Barnet has £27.4 Million invested in Icelandic banks

Most of which could not have been withdrawn as they were invested in fixed term deals. Where this leaves the Council tax payers is anyone's guess. It will largely depend on whether central government is willing to protect these investments. It's a lot of money. I calculate about £83 per head for everyone in Barnet.

Update:- Barnet have produced a Q&A which I have reproduced below.

Icelandic Banks __ Questions & Answers


Has the council lost the £27.4m?

It is too early to say whether or not the money has been lost.

We are also working through the LGA to lobby Government for direct support on any potential losses. The scale of local authority exposure to these banks pales into insignificance with the level of support provided to the UK banking sector since the beginning of the Northern Rock crisis, so this request is not unreasonable – particularly as the decisions to invest in these banks was not a risky or reckless decision.


Are any of the funds invested within Icelandic institutions linked in any way to the pension scheme?

The cash for the pension fund is managed in house and there will be an exposure to the pension fund, but there is no easy way of determining this figure at this time since all funds are pooled for investment purposes and it is unclear at what date any loss (if a loss does eventually arise) would be determined and hence how this loss between funds would be determined.


Why did we invest in these banks in the first place and why was the money not withdrawn when problems with these banks emerged?

At the time funds were invested in these banks they met the credit criteria of our investment bank counterparty list.

The position with Icelandic banks has emerged very recently and very rapidly, and the council was unable to extract itself from investments made – these investments represent contracts, and contracts cannot be broken without severe penalties being incurred.

Up until the start of this week these banks were well rated by the global rating agencies. In the case of Glitner, the Icelandic Government had a 75% holding in this bank that was made last week, which should have represented gilt edged sovereign backing. However, the Icelandic Government subsequently moved so quickly to seize control of its banks that according to city brokers no funds were repaid on any maturing deals this week.

The position is still emerging, but brokers / analysts are currently expressing the view that these banks were not over-extending themselves in the same way that Northern Rock was – i.e. they were not lending based on borrowing, but instead have become victims of the liquidity crisis. The UK Government has injected substantial capital into the UK banking sector in part to address the liquidity problem, the Icelandic Government has so far not done the same.


If the Government refuses to underwrite local authority investments in Icelandic institutions will any capital projects be affected?

The Council does not ordinarily borrow for specific projects but against the Council’s capital financing requirement which is a technical calculation approximately equal to the element of the Council’s capital programme which is not otherwise funded through capital receipts, grant monies, external contributions etc. Decisions on whether to commit capital expenditure will in any event, as it would ordinarily, depend on other factors such as the level of interest rates and other available funds.

If a loss should arise, the Council would have to consider whether it could afford to progress with the capital programme in its entirety in the usual way.


How much of the council’s total cash investments does this represent?

The Icelandic banks investment represent 8% of the Council's treasury management cash portfolio.


What is the worst case scenario should the money be lost and the authority not compensated by Government?

The Council does not get any of the money invested back and has to write off the amounts invested to the general fund, pension fund, housing revenue account and capital programme. In the event this occurs, the Council would have to take actions to mitigate the losses in each of these areas.