At about 8pm on 6 October 2008, I got a phone call from the news desk of the Daily Mail where I worked as a journalist.
Reports were swirling that Icesave bank was about to go bust. Was it true?
I had been following the rise of Icesave and its market-leading interest rates and had spoken on occasion to its managing director Mark Sismey-Durrant. So I called him on his mobile.
He picked up, and I could hear in the background the hubbub of a meeting. Was it true the bank was about to go under? “Absolutely not,” he said, before offering some words about the bank being fully supported by its Icelandic parent company Landsbanki.
He apologised, said he was in a meeting, and hung up.
We never spoke again. The following morning as I chatted to the Daily Mail’s news editor about the call, Icesave collapsed. Mr Sismey-Durrant’s mobile phone was disconnected.
For me, it was this moment, the collapse of Icesave, that was the most significant moment of the financial crisis, not Lehman’s, as it is the one that has had the most lasting ramifications.
The 300,000 people who lost their savings in Icesave, of which I am one, were used as guinea pigs of the financial system to see if the safeguards put in place really could cope.While other institutions, most notably Northern Rock, but also others, died because of the financial crisis – their customers were all saved by other building societies and banks.
The 300,000 customers of Icesave were abandoned, and became the most major test the Financial Services Compensation Scheme has ever been put under. While £16,300 was covered by the Icelandic scheme, funds up to £50,000 had to be protected by the UK.
But Icesave was also the first ‘quiet’ run on a bank. When we have seen runs on banks before there have been pictures of people queuing round the block to get their savings.
Icesave was online only. So in the days leading up to the collapse thousands had tried to move their money from their home computer. There was no jostling, no shouting. In fact no one knew it was happening.
The 300,000 people who lost their savings in Icesave, of which I am one, were used as guinea pigs of the financial system to see if the safeguards put in place really could cope.
But Icesave also changed people’s perception. No more did savers simply trust new organisations, and I have been pleased to see them ask very real questions about how market-leading rates are funded.
It made people realise savings accounts are not totally risk free. Icesave, which at one point had paid as much as 7 per cent, formed an unrealistic environment.
In a newspaper column last week, Bank of England governor Mark Carney said that savers had to take the pain to help the UK out of the financial crisis. But though the lessons of Icesave have been learned, he also warned the four most expensive words in the English language are: “This time is different.”
Worlds apart
One of my most treasured financial services possessions is my copy of Moneyfacts from August 2007. It is the edition from the month before everything fell apart.
It is like reading something from another world. There are 100 per cent loan-to-value deals on interest only from the Bank of Scotland, Bradford & Bingley and the Portman Building Society.
Alliance & Leicester, Birmingham Midshires, Godiva and Northern Rock had a 125 per cent mortgage; B&B, Dunfermline Building Society, Mortgage Express, Scottish Widows all had 110 per cent.
What you will notice of course is that many of these names are now long gone. I mean, what on earth was Dunfermline Building Society (assets £3.3bn) doing offering that kind of deal? We really were all mad.
But my favourite heading comes under self-certification where a footnote adds: “Details of income required, but not proof.”
Standing by an old favourite
And so Neil Woodford disappears from another best buy list from a fund group.
It seems as if Hargreaves Lansdown is the only company willing to stick by their old favourite.
Personally, I am sticking by Mr Woodford too. He has made some howlers and if I am wrong it is also my own money at stake.
I think his portfolio is designed for Brexit and has a heap of entrepreneurial companies ready to thrive.
Plus he has been hammered more than anyone by high-profile outfows from the UK.
He has been in this position twice before, most notably in 2007. Someone as intelligent and astute as Mr Woodford does not just lose it. The market fundamentals remain the same.
And as Mr Carney said, a big mistake would be to think: “This time is different.”
James Coney is money editor at The Sunday Times
