Wednesday, October 08, 2008

The banking madness continues...

For some, rather many people, they have got to lose.

Just yesterday the second largest bank of Iceland, Landsbanki was declared insolvent and nationalized. Landsbanki is the owner of the online bank called IceSave that has branches in the UK and the Netherlands. IceSave has been very popular and attractive to people like me who wants to diversify as they guarantee up to 5.25% interest rate on normal deposits. Not even on term deposits!

Of course, with that very high interest rate, I grabbed the opportunity to open an account online. Unfortunately, just yesterday the bank has suspended operations. In panic, I tried to log in online to retrieve my money but the website was so damn SLOW (about 120,000 account holders in the Netherlands probably had the same idea as me) and secondly, the withdrawal transaction was not approved. All transactions were denied.

I found out about the tragic news yesterday when I went to check BBCWorld for my daily dose of news at past 2 in the afternoon at home (was home because I was not feeling well) when I saw the Landsbanki-IceSave article released just 15 minutes ago. I felt my fingers turn cold when I clicked on the news item, and immediately dialed the telephone to call the Dutchman. We’ve both been trying on their website without success as the gloomy reality hit us: All IceSave accounts were frozen.

Dutchman was luckier, (and so was the Dutch sister) as he moved a large chunk out of his account a few days ago, while I and a friend still have quite a sum deposited.

The main and crucial issue here is Iceland is not part of the European Union, thus different banking terms and conditions apply. For the first €20K deposit, the Iceland Central Bank is the guarantor, and the next €20K the Dutch Central Bank. For European Union member banks, it’s the other way around. Big question right now by the savers left hanging in mid air is this – Should we now go to Iceland to get our money back?

It was just on the news today that Prime Minister Brown of the UK will be suing the Iceland government (since they are now the owner of the bank) if they will not honour their part of the bargain. Currently, the UK government has pledged guarantee to about 300,000 IceSave depositors in the country.

It might be interesting to know that Iceland population is about 300,000 (same number as the UK depositors) and that the whole country is on the verge of bankruptcy, however, momentarily seeking a loan with Russia. The Kroon has plummeted to very low levels and Iceland’s banking industry became too huge for a small country to handle. The ailing sector was too volatile to fight and protect against the financial upheavals due to the large exposure it created. To note, Iceland highly depend on its banking industry for returns as well as fishing. And now all the banks there have gone down under... I think the Icelanders will have to go back to the basics, and that is fishing, as seriously told in an interview by an Iceland national on BBC.

For the Netherlands arm of IceSave depositors, I have been following the Dutch Central Bank website for press releases, which by the way has gone flat because of too much traffic in the last few days. Same goes for the website, it has gone flat yesterday too.

The Dutch Central Bank has not promised anything yet, but has put up a press release saying the agreed terms and conditions still apply. The first €20K is guaranteed by the Iceland Central Bank and the next €20K by the Dutch Central Bank. In addition, the Dutch Central Bank stated it will help facilitate Dutch depositors in getting their money back from the Iceland authorities, at least for the first cut. And in tonight’s news on TV, Finance Minister Bos said they have not heard anything (yet) from the Icelandic authorities. So nothing, no positive news is no news.

I feel a bit bad not getting back my money now but there seems to be light at the end of the tunnel as I have great confidence in the Dutch government and Dutch Central Bank (they have lots of €). So perhaps, if the Icelandic authorities will not pay up, I hope the Dutch authorities will step up to the plate and rescue the depositor’s money.

It just makes sense since yesterday the local authorities have raised their guarantee protection up to €100K per account per bank. The figure was based on the statistics that about 98% of Dutch depositors have €100K and below amount in their accounts. Very interesting to learn indeed that only about 2% have accounts above the €100K mark, however, a person can have several accounts, of course.

So anyway, a technicality as Iceland not being part of the EU, and with a different guarantee conditions, hopefully would not be the doomsday of our now frozen investments.

In addition, the local economic climate in the Netherlands seems fine. So far... but you never know. The labour market is still looking rosy. The prices of houses have not gone down, in fact they have been very stable but the only concern is that there are many on Te Koop. My sales performance at work have never been better. I closed last month at 200% from my target and just this month for the first week, I’m already at 70+%.

There are speculations of course, but there will always be speculations everywhere and anywhere in times like these. And it’s always good to be cautious.

As for the financial side of matter, some rumors are circulating in the media that Aegon and ING being in volatile waters might get hit pretty soon. Fortunately, I am not insured with Aegon although I used to bank with them for a time nor I have relations with ING. But at any rate, the press conference regarding the guarantee from the Dutch authorities has put back confidence on the table.

For those with enough money on their financial portfolio, they can always spread it across different banks and make sure these banks are guaranteed by the Dutch Central Bank. But for the Euromillionaires, well good luck!

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