News analysis: Manx Treasury puts Iceland bank’s future in depositor hands

The Isle of Man subsidiary of Kaupthing Singer & Friedlander will either be liquidated or wound-down in phases. In an unprecendented move, the decision will depend on how the bank’s Manx depositors vote on Thursday.

With banks being bailed out by taxpayers on the UK mainland, the public are becoming used to their growing role in the British banking system, but the Isle of Man Treasury is taking it one step further and putting the future of Kaupthing Singer & Friedlander (KSF) in the hands of depositors.

This week the Isle of Man government will have to convince the Manx High Court that a majority of the 9,000 Kaupthing Singer & Friedlander Isle of Man depositors voting on the future of the Icelandic-owned bank would support its plan for a phased wind-down instead of liquidation.

The IoM Treasury said it would back either decision with £150 million.

Treasury support for vote

‘We are looking to find the best possible solution for depositors in difficult times – the Isle of Man will support whatever route they go for,’ said Manx Treasury director John Spellman.

Today the IoM Treasury will publish a report setting out the case for each option, before depositors vote on Thursday.

‘I believe that the depositors have to make their own minds up whether there is clear blue water between the Depositor Compensation Scheme (DCS) and the scheme of arrangement [phased wind-down],’ said Spellman.

Wind-down or liquidation

When voters take to the polls they will have a tough decision to make. Liquidating the firm would mean the DCS, which guarantees savings up to £50,000, would be automatically triggered, although any sale of UK mainland assets would not be available for depositors to reclaim.

The wind-down scheme could deliver the same level of compensation as the DCS but it is also possible that a sale of UK assets could boost the amount of money that depositors have returned to them if they have more than £50,000 with the bank – although a sale is likely to take years.

Votes could be split between depositors with more than £50,000 in the bank and those with less than £50,000, who may favour fast payment through the compensation scheme.