British savers denied cash as chaos hits Iceland bank
HUNDREDS of thousands of UK savers were yesterday blocked from withdrawing their cash from Icesave, the troubled Icelandic internet bank, amid warnings the parent group was likely to go into liquidation.
Icesave's owner, Landsbanki, has been nationalised and put in receivership – and the UK Financial Services Authority (FSA) believes it will go bust.
Furious British customers were told they faced battling through two different compensation schemes to get their money back. Between the 300,000 of them, they have 5 billion in Icesave.
The collapse was a salutary lesson in how financial problems overseas can, and likely will, impact on the UK.
And across the world yesterday, countries continued to struggle with the effects of the global financial crisis.
In Japan, shares dropped to their lowest level in almost five years. The benchmark Nikkei 225 index lost 317.90 points, or 3.03 per cent, to close at 10,155.90 – its lowest finish since December 2003.
Russia's stock markets opened hours late, in the wake of steep plunges on Monday.
And President George Bush reached out to European leaders to urge co-ordination. The White House said he was open to the idea of a leaders' summit on the economic upheaval. He spoke after European Union finance ministers agreed to increase the guarantee for customers' bank savings accounts to at least 50,000, or 38,900.
Icesave customers logged their dismay on internet forums after learning that, while the funds of their Icelandic counterparts had been guaranteed, they would be given no such privilege.
Justin Smith, an IT consultant from west London, said: "I feel confused and badly informed by Icesave – there has been no direct communication from the firm and now I am unable to withdraw my life savings, with no idea what happens from here."
The Icelandic government has been battling to save the country's economy, which has been teetering on the brink of disaster because of its reliance on the rapidly expanded banking sector.
On Monday night, it announced it was taking on greater powers over the banks, including the ability to force them to sell off foreign assets. Then, yesterday morning, the Icelandic Financial Supervisory Authority issued a statement saying the government had taken control of Landsbanki.
It sought to reassure domestic savers that their money was fully guaranteed by the government, adding that domestic branches, call centres, cash machines and internet operations would be "open for business as usual".
But the guarantee did not extend to UK savers. Customers logging on to Icesave's website were greeted with a message telling them the group was not processing any deposits or withdrawal requests on its internet accounts.
The FSA then warned that it expected the Icelandic authorities to put the group into insolvency proceedings, meaning they would need to claim their money back through compensation schemes.
Although they are entitled to compensation of up to 50,000 under the terms of the UK deposit guarantee scheme, the first 16,317 would be the responsibility of the Icelandic scheme.
The worry is that the Icelandic scheme has only 88 million to cover the 13 billion deposited in a shaky system.
The Icelandic government is supposed to step in and cover any shortfall, but with the country struggling to avoid economic collapse there are doubts as to whether the government would be able to guarantee deposits worth twice the country's GDP. On Monday night Geir Haarde, the prime minister, warned there was a threat of "national bankruptcy".
An Icesave spokeswoman said that, as a last resort, three other Scandinavian governments – Sweden, Norway and Denmark – would back Iceland in an emergency.
Meanwhile yesterday, Russia pledged a 3.11 billion loan to boost Iceland's foreign exchange reserves. The Central Bank of Iceland also fixed the exchange rate of the country's currency, the krona, to try to stabilise the domestic economy.
And Kaupthing, the country's largest bank, sought to reassure customers it was financially sound. It owns Kaupthing Edge, which is registered as a UK bank. It is regulated by the FSA, meaning that, in the unlikely event of a problem, consumers would receive all their compensation from the Financial Services Compensation Scheme.
Kaupthing Edge has a number of high profile British clients and has dealt with Sir Tom Hunter, Gordon Ramsay and Mike Ashley, owner of Newcastle United Football Club.
Collapse will make waves over here, but savings safe – to a limit
What has happened to this Icelandic bank?
The FSA said it expected the Icelandic authorities to put Landsbanki into insolvency proceedings after it went into receivership yesterday morning.
Why do I care?
Aside from the global implications, it has several UK businesses. It offers online savings products through Icesave and a range of products including mortgages and savings through Heritable Bank. It is thought to have more than 300,000 UK customers.
What is happening to Icesave and Heritable Bank?
Icesave is not processing any deposits or any withdrawal requests on its internet accounts. It is not giving out any information beyond this.
Heritable Bank is also not allowing any new deposits or withdrawals.
What happens to my money if insolvency proceedings start?
Insolvency proceedings would trigger payouts from depositor protection schemes.
Consumers' savings would be protected up to 50,000 through a combination of the Icelandic deposit compensation scheme and the UK's Financial Services Compensation Scheme (FSCS).
I have more than 50,000 invested, what will happen to the rest of my money?
Unfortunately, sums above this amount are not covered by the compensation schemes and you would have to join the queue with other creditors.
If insolvency proceedings are started how do I go about reclaiming my money?
You do not need to do anything initially. The FSCS will have the names of all those who have savings with the group and will write to you with the relevant forms that will need to be completed.
The scheme has never made claims in conjunction with another country's plan before, but the FSCS says it would hope to make the process as straightforward as possible.
I have a mortgage with Heritable Bank, what will happen to that?
Heritable's mortgage book would be seen as an asset and sold on to another group. However, if you also have savings with Heritable, you will not receive compensation for them. Instead, they will be deducted from the value of your debt.
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