30-Mar-2016: Liquidators' Update, see Deloitte site

Landsbanki Guernsey

Landsbanki Guernsey came into existence when Landsbanki Islands hf, the Icelandic parent, took over the Cheshire Building Society's Guernsey branch in September 2006, to give Landsbanki a fast track entry into the offshore deposit market.

Most of us had never heard of Landsbanki, but were assured by the Cheshire Building Society in a letter of the 7th of August, 2006 to depositors that "our business and your savings are in very good hands", with the letter going on to extol Landsbanki's 120 years of history, strong ratings, and size of assets and shareholders equity.

A letter of the 25th of September, 2006 to depositors from Landsbanki Guernsey confirmed the takeover, repeated these virtues, and stated "Landsbanki has given an undertaking to honour all the obligations of Landsbanki Guernsey Limited.", an undertaking that has been repeated in other communications in the form:

"Landsbanki has given an undertaking to discharge those liabilities of LG which LG is unable to discharge from its own assets, whilst it remains a Landsbanki subsidiary." (See LG Interest Rate Update)"

So, while aware that Guernsey had no depositor compensation scheme, we felt assured by the guarantees given by the parent that our savings would be safe. Those of us that did further research found that Landsbanki Islands hf's 2005 Annual Results reported that the bank's capital ratio (CAD) was 13.1% at the end of the year and tier 1 capital was 11.9% -- much better than most of the world's major banks. Their 2006 Results reported that these had increased to 14.8% and 13.0% respectively, and it was, by all accounts, a very well run and profitable business.

So What Happened?

Landsbanki Guernsey was, it seems, in good shape right up to the day when it was placed into Administration on the 7th of October, 2008 -- it's not often a business goes into Administration with positive net assets, let alone of over £22 million! According to a statement released by the Administrator, Richard Garrard of Deloitte and Touche LLP, on the 9th of October, 2008, and repeated in an update on the 11th of October:

"The main reason for the Bank’s difficulties has been the placing of funds with its UK fellow subsidiary, Heritable Bank, which has now gone into Administration."

A 16th of October news release from Deloitte announced that there would be a part-payment to depositors of 30p in the £1, made from the bank's liquid assets. And the other 70%? The same release details that £52 million is in commercial loans on UK property, while £36 million was placed with the Heritable Bank and a further £13 million with Landsbanki Islands hf. The release further states:

"The collapse of HB and other uncertainties have now placed greater doubt on the ability of the Bank to recover sufficient assets to pay depositors in full."

Cheshire Guernsey letter to depositors, 7-Aug-06 (PDF)2.03 MB
Landsbanki Guernsey letter to depositors 25-Sep-06 (PDF)620.19 KB
LG Interest Rate Update (PDF)485.26 KB
Deloitte News Release 16-Oct-08 (PDF)184.82 KB