Kaupthing Singer & Friedlander

As of 27 November 2008

NEW: Following an application from the Treasury, the Isle of Man High Court has today (Thursday 27th November) agreed to adjourn consideration of a winding-up order until 29 January 2009 so that alternatives can be further explored. The full press release can be read at: http://www.gov.im/lib/news/cso/treasuryminister1.xml Please also see the new Question and Answer section below.

Isle of Man Government news releases concerning Kaupthing Singer & Friedlander can be found by clicking on the following link: http://www.gov.im/fsc/ViewNews.gov?page=lib/news/fsc/updatekaupthings.xml and there is further information at: http://www.gov.im/fsc/ViewNews.gov?page=lib/news/fsc/kaupthingupdate2.xml

Updates from the liquidator can be found at: http://www.kaupthingsingers.co.uk/Pages/3990

Senior officials from Isle of Man Government to meet the UK Treasury and Financial Services Authority on Friday 24th October: http://www.gov.im/lib/news/cso/isleofmangovernm4.xml

Discussions with the United Kingdom are to continue following today’s (24th October) meeting in London over Kaupthing Singer & Friedlander (Isle of Man) Limited. A senior officer delegation from the Isle of Man Government met with the United Kingdom Treasury and the UK Financial Services Authority, along with representatives of the Ministry of Justice, to set out the Island’s position in the matter.

The Chief Minister has written to the Chairman of the Treasury Committee John McFall MP to assure Mr McFall that the Isle of Man is doing everything possible to resolve the current banking situation in the best interests of the Kaupthing Singer Friedlander (IOM) depositors. The full press release can be read at: http://www.gov.im/lib/news/cso/chiefministerand1.xml

On 13th November the Chief Minister had a postive meeting with UK Lord Chancellor, Rt Hon Jack Straw MP, following recent comments by the Chancellor of the Exchequer, Rt Hon Alistair Darling MP. The full press release can be read at: http://www.gov.im/lib/news/cso/positivemeetingw.xml

Questions & Answers following Decision by Isle of Man High Court

Why is the Isle of Man Government getting involved?

The Isle of Man Government (the Government) is committed to protecting the interests of the depositors, the creditors and the reputation of the Island in the difficulties being experienced with Kaupthing Singer & Friedlander (Isle of Man) Limited (KSFIOM). By our actions we are demonstrating that the Island is a responsible International Finance Centre and we take this matter seriously.

As you will be aware, the Government has already committed significant financial resources to support the payout of up to £150 million in case the bank is unable to meet its obligations.

The Government believes, given the evidence that we have at present, that the depositors could be better off under the alternative plans being considered. However, much further work is required in this respect which is why we have requested an extension.

What has the Isle of Man Government been doing since the last adjournment?

Treasury has appointed AlixPartners (Financial Advisors) to identify and develop an alternative plan for KSFIOM so that depositors could be better off than if the court simply made a traditional winding up order.

An alternative plan for KSFIOM will seek to achieve the following objectives:

1. Preserving part of KSFIOM as a going concern and thereby enhancing the value for depositors;
2. Orderly and timely realisation of KSFIOM assets in the ordinary course;
3. Fast-tracking claims through a single channel and expediting payments to depositors;
4. Supplementing KSFIOM recoveries with Treasury and/or third party funds to provide recoveries sooner than might be available under the Depositors Compensation Scheme (DCS).

Why has the Isle of Man Government asked for an extension?

A number of potential options are being considered. These range from a sale of the business by the Liquidator Provisional to a restructuring plan. These options aim to deliver the objectives set out above. More time is required to progress discussions with third parties and to fully consider and plan for these options.

What about the assets held in the UK? Have you given up on them?

Absolutely not. The Liquidator Provisional is still actively pursuing them and is regularly talking to Ernst & Young, the Administrators of Kaupthing Singer and Friedlander (UK), about the assets held in the UK. Despite the ongoing uncertainty of the payout from the assets held by Kaupthing in the UK and the value of the guarantee made by Kaupthing hf, Government wishes to ensure that any solution preserves the depositors’ and creditors’ access to recoveries from these two sources.

How much will the depositors receive under any alternative plan?

The Isle of Man Government is looking at ways to increase payout and guarantees to depositors and creditors as well as ensuring funding arrangements are in place to expedite payments to depositors in an orderly manner.

Just as in any subsequent liquidation the final outcome is materially dependent on recoveries from the UK and the orderly realisation of other assets of the bank. At this point, the Liquidator Provisional has been unable to obtain any quantification of the asset recovery from the UK.

The KSFIOM loan book is likely to produce a better outcome if it is managed, as far as possible, as a banking and refinancing activity rather than a distressed sale or winding up exercise.

Is this just an attempt to avoid responsibilities under the proposed liquidation or the DCS?

No. All parties are committed to fulfilling their responsibilities for the benefit of the depositors. All depositors and creditors will have their rights protected and improved if possible.

Why not just go straight to liquidation? At least depositors will be paid out more quickly.

Traditional bank liquidations can stretch over many years, and can be costly. It is also unclear how promptly the DCS would pay out. If there is an approach which can deliver a more speedy and cost effective solution for creditors, then it seems most desirable to pursue this.

What about those people who may be suffering financial hardship?

We are acutely aware of this problem. A Payment on Account approach to recognise this problem is being worked on.

What exactly is the UK Government doing to represent the Island in its negotiations with the Icelandic Government?

We have been advised that the UK Government is actively pursuing the Isle of Man’s claim with the Icelandic Government but no additional information can be provided at this time.

What might this mean for Life Company policyholders whose policies are linked to deposits in KSFIOM?

If the arrangement is approved by the Courts, it may provide more timely and/or increased distributions to depositors, including Life Companies, than a traditional liquidation would achieve. Life Companies will be treated equally with other depositors in any distribution. This means the distribution of available liquidated assets to individual accounts held by Life Companies (including policyholder-linked accounts) will be determined pro-rata by the value that such accounts represent in proportion to the total value of deposits. The individual policyholders would need to refer to the specific terms of their policy to confirm this treatment.