24th April 2009
By Alex Klaushofer
Councils are pleased but not surprised by news that they are likely to get back most of the money they deposited in Iceland’s failed banks.
Ernst & Young, the administrators of Heritable Bank, the UK arm of Landsbanki, has indicated that creditors can expect to get 80% of their money back – more if markets are favourable.
Councils with investments in Heritable can expect their first payments towards the end of July.
‘It is good news, but it’s not unexpected,’ Local Government Association deputy chair Richard Kemp told Public Finance. Predictions that local authorities in England would lose around £1bn were ‘always ludicrous’, he added. ‘We knew we’d get back the lion’s share.’
But while the UK branches of Icelandic banks may be able to make refunds, it’s unclear exactly what councils can expect from those based in Iceland, which are subject to different laws and administration processes.
Kemp said he was optimistic that local authorities – which are preferential creditors – would eventually receive similar returns from the other banks. ‘It wouldn’t surprise us to see councils getting back 70%–80% of the total,’ he said.
The London Borough of Havering, which has £12.5m invested in Icelandic banks, of which £6.5m is with Heritable, also welcomed the news.
‘It’s very encouraging,’ said a spokeswoman. ‘But there’s still a long way to go, and we will continue to fight to get the rest of our investment back.’
Kent County Council, which has £18.35m with Heritable, said the projections were in ‘stark contrast to the recent gloomy predictions that creditors would get only between 0.5p and 9.5p in the pound’. Council leader Paul Carter added: ‘This is the first tangible result from the work we have done to get this money back, which could be returned to KCC from July onwards.’
Last month, both councils rejected accusations by the Audit Commission that they had been ‘negligent’ in investing money in Icelandic institutions. Both are still considering legal action to force the withdrawal of that verdict.
Subsequently, the Treasury select committee’s report on the banking crisis said that authorities deemed negligent should get their money back only after charities and other authorities had been refunded.
Kemp said that both the Audit Commission and the committee should reconsider their statements in the light of the news. ‘Quite clearly, because we’re getting the majority of our money back, we weren’t putting our money at major risk,’ he said.
