Statement from the Leader about Icelandic banks
24/04/2009
"I feel sure that many of you may have heard the recent news of Brent's involvement with Icelandic banks affected by the current global credit crisis, in common with Transport for London, the Metropolitan Police and many other local councils. I would like to give you some background into what is happening.
"On Tuesday the Icelandic Government put those banks that it had not already nationalised into administration. Brent Council has lent a total of £15 million to two of the Icelandic banks that have been placed in administration (Glitnir and Heritable Bank - part of the Landsbanki group). Administrators are currently reviewing the assets and liabilities of each bank and we are not yet in a position to say what the outcome might be. Past experience of banks in this situation is that most or full repayment is made.
"Until recently, the advice from independent financial rating bodies was that these banks were a safe investment option. Both these banks had strong credit ratings. Brent has a good track record in investing money into a diverse range of banks to make sure that any risk is spread to minimise the impact of problems in the financial markets. We operate within all the rules relating to the deposit of council funds and full risk assessments were carried out. We also follow clear Government guidance which states that councils should 'seek the highest rate of return consistent with the proper levels of security and liquidity'.
"We all recognise this is an extremely difficult and exceptional time in the world financial markets and no organisation is immune from what is happening. Brent Council is supporting the Local Government Association in the pressure it is putting on the Government to ensure full repayment. But I would like to reassure you that there is no immediate threat to any council services.
"Over the next few weeks I will be working with my Executive, senior officers and other local authorities to put pressure on the British and Icelandic Governments to work together to resolve this matter."
Cllr Paul Lorber, Leader of Brent Council
Your questions answered
Has the council lost £15 million?
At present, we are working with the Local Government Association and the government to encourage the Icelandic government to facilitate repayment. We are also liaising with the two administrators. Previous local government experience of failed banks has been that all, or the vast majority, of the loans have been recovered.
Why did you invest with Icelandic banks?
Brent had a treasury lending list that lent to a fairly large number of UK and overseas banks, building societies and government institutions. The amount and duration of the loan depended on the credit quality of the financial institution as assessed by the credit rating agencies. On the basis of the credit ratings sought, three Icelandic banks were eligible to be included on the list.
Why didn't you withdraw the investment when the problems appeared?
The loans were made for three months and couldn't be recalled. In addition, one of the criteria used in assessing the credit worthiness of a financial institution has been its support rating - is it likely to receive support if it gets into difficulties. In the current market turmoil, a number of financial institutions that are on the lending list have found themselves in difficulties and have been given support - HBOS, Dexia, Depfa, Fortis, Wachovia, to name some. However, in the cases of Glitnir and Heritable, Iceland felt that it was unable to support its banks and put them into administration. Brent had no indication that Icelandic banks were likely to collapse in this way, but recent events have been likened to a financial tsunami that has hit a small country of 300,000 with a large banking sector.
What is the total value of our cash investments?
Brent has £129 million loaned into the market as present - £22 million of this is managed by our external manager, Aberdeen Asset Management. The remaining £107 million is invested across a number of banks and building societies so that the risk of default is spread.
What steps are being taken to recover the 15 million pounds?
More than 100 local authorities have investments in failed Icelandic banks. The Local Government Association (LGA) is working with the government to influence the Icelandic authorities to ensure that loans are repaid. The LGA is also talking to the Treasury and the Department for Communities and Local Government (DCLG) to ensure that the implications of losses or delayed repayments are understood and mitigated. We are also working with the administrators so that they can assess the full situation.
If the £15 million is lost, what may be the impact on council finances?
The impact will depend on the actual amount lost. We are working with the Local Government Association and the government to encourage the Icelandic government to facilitate repayment. We will also be liaising with the two administrators. Previous local government experience of failed banks has been that all, or the vast majority, of loans have been recovered.