Risk Professional: when sanctions bite
When sanctions were applied to the Milosovic regime in the Yugoslavia, AY Bank Limited, a UK corporation regulated by the FSA, found its business all but wiped out. Its story is an object lesson in how assessing one risk (here credit risk) can rapidly turn into disastrous political risk.
The liquidators of AY Bank Limited, Jeremy Willmont and David Rolph of Moore Stephens, have declared a fifth dividend which brings unsecured creditors' payout up to 100p in the GBP.
Willmont said "I am absolutely delighted that depositors have been paid back all of their money. It's taken a lot of hard work over almost nine years. At a time when bank liquidity is very much in the news, this case demonstrates how much can eventually be recovered from assets, provided you adopt the right approach. AY Bank had a particularly difficult loan book to collect. Much of its business was inter-bank lending and most borrowers were in the former Yugoslavian republics, whose economies had been ravaged by the effects of war. Their banking sectors were facing much tougher conditions than we have yet seen in the credit crunch today."
In 1999, Moore Stephens was appointed by the court as AY Bank's administrators after its assets were frozen by international sanctions against the Milosovic regime. The administrators continued trading the bank for four years as part of their strategy to protect the loan book while sanctions remained in force. By the time sanctions were lifted, rehabilitation of the bank was no longer possible, and it was placed into liquidation in 2003. However, Moore Stephens' negotiations to reschedule the loan book during the administration period provided the financial platform which ultimately resulted in a 100% payout for creditors.
During the trading period, the bank retained its FSA authorisation. It was also overseen by the Sanctions Emergency Unit of the Bank of England. Willmont commented "The officials at the FSA and the Bank of England were extremely professional, providing all the assistance they could. Due to the regulators' requirements, the bank's capital levels were high and it had an effective management team at the time we were appointed. These were important factors in the final outcome for depositors. For AY Bank, supervision worked."
AY Bank Limited is an English company that was authorised by the FSA to carry on regulated activities. Its shareholders include banks in Serbia and the other former Yugoslavian republics. Financial sanctions against Serbia were imposed by the US and EU in June 1999. AY Bank's assets were frozen by these sanctions because it was considered to be controlled by the Milosovic regime in Serbia.
AY Bank was placed into administration on 25 June 1999. The administration ended and the bank went into liquidation on 26 September 2003.
Source: Moore Stephens.
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