The popping of Southsea

Posted by Tracy Alloway on Jun 24 09:00.

This piece of news slipped most of the world by…

A court order has been made to place Southsea Mortgage and Investment Company into the Bank Insolvency Procedure and appoint BDO LLP as the bank liquidator. Find out what this means for Southsea’s customers.

Southsea was a small bank with a portfolio of lending to fund housing developments in the local area. The bank’s management have not been able to realise the value of Southsea’s loans to fund these developments.

As a result Southsea was placed into the Bank Insolvency Procedure on 16 June 2011. The Financial Services Compensation Scheme (FSCS) has been triggered and eligible depositors with balances up to the limit of £85,000 have been safeguarded.

Southsea Mortgage was tiny, with about £7.4m of funds in 270 savings accounts.

But the bank’s failure could be a big sign of things to come.

As the sharp-eyed Paul Amery points out, this means creditors with more than £85,000 tied up in the bank won’t be covered by the UK’s deposit insurance scheme. They’ll have to go to court, with all the other creditors, to get their money back. As Amery notes: “compare the way the authorities have treated Southsea with the blanket bailout of all depositors in Northern Rock … only three years ago, and you’ll sense that a tectonic shift may be taking place, at least at the individual country level in Europe.

It’s the slow end of the recent post-crisis bubble in government bank guarantees .

(Bubble, Southsea, gettit?)

Some 14 unlucky investors will be caught up in the UK government’s policy.

The UK, from what we remember, is now one of at least three European countries with so-called bank resolution regimes in place that include burdensharing for senior bondholders and depositors.

One wonders if the policy would hold if a larger bank failed. Presumably that’s why the UK government is now so very keen on ring-fencing, or the idea of separating big banks’ retail operations from the rest of their businesses. Even if its actual effects on depositors (and taxpayers) remain rather controversial…

Related links:
Regulators order Havant lender to wind up – FT
Are senior bonds risk assets or not? – IFR
Whoops! Ring-fencing retail banks could backfire – FT Alphavi

This entry was posted by Tracy Alloway on Friday, June 24th, 2011 at 9:00 and is filed under Capital markets. Tagged with , , , , , , , .

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