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Warning on Iceland bank's fitness Warning on Iceland bank's fitness
(about 3 hours later)
The management of the Icelandic Kaupthing bank were "not fit and proper" to control a UK bank, MPs have been told.The management of the Icelandic Kaupthing bank were "not fit and proper" to control a UK bank, MPs have been told.
Tony Shearer, former head of investment bank Singer and Friedlander (S&F), told MPs that he warned UK regulators in 2005 when Kaupthing bought his bank.Tony Shearer, former head of investment bank Singer and Friedlander (S&F), told MPs that he warned UK regulators in 2005 when Kaupthing bought his bank.
But last October UK savers in Kaupthing had to be rescued by the authorities when that bank faced collapse.But last October UK savers in Kaupthing had to be rescued by the authorities when that bank faced collapse.
The Financial Service Authority said his account of events was inaccurate.The Financial Service Authority said his account of events was inaccurate.
The former S&F chief executive revealed his warning in evidence to MPs on the House of Commons Treasury Select Committee, which has been investigating the circumstances surrounding last year's banking crisis.The former S&F chief executive revealed his warning in evidence to MPs on the House of Commons Treasury Select Committee, which has been investigating the circumstances surrounding last year's banking crisis.
'Very strange''Very strange'
He said an examination of Kaupthing's accounts for 2004 revealed that the directors had borrowed £19m to invest in their own bank's shares and were on four-year contracts, while only one came from outside Iceland.He said an examination of Kaupthing's accounts for 2004 revealed that the directors had borrowed £19m to invest in their own bank's shares and were on four-year contracts, while only one came from outside Iceland.
These are not the sort of people I want to work with Tony Shearer, former S&F chief executiveThese are not the sort of people I want to work with Tony Shearer, former S&F chief executive
He said they had no experience of international banking, and that half the bank's profits came from investing in the financial markets, but only 10% from conventional banking.He said they had no experience of international banking, and that half the bank's profits came from investing in the financial markets, but only 10% from conventional banking.
"They were very different, they ran their business in a very strange way, it was a very different operation," he said."They were very different, they ran their business in a very strange way, it was a very different operation," he said.
"It was a young group of people who were very inexperienced. I had doubts right from the beginning. We simply didn't trust them," he added."It was a young group of people who were very inexperienced. I had doubts right from the beginning. We simply didn't trust them," he added.
Mr Shearer said that after meeting the Icelandic directors in Reykjavik in 2004 in the run-up to the takeover, he discovered they were all very young, and not the conventional sort of banker he was used to dealing with.Mr Shearer said that after meeting the Icelandic directors in Reykjavik in 2004 in the run-up to the takeover, he discovered they were all very young, and not the conventional sort of banker he was used to dealing with.
"My assessment is that these are not the sort of people I want to work with," he said."My assessment is that these are not the sort of people I want to work with," he said.
FSA
Mr Shearer resigned from the merged bank Kaupthing Singer & Friedlander (KSF) in November 2005 after the deal went through because he was "not comfortable" running the UK operation under its new owners.Mr Shearer resigned from the merged bank Kaupthing Singer & Friedlander (KSF) in November 2005 after the deal went through because he was "not comfortable" running the UK operation under its new owners.
The application... was not "rushed through" as Mr Shearer claims FSA spokeswoman
He explained that he and two senior colleagues passed on their concerns about Kaupthing's management issues, corporate governance, and quality of earnings to the Financial Services Authority (FSA) in April 2005.He explained that he and two senior colleagues passed on their concerns about Kaupthing's management issues, corporate governance, and quality of earnings to the Financial Services Authority (FSA) in April 2005.
But the response of the regulator, he said, was to continue approving the takeover.But the response of the regulator, he said, was to continue approving the takeover.
However, the FSA has questioned his remarks. However, the FSA replied by saying it had made a "full assessment" of the takeover at the time.
"We do not believe the statement made to the Treasury Select Committee represents an accurate summary of the events," the FSA said. "As the home regulator, the Icelandic regulator confirmed there was no reason why the transaction could not go ahead," said an FSA spokeswoman.
"We required Kaupthing to take a number of actions to address governance issues in London, including the appointment of independent non-executive directors.
"The application was processed within our normal time frame, it was not "rushed through" as Mr Shearer claims," she added.
MeltdownMeltdown
Kaupthing, Iceland's biggest bank, was nationalised by the Icelandic authorities during that country's financial meltdown in the autumn of 2008.Kaupthing, Iceland's biggest bank, was nationalised by the Icelandic authorities during that country's financial meltdown in the autumn of 2008.
In the UK it had 160,000 UK customers, mainly through its international internet bank Kaupthing Edge, which had started its UK operation in early 2008.In the UK it had 160,000 UK customers, mainly through its international internet bank Kaupthing Edge, which had started its UK operation in early 2008.
However their money was held by the bank's UK subsidiary, Kaupthing Singer & Friedlander (KSF), which had been formed after the Icelandic bank's takeover of Singer & Friedlander in 2005.However their money was held by the bank's UK subsidiary, Kaupthing Singer & Friedlander (KSF), which had been formed after the Icelandic bank's takeover of Singer & Friedlander in 2005.
There were an additional 3,000 UK customers whose money was held directly at KSF.There were an additional 3,000 UK customers whose money was held directly at KSF.
When Kaupthing was rescued last October its UK business was closed down by the UK authorities.When Kaupthing was rescued last October its UK business was closed down by the UK authorities.
The government stepped in to guarantee all the savers' money by arranging for all their accounts to be transferred to the Dutch bank ING Direct.The government stepped in to guarantee all the savers' money by arranging for all their accounts to be transferred to the Dutch bank ING Direct.
However people who had money on deposit in KSF's Isle of Man bank (KSF-IoM), totalling around £840m, are still waiting for compensation.However people who had money on deposit in KSF's Isle of Man bank (KSF-IoM), totalling around £840m, are still waiting for compensation.
The Manx government is offering them an initial £10,000 each and intends that eventually 71% of KSF-IoM account holders will get all their money back within two years.The Manx government is offering them an initial £10,000 each and intends that eventually 71% of KSF-IoM account holders will get all their money back within two years.