and are covered by the deposit insurance schemes there.

Kaupthing Edge hasn’t got nearly the same amount of press as Icesave, mainly because a] it wasn’t as big b] in many of those countries it operated as a subsidiary and therefore didn’t have the same disastrous effects on the Icelandic state as Icesave, and c] Kaupthing announced fairly soon after its collapse that its assets would be sufficient to compensate depositors.

However, the plight of the Edge depositors, at least in Germany, was in many ways worse than those of Icesave depositors. The German Kaupthing Edge website was closed the day Kaupthing was taken over by the state last October, and from that day onwards those depositors were not able to access their money. Kaupthing Edge was a branch in Germany, not a subsidiary, so those deposits were not covered by the German deposit insurance scheme. This meant those German depositors had to obtain their money from the Kaupthing liquidation committee in Iceland – and that has been a colossal task.

Two weeks ago when I was in Berlin, I met with one of the Kaupthing Edge depositors – a young law student named Jan. He had, in good faith, deposited a sum that was below the amount he was assured would be guaranteed by the deposit insurance scheme. When he decided to put money into Kaupthing Edge he didn’t deliberate over whether or not it was a subsidiary or a branch – to him, for all intents and purposes, it operated like any other German bank. It was registered with the German Chamber of Commerce, it had a German bank reference number [Bankleitzahl], a German-language website, and it conformed to all the known standards employed by other German banks. And in any case, he was assured that if the bank were to fail [which at that time was a possibility located somewhere in the outer stratosphere and not considered seriously] his money was safe if it was below the maximum guaranteed amount.

In contrast to British and Dutch authorities, who in the case of Icesave compensated their citizens immediately for their deposits with the intention of collecting from the Icelandic state later [that much-debated agreement everyone is up in arms about], the German authorities basically told their citizens to stuff it. The message was clear: it was their problem, they’d been stupid enough to put their money into that particular bank [which note bene had an AAA credit rating at the time] and, well, they were on their own.

Those depositors responded by joining forces, setting up an excellent website [which will be closed down in a few days’ time] and even travelling to Iceland at their own expense to meet with the Kaupthing liquidation committee in an effort to get some answers. For almost nine months their money remained frozen and they in limbo – until last week when Kaupthing finally started repaying them.

Happily, Jan and his compatriots were compensated in full last week – at least for their initial deposits [I’m not clear on the situation with the interest payments, but judging by their website it looks as though the interest will not be repaid – and few people seem to have the energy to contest that]. What’s more, Kaupthing is able to pay them their money back without having to saddle us, the citizens of Iceland, with the debt. I can just imagine the relief those people must be feeling – and even though I don’t feel personally responsible for the actions of any Icelandic bank, I am relieved that their matter has been brought to a happy resolution, for them – and for us.

A small bout of sunshine amidst all the gloom and doom that currently permeates this nation – which incidentally, as before, is being completly obliterated by the big, dark Icesave cloud.

IT’S HOT IN EUROPE, AND IT’S HOT HERE
Although I daresay a lot more bearable than what my British friends are reportedly having to contend with. Today we had highs of around 20°C, which was just delightful, particularly as there were no chilly breezes to obliterate those balmy temps. It was very misty, though, which seems to be a byproduct of these new high temps we’re seeing more and more of every summer [we don’t like global warming, but, sad to say, we DO like this]. At the moment we have 14°C [57F], sunrise at 3.03 and sunset at 11.58 pm.

[Incidentally, I’ve focused on German Edge depositors in this post simply because I don’t have much info about the other European countries [except the UK – I have a pretty good picture of what it was like there]. If you can provide input, I’d be grateful, either in the comments or by contacting me directly.]

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  • Ljósmynd DE July 1, 2009, 6:11 am

    The interest on the Kaupthing Edge deposits is obviously not going to be paid in the near future. I doubt that it will be paid at all. I would be interested to know, how this issue was solved for Icesave or KS&F

    The Kaupthing Edge savings accounts appeared indeed like every other savings account and they did not offer exceptionally high yields. Their interest rates were just high enough to make it on top of the ranking list for call money but only marginally higher than for accounts, which were covered by the German depositors insurance scheme.

    The German depositors initially were labelled as greedy investors by some populist German politicians and the German authorities didn’t seem to be too helpful at all.

    There is an interesting twist to this story, which has come to light recently. Some of the money (ca. 55 Mio. EUR), which was intended to be paid to German Kaupthing Edge depositors last october, had been seized by the German DZ Bank as clearing institution of Kaupthing in Germany. As it seems, this money had been provided by Kaupthing the day before the collapse on an explicit request of the German authorities to provide liquidity. When this money arrived, it was snatched right away by DZ Bank, before the actual moratorium hit, because they had other investments with Kaupthing in danger of loosing. This seized money was the reason for ongoing quarrels and a considerable delay in the repayment process. So, the German authorities, willingly or by sloppiness, contributed to the plight of the German savers and helped the DZ Bank to obtain priority over other creditors.

    But otherwise it is good to see, that this issue has been solved by and large.

    And as the heat in Germany is very unpleasant at the moment, too, Icelandic hot weather is something, I consider beeing able to cope with pretty easily.

  • Bromley86 July 1, 2009, 10:24 am

    KSFUK is easy. Although it took a while to fully migrate KE to ING, interest payments were not affected.

    Icesave, I’m pretty sure, did not involve interest after 6th Oct on normal deposit accounts. Fixed rate accounts were paid their full interest on maturity.

    KSFIOM & Landsbanki Guernsey aren’t going to get 100% of their deposits back, so interest isn’t really important. Not sure whether it accrues in insolvencies if there is enough to cover it or whether the amount owed is determined as at the date of receivership.

  • Bromley86 July 1, 2009, 10:29 am

    Just checked on the Icesave situation, and I got the fixed deposits slightly wrong. They were given a choice of immediate payment with inteest to the 7th Oct or to continue until the end of the term with full interest.
    http://news.bbc.co.uk/1/hi/business/7711492.stm

    Given the rates and the effective 100% guarantee of the funds, I wonder if anyone elected to break those fixed terms?

  • Lee July 1, 2009, 12:04 pm

    It was 32C in London yesterday and it’s hotter today, so I’m off to Regent’s Park for another sunshine lunch – before the forecasted thunderstorms arrive on Friday…

  • Marc July 1, 2009, 2:46 pm

    Kaupthing also operated in Belgium. Fasten your seat belt, see if you can follow.

    Kaupthing agressively marketed its saving accounts in Belgium, offering the highest APR available on the market. It was registered as a Luxemburg bank and operated under a Luxemburg licence. Insured deposit guarantees were pretty much the same in Belgium and Luxemburg prior to september 2008 (i.e. up to 20.000 €).

    As the Icelandic banking meltdown was hotting up (like my metaphors?) Luxemburg chose to freeze Kaupthing Luxemburg’s assets because of a going concern. From that point Kaupthing savers had no more access to their bank accounts (though deposits were not refused). Now consider what happened next: Luxemburg had no intention of depleting its reserves of their banking meltdown insurance fund to compensate primarily Belgian customers and let that be known. Belgium had no intention of depleting its reserves because as this bank was registered in Luxemburg the insurance did not apply. Though every effort was made to say that somehow the savers would be made whole. Obviously Iceland didn’t care much but they were polite enough to receive savers delegations and delegations of various political institutions.

    At the end of the day a buyer was found who would guarantee the deposits, but the deal collapsed on some technical (and probably political, as it was Khadafi offering his services) details. In the last few weeks another buyer has been found and not much detail has been released, except that everyone will get his money back. I suspect that both Belgium and Luxemburg will have oiled the deal, because the political benefit of not having to touch a much too small insurance fund in countries where many banks are teetering on the verge of collapse is immense.

    Also, this should teach citizens something about the robustness of the freedom of capital markets and the financial services in the EU. Politicians you cannot vote for will not work their asses off to get you what you are entitled to.

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