Revealed: The councils at risk after depositing millions in Icelandic banks » Local Government » 24dash.com

Hundreds of millions of pounds invested by British local authorities in Icelandic banks may be at risk as a result of the crisis in the country's financial sector, it emerged.

One authority alone - Kent County Council - has £50 million deposited in troubled Landsbanki and its UK subsidiary Heritable, as well as Glitnir Bank, while more than 20 others are thought to have exposure running into millions of pounds.

Transport for London said it has a £40m deposit with Kaupthing Singer & Friedlander, which has been placed into administration.

A TfL spokeswoman said last night: "We are urgently seeking further information on the situation."

The Local Government Association yesterday urged the Government to guarantee them against any losses, after Chancellor Alistair Darling announced he will protect the savings of private investors in Icelandic banks.

Conservatives said town halls faced a "massive financial shock", threatening council tax hikes or cuts in local services.

But the LGA insisted that frontline services should not be affected by any losses.

London public authorities are thought to face exposure of around £200 million, according the umbrella organisation London Councils.

A spokesman said he was aware at present of eight London borough councils with investments in Icelandic banks which may be at risk.

London Councils' chairman Cllr Merrick Cockell said: "It is essential that the Chancellor provides local authorities with a guarantee that their investments will be protected alongside personal investments.

"While nobody could have anticipated the collapse of what were once safe deposits, the government must now act swiftly to safeguard these assets and protect London's council taxpayers.

He said London authorities have sufficient funds "to weather the impact of this storm in the short term".

"Our experience in coping with financial difficulties will mean that local services will continue to be provided to our residents," he added.

Alongside Kent, Westminster City Council confirmed it had £17 million tied up in Icelandic accounts, while other exposed councils include Havering in east London (£12.5 million), Sutton in south London (£5.5 million) and Ipswich Borough Council.

Conservatives said they had identified a London authority with exposure totalling £40 million, and three others with deposits of around £20-£25 million in Iceland, as well as a county council in the south-east with investments of £30 million.

LGA chairman Margaret Eaton said: "We are today seeking an assurance from the Chancellor that councils' assets will be protected in the same way as personal assets. Town halls invested in Landsbanki as a reputable bank with a solid credit rating.

"In the short term, these councils are confident that they will have sufficient funds to tide them over for a considerable period of time."

An LGA spokesman said councils were obliged to invest responsibly and would spread their money across several institutions in case of problems.

Lessons had been learned from the experience of the collapse of BCCI in 1991, he added.

But shadow local government secretary Eric Pickles said councils had been encouraged by the Government to seek the best rates of return and the Chancellor's failure to give a clear ruling was putting authorities' finances at risk.

"No council could have reasonably foreseen the collapse in Iceland's banks in what once were safe deposits," said Mr Pickles.

"Councils have been actively encouraged and indeed praised by Whitehall to undertake these kinds of investment.

"Alistair Darling has so far failed to give a clear answer about local councils' deposits held in Icelandic banks.

"As a result, local government finances are now at risk and people will be concerned about their local services and council tax bills. The Government needs to stop dithering and clear up this uncertainty."

Challenged on the issue in the House of Commons, Mr Darling told MPs: "I do know the position about local authorities - I think they're in a slightly different position in that they are more of an informed investor.

"But this situation is evolving, we are trying to sort the matter out with the Icelandic government."

Prime Minister Gordon Brown's spokesman said the Government was ready to sit down and talk with any council affected.

Ministers yesterday took steps to protect the nearly 500,000 UK consumers who have money saved with Icelandic banks.

Mr Darling announced that no UK saver would lose money as a result of the closure of internet bank Icesave if, as expected, its parent company Landsbanki is declared in default.

The Treasury has also arranged for more than £3 billion of UK savers' money that is held with Icelandic banks to be transferred to ING Direct UK, a subsidiary of Dutch savings bank ING Direct.

The chairman of the Financial Services Authority, Lord Turner, said that, under European rules, branches of Icelandic banks in the UK were supervised by regulators in their home country.

He told Channel 4 News yesterday: "I think there is a major issue for Europe and there is a major issue for the whole structure.

"The local authorities ought to have been clear about where they were dumping their money, let's be clear about that.

"This was a branch of a Icelandic bank. It was not, and has not been, prudentially supervised by the FSA. There are big issues about whether it was correctly supervised in Iceland, but that is where it was supervised."

Liberal Democrat local government spokeswoman Julia Goldsworthy said: "The easiest way for the Government to reassure local taxpayers is to make clear how local authority funds will be protected.

"Ultimately this is council tax payers' money at risk and these are funds which are essential for the delivery of local services."

Barnet Council in north London is believed to have in the region of £27 million deposited with Icelandic institutions.

A spokesman said: "Barnet Council entered into a number of fixed term investments with financial institutions based in Iceland a considerable time before the current credit crisis.

A spokesman for Hillingdon Council in west London said the authority had exposure to Icelandic banks, but could not confirm the amounts involved.

He said: "In these highly unusual times most councils will be in a similar position and we would expect the Government to support us."

Brent Council in north west London said it had £15 million exposure to Icelandic banks "with good credit ratings".

A spokeswoman said: "Experience of this sort of financial issue leads us to wait and see how the administrator decides to deal with the bank.

"On previous occasions we have recovered most, if not all funds and we would hope to do the same in this instance."

Edward Welsh of the LGA said councils had acted along "prudent lines" by spreading their money across several financial institutions at home and abroad.

But he admitted the money was now "at risk".

Mr Welsh told BBC Breakfast: "Councils are large employers, they have large wage bills to pay off, they collect large amounts of money in council tax.

"The reason why this money has been put in these banks is to try to reduce risk by putting their money in as many banks as possible .

"In a world where the global banking system is under such enormous pressure it's perhaps not surprising that a council has been caught out in this way."

He said a typical council would put its money in about 20 to 30 different financial institutions at home and abroad as a way of spreading risk.

And he said councils follow government guidance and use independent financial advice.

"The world is changing as we speak. Nobody has known what was going to happen in the financial system over the last two or three months."

He said of the money: "We don't know it's lost, we know it's at risk. That's why we are speaking to the Treasury, that's why we want to find out what we can do to try and get that money back."

Cornwall County Council has £5 million deposited in Landsbanki.

The authority said they are waiting to find out if their investment is covered by guarantees issued by the UK Government.

Brian Higman, the council's executive member for corporate support, said before the investment was made in June their treasury department checked Landsbanki and found it had a high credit rating.

He said: "This is a time of unprecedented market turmoil and we don't yet know the position with regard to our investment.

"This situation illustrates the prudence of the council's policy of spreading potential risk among a large number of investment opportunities to try and protect against a collapse like this."

Three councils in Gloucestershire confirmed they had deposits in Icelandic banks, including Landsbanki, the Gloucestershire Echo reported.

Cheltenham Borough Council has £11 million invested in the banks, Gloucester City Council has £2 million and Tewkesbury Borough Council has £1 million.

Steve Jordan, leader of Cheltenham council, said: "These are exceptional times, the like of which we have never seen in world financial markets.

"Cheltenham Borough Council has an extensive investment portfolio and only a portion - £11 million - is invested in Icelandic banks."

London mayor Boris Johnson confirmed TfL's investment and warned it was vital that transport investment in the capital was not curtailed because of the credit crunch.

He told BBC Radio 4's Today programme: "That is a question for us and, together with the rest of London's authorities, we are looking to see what redress we can find."

He urged the Government not to halt transport investment in the capital to help fund the £500 billion rescue package for the banking system.

"We've seen staggering sums going in to prop up the banks and let's for heaven's sake hope it works.

"But I just want to stress that as the Government thinks about its priorities now, and thinks about the way out of the recession we may or may not get into, it is absolutely vital that we continue with the investment in transport infrastructure in London.

"If we want to get ourselves out of this mess, that means long-term investment in improving our city and making it even more attractive as a place to come and work and invest.

"We will cripple ourselves if we fail to get Crossrail done and we fail to upgrade the Tube. It is vital that people in Government understand that."

Wigan Council confirmed today that it had no money deposited with the troubled Icelandic bank, Landsbanki.
 
David Smith, the council's executive director of business services, said the authority had a policy of not investing with foreign banks since the collapse of BCCI (Bank of Credit and Commerce International) 17 years ago.

He added: "Our experience with BCCI in the early 1990s led to the adoption of a more cautious investment policy. While this may not have achieved spectacular returns, by managing our cashflow we have still exceeded benchmark rates." 

Ironically, the council is set to receive a payment shortly which will mean the £2 million principal sum originally feared lost after the collapse of BBCI has now been repaid.

North East Lincolnshire Council also revealed today it has millions of pounds deposited in a troubled Icelandic bank.

It has a £2.5 million on deposit with Landsbanki out of a total of £90 million of investments, a spokeswoman said.

Alan Madin, executive director of corporate services, said: "The council and our treasury advisers are awaiting further information on the support for Landsbanki from the Icelandic government, who are aware of the reputational risks should Iceland's second largest bank default on foreign loans.

"It is clear that deposits due in the next few weeks are unlikely to be repaid on the due date but it is too soon to speculate on the size of any ultimate loss of capital.

"A delay in repayment is manageable without impact on council services and the council carries a level of self insurances that would help cushion a loss should any occur."

Dorset County Council has deposits in the form of temporary loans to Landsbanki and Heritable totalling £28.1 million.

The council made the fixed-term deposits months ago when the two banks had a high credit rating and repayment was due at various times over the next eight months.

The council said it would not cause "significant cash flow problems" in the short term but there would be budget implications if the cash is not recovered.

County council leader Angus Campbell said: "The council has followed Government guidelines and deposited its cash balances with a wide range of banks to ensure that any risk is minimised.

"We will continue to press the Government to protect our investment and take every possible step to recover this money."

The county council manages the cash balances for itself and the Dorset County Pension Fund, which in total comprise £225 million.

Perth and Kinross Council said it has £1 million invested with Glitnir bank.

A spokeswoman said: "We have a short-term investment with Glitnir. We will continue to monitor the situation closely."

Powys County Council said it had £4 million, about 6% of its cash investments, with two Icelandic banks - Landsbanki and Glitnir.

A spokesman said: "We are naturally concerned at unfolding events and are monitoring the situation closely.

"It is too early to say whether our cash is at risk or not."

Rhondda Cynon Taf County Borough Council said it had £3 million deposited with Heritable and would "investigate all avenues in recovering this money".

Monmouthshire County Council had £1.2 million with Heritable.

Resources director Steve Greenslade said: "We are carefully monitoring the position, but it is too early to say whether the investment is at risk."

North Ayrshire Council said it too had been exposed to Icelandic banks' credit problems.

It gave no details of how much it had invested or with whom.

A spokesman said: "We do have exposure and we are monitoring the situation."

Wakefield Council's chief executive, Joanne Roney, confirmed the authority had £9 million in Icelandic banks, but said that frontline services would not be immediately affected.

"These are exceptional times for the financial sector worldwide and we are currently assessing the impact on services of the recent developments with Icelandic banks," she said.

"Wakefield Council has £9 million with Icelandic banks which was invested at a time when their credit ratings were highly ranked and there was no suggestion of any risk."

The chief executive said the council would work with the district's MPs to resolve the situation.

She said all investments were made in accordance with strict guidance and procedures laid down for local government finance management.

Ms Roney added: "Until the situation is more stable, no other investments will be placed for periods beyond March 2009, with the focus being on short-term investments and maximum security. No investments will be placed other than with UK banks or Irish banks covered by guarantee.

"The situation regarding all our investments is being constantly monitored in order to minimise our exposure to financial losses," she added.

Ceredigion County Council said it had £5.5 million with Icelandic banks.

A spokesman said the investments complied with Government guidelines.

"These investments were made within banks rated as creditworthy by leading credit rating agencies such as Fitch and Moody's.

"The current situation does not, however, affect the delivery of Ceredigion County Council's services to the public and it is currently by no means clear that the council's Icelandic investments are totally jeopardised, partly lost or secure - we are awaiting confirmation."

Brighton and Hove City Council said it suspended transactions with one Icelandic bank - Kaupthing Singer & Friedlander - about a year ago amid concerns about the country's banks expanding too rapidly.

Finance councillor Jan Young said today: "We have no deposits with Icelandic banks.

"We suspended transactions with the one we had on our books about a year ago after picking up concerns in the marketplace about Icelandic banks expanding too quickly.

"Our watchword is caution.

"We're very aware of our responsibilities in managing taxpayers' money, and are very careful both about who we invest with and how much we invest.

"Clearly, the overall financial situation is changing quickly and in an unpredictable way.

"In the current climate we will continue to monitor the situation on a daily and indeed hourly basis."

East Sussex County Council said it has no deposits in Icelandic banks.

Solihull Metropolitan Borough Council confirmed it had a total of £3 million on deposit with Icelandic banks.

The authority's Cabinet member for resources, Ken Hawkins, said: "I can confirm that we have three separate investments of £1 million each with three Icelandic banks.

"Solihull Council deposits money in a wide range of banks, taking independent investment advice and within strict guidelines, to spread any risk.

"All councils who have investments with Icelandic banks are seeking reassurance from the Chancellor about how these will be protected."

Mr Hawkins added that frontline services in the borough would not be affected.

Downing Street said that the government stood ready to discuss the issue with local authorities to see if they could find a way through.

"Of course the government does understand the situation that they are in," the Prime Minister's spokesman said.

"We have had difficulty in getting complete clarity from the Icelandic authorities in recent days about the position of all UK depositors in Icelandic banks."

Lewes District Council in East Sussex said it had £1 million deposited in Landsbanki but it did not expect significant financial problems in the short term.

Leader Ann De Vecchi said: "The current position remains fluid and may well change.

"The way we use investment interest and structure the council's finances means we can deal with this situation without it affecting council tax levels.

"We firmly believe the situation is a consequence of the current global market instability and that the Government should assist the many councils affected.

"At the end of the day, bringing stability to the world's financial institutions is essential for everyone and we believe that any support should come from the Government.

Unison urged the Government to protect local authorities.

General secretary Dave Prentis said: "The Government cannot stand by and allow local authorities to lose millions of pounds of council taxpayers' cash. They have stepped in to secure the banking system, and we need the same bold and principled action to protect local councils.

"Local authorities have a crucial role to play in protecting individuals, families and communities from the effects of an economic downturn. They are also crucial to rebuilding stability and confidence in our communities."

Figures compiled by the union showed the following councils had deposits in Icelandic banks:

Westminster (£17 million); Havering £12.5 million; Brent £15 million; Barnet £27 million; Sutton £5.5 million; Ipswich £2 million; West Sussex £12.9 million; North Lincolnshire £5.5 million; North East Lincolnshire £2.5 million; West Lindsey £7 million; Kent £50 million and Perth and Kinross £1 million.

Exeter City Council has reassured members of the public that there is no short term risk to council services after it revealed today that it has £3 million invested with the Icelandic bank Landsbanki, which has gone into receivership.

The council said it was supporting the Local Government Association's efforts to persuade the government to find a way of resolving this situation for the considerable number of councils which are affected.

In total, the city council has approximately £28 million invested in various financial institutions, including High Street banks. The only other exposure to Icelandic banks is a further £2 million on deposit with Glitnir.

Council Chief Executive Philip Bostock, said: "We have followed government advice and best practice in the way we invest our funds and clearly many authorities across the country find themselves in the same financial situation.

"However, the City Council, like most other authorities, invests in a wide range of banks and other financial institutions to ensure that any risk is spread and that potential adverse impacts on the tax payer are thereby minimised."

It later emerged that a further three Scottish local authorities have millions of pounds invested in Icelandic banks.

South Lanarkshire made deposits of £5 million with Landsbanki and £2.5 million with Heritable earlier this year.

South Ayrshire has £5 million invested and Moray Council £2 million.

A South Lanarkshire spokesman said: "The council has this morning made representations to the Treasury for an assurance that short-term deposits made with Landsbanki Bank and Heritable Bank will be covered by the Chancellor's promises over deposits with Icelandic banks.

"The council makes it clear that the situation will have no effect on the delivery of its day-to-day services or on the council tax."

David Anderson, chief executive of South Ayrshire Council, said: "We have investments with a wide range of financial institutions and this includes Landsbanki.

"The value of that investment is £5 million, due to come back to the council in stages over the course of the next two months.

"We will continue to monitor the position and will continue to seek advice from our treasury advisers."

Moray Council confirmed it has £2 million deposited with Landsbanki.

But senior council figures gave an assurance that there would be no impact on council services as a result.

Northumberland County Council invested £23 million in Icelandic banks, a spokesman said.

Councillor Andrew Tebbutt, executive member for corporate services, said: "We have made detailed information available to the local government organisation to assist them in their current liaison with national government to determine what steps can be taken to protect this level of investment.

"The current global financial uncertainties have brought major changes to previously very solid financial institutions.

"Obviously it is too early to determine the extent to which the council is at risk but the situation is being closely monitored, we are liaising with other public bodies as to the potential impact and we will keep people advised as more information becomes available."

Later, a Gateshead Council spokesman confirmed the amount it had invested in Icelandic banks was £4.5 million.

Cheshire County Council has revealed £8.5m is invested with troubled Icelandic bank Heritable.

The amount makes up about 4% of the council's total £200m investment with national and international financial institutions. The council has a budget of £1bn.

Council spokesman Ian Callister said the council is liaising with the Local Government Association to discover whether the Government will give similar protection afforded to individual savers.

Wirral Borough Council in Merseyside said it had a £2m bond with Heritable Bank.

Merseyside Pension Fund, which is administered by the council and provides pensions for local government workers including council staff across Merseyside and staff at Liverpool John Moores University and St Helens College, has a £2.5m bond with Heritable Bank and a GBP5m bond with Glitnir Bank.

A spokeswoman for Wirral Council said: "We expect these bonds to be honoured.

"To put the figures into some context, Wirral Council made £4m through investment activity last year, which was placed into reserves to ensure that local services are not affected by changes in financial markets.

"Considering the exposure that other local authorities have had with Icelandic Banks, the impact on Wirral Council is minimal. However, we will continue to monitor the situation closely."

In a statement released by Wirral Council,a spokesman for the pension fund said: "Merseyside Pension Fund has stringent risk controls in place which ensure that its investments are diverse, with limited exposure to any one asset class, market, sector or stock."

Nuneaton and Bedworth Borough Council in Warwickshire said it had £3m invested in Landsbanki.

The council said the deposit was made in three instalments of £1m in April, July and August when the Icelandic bank was highly rated under the Government's credit rating scheme for short-term investments.

The deposits had accumulated at a rate of 6%, the authority said, helping to support its revenue, and the money was due to be returned this month and next month.

Council leader Marcus Jones said: "I understand there will be no impact on council services. I will be working with officials to assess the full impact on the council and call on the Government to ensure that taxpayers do not lose out when the council has simply been following Government advice to maximise its investments."

Doncaster Council, in South Yorkshire, said it had £3 million invested.

Elected mayor Martin Winter said: "Doncaster Council has a very responsible investment strategy in place.

"Like all councils we invest money to help keep the council tax down and I have ensured that council tax has remained at or below inflation increases for the last four years.

"It is important to understand the scale of the issue - and we are talking here about less than 1% of our total revenue budget.

"We also spread our investments so that we don't invest all of our money in one place. The Icelandic bank that houses one particular investment is 'triple A' rated, which means that it was rated independently as extremely safe.

"Having said that, along with many other local authorities, Doncaster has been caught up in a very unusual set of world wide circumstances and many other local authorities are in a far worse situation.

"It is still early days, and at this stage I am waiting to see what advice comes from Government, the Treasury and the Local Government Association."

Rotherham Borough Council, also in South Yorkshire, said it had £3.7 million invested. Andrew Bedford, Strategic Director of Finance, confirmed that the authority has £1.95m with Landsbanki and £1.8 million with its subsidiary, Heritable Bank, which is based in the UK.

He said: "Like other local authorities, the investments were made based upon the buoyant economic market.

"We made these investments in these banks as they were top rated and offered an excellent rate of interest.

"The current volatile global financial market has resulted in this difficulty.

"We can assure our residents that we will do all we can as an authority to recover the money and will work with the Local Government Association and other affected councils to encourage the Chancellor to offer the same amount of protection to local authorities as to individual investors.

"Rotherham Borough Council's annual budget is £700 million and we are confident that the current situation will not impact upon service delivery."

Stroud District Council has deposits of £3 million in the banks, Cotswold District Council has £2 million and Gloucestershire County Council has £12 million.

Somerset County Council said it had £25 million invested in the Icelandic banks.

Bristol City Council has revealed it has £8 million invested in Landsbanki, and North Somerset Council has about £3 million with the bank.

Rushmoor Borough Council confirmed it had a total of £2 million invested in Glitnir.

Winchester City Council said it had £1 million invested in Heritable Bank. Council leader George Beckett said: "The council supports the representations by the Local Government Association to the Chancellor of the Exchequer to protect the interests of council tax payers."