200,000 Britons fear losing life savings after collapse of Icelandic internet bank

Daily Mail 8th October 2008

More than 200,000 Britons fear losing their life savings after the collapse of an Icelandic bank.

They were left with lukewarm reassurance last night that their £4.5billion deposited in Icesave - equal to about £22,500 for each customer  -  will ever be returned.

Icesave was owned by Landsbanki, Iceland's second biggest bank, which went into receivership yesterday.

Enlarge

 

The message on the Icesave website this morning stating that customers were no longer able to make withdrawals or deposits

The move was orchestrated by Iceland's government after it gained emergency powers to save its collapsing economy.

Yesterday British customers of Icesave, which launched here as an internet-only bank in 2006, revealed how a lifetime's scrimping may have been destroyed by the implosion of Iceland's economy.

One couple have their £30,000 wedding account in the bank and need the money urgently to pay for the preparations for their marriage in February.

And retired businessman Alan Vidler, 60, said he was 'terrified' he would lose
his £100,000, which includes the proceeds from the sale of his firm.

He relies on the interest from this money to survive, and faces being forced back to work if he loses it.

In theory, Icesave's victims should be able to get their money back if they had less than £50,000 in their account, or £100,000 for a joint account.

Under rules introduced yesterday, this compensation limit is designed to cover the majority of savings in Britain.

Iceland's compensation plan should pay out the first £16,000, with the UK's Financial Services Compensation Scheme topping up the last £34,000.

Landsbanki boss Sigurjon Arnason. The bank has now been taken into receivership

But Iceland's economy is in such a mess that there are fears it does not
have the cash to pay its share.

Prime minister Geir Haarde has spoken recently about the threat of 'national bankruptcy' for the country, which has a population of just 315,000.

Yesterday he insisted his government will help the country's Depositors and Investors' Guarantee Fund to find the 'necessary funds'.

Despite rumours that Iceland would pay its compensation in Icelandic krona, which have almost halved in value, the City watchdog in the UK, the Financial Services Authority, insists it would have to ensure the payout was worth £16,000.

Yesterday the Financial Services Compensation Scheme said it wanted to handle the claims process, rather than force British savers to struggle with a foreign language in an unfamiliar system.

A spokesman said: 'Our aim is to make the whole process as straightforward as possible for UK savers should the bank be declared in default.

'We want to make the claims process simple, and to ensure that savers get their money back as quickly as possible.'

Enlarge

 

It can get customers' savings back within just two weeks, but a firm must be declared 'in default' - typically administration - before compensation is triggered.

Last night, Icesave had still not been declared 'in default'.

If the situation is more complicated, it can take months, but the scheme aims to pay out within six months.

LibDem Treasury spokesman Lord Oakeshott has been raising the alarm about Iceland's savings giants for many months, despite their continued insistence-that savers' money was 100 per cent safe.

Saver Daisy Dumas has her savings with Icesave

He said: 'Iceland is a financial banana republic - perhaps we should call it a fishing republic.

'If its prime minister wore dark glasses and spoke Spanish, they never would have been able to run up these vast debts.'

Icesave says 95 per cent of its customers have less than £50,000 on deposit. This means about 10,000 people have more than £50,000 and risk losing thousands of pounds.

Icesave's British launch two years ago attracted huge publicity and an army of savers.

They were drawn by its generous pledge to pay out the Bank of England's base rate plus 0.35 per cent until May 2011.

A further 25,000 British savers have money tied up in Heritable Bank, which went into administration yesterday and was also owned by Landsbanki.

But their money will be 100 per cent guaranteed under a special deal that is understood to have been agreed with the Treasury in Britain.

In total, around 300,000 UK savers are thought to have money with Icelandic banks, including Landsbanki's rival Kaupthing.

Halldor J Kristjansson, Landsbanki's new boss, said it had not helped that British savers had been determined to take a lot of money out after the news broke about the nationalisation of Glitnir, the third-largest Icelandic bank, last week.

He added: 'There is always a danger that there will be large withdrawal of savings and that created additional problems on top of everything else.'