What a Bunch of Bjorks

Ealing Council deposit £2 million in dodgy Icelandic bank

As the vast amounts of money Councils have lost in Icelandic investment continues to be totted up, it looks like Ealing taxpayers can add £2m to the pot. A press release on Ealing Council's website has revealed its investment in the first Icelandic bank to show signs of trouble, Glitnir.

Yesterday a Council spokesperson told EalingToday.co.uk that they "do not use any of the Icelandic banks". But today a press release stated that it has '£2m invested in the Icelandic bank Glitnir where the Icelandic Financial Services Authority has taken over control'.

Standard & Poor's credit analyst Miguel Pintado says the outlook isn't good for investment in Glitnir. "We believe that future payments on Glitnir Bank's obligations to creditors outside Iceland will not be honored as they come due," he said. "This includes maturities due within the next week."

The Council has defended the investment saying: "The council has followed best practice to spread its investments as widely as possible to ensure the maximum return for our investments without compromising the safety of the council's cash."

"The council, like most public organisations, invests in a wide range of banks within strict guidelines. Risk management plays the fundamental role in our investment activities, and due to the value of transactions involved safety and risk awareness always remains the priority over returns. The council takes regular advice from our independent investment advisers to minimise risk."

EalingToday and ActonW3 forum posters are already asking how this could have happened. One poster called for Ealing's finance director to be forced out for complete incompetence. Another asks to what extent the Council carried out a risk assessment of its investment portfolio and whether there will be any accountability"

As Town hall officials met Government ministers yesterday to demand help in recovering hundreds of millions of pounds invested by councils in collapsed Icelandic banks, Ealing Council said it will be 'supporting other London boroughs in their attempts to get their investments protected by the Government'.

The emergency meeting with the Local Government Association comes as dozens of local authorities revealed they had deposited taxpayers' cash in the institutions.

They will urge Treasury ministers to give them the same guarantee offered yesterday to individual savers by Chancellor Alistair Darling that they will not lose out.

One authority alone - Kent County Council - has £50 million deposited in troubled Landsbanki and its UK subsidiary Heritable, as well as Glitnir Bank.

Dozens more, as well as Transport for London and the Metropolitan Police Authority, have assets in the banks, estimated by the Tories to be worth in excess of £1 billion.

A total of 37 authorities have so far said they have investments caught up in the collapse, investments branded a "disgrace" by campaigners.

The LGA said councils had stuck to Whitehall rules encouraging them to get the best return and to invest their money across a number of financial institutions to spread risk. Councils took professional advice and were only allowed to lend it to banks with the top credit ratings, they pointed out.

Mark Wallace, campaign director at the TaxPayers' Alliance, said: "Every year we hear that councils don't have enough money and need to raise taxes but it seems they have had sufficient excess tax to salt tens of millions of pounds away. The fact that they have invested this money and seem to have lost it is even more shocking and is sadly yet another reminder of the poor financial management in local councils. It's an absolute disgrace. If the councils can't get their money back, the people who took these excesses should seriously consider their positions as councillors."

Chancellor Alistair Darling announced yesterday that he will protect the savings of private investors in Icelandic banks but said local authorities were "more of an informed investor".

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

October 10, 2008