Council confident of return of cash in Icelandic banks

Apr 22 2009 by Liam Murphy, Birkenhead News

WIRRAL could lose hundreds of thousands of pounds after it was revealed that failed Icelandic banks may only repay four fifths of the cash invested with them.

Millions of pounds had been invested by local authorities and this money was at risk after the banks were hit by the credit crunch.

Wirral Council had a £2m bond with the Icelandic-owned Heritable Bank and had invested a £7.5m on behalf of the Merseyside Pension Fund.

A spokeswoman for Wirral Council said they remained optimistic of receiving “the full value” of its investment with the bank, but conceded current indicators suggest it could be 70-80%.

This could mean a loss of more than half a million pounds for the authority and Wirral tax-payers.

The former Cheshire County Council had £8.5m invested with Heritable Bank, a UK subsidiary whose parent bank Landsbanki has been put into administration.

The County Council invested with the troubled Icelandic subsidiary bank “at least a week” before its credit ratings began to drop.

Last month Local Government Minister John Healey put new rules before Parliament that enabled authorities to postpone any possible budgetary impact of this until 2010-11.

Without this change in the rules, it is likely that many authorities would have had to make immediate provision for possible losses in their budgets – with potentially serious impacts on council tax or services.

Some 125 local authorities in England are believed to have outstanding investments of around £923.2m in Icelandic banks.

The council spokeswoman said: “Based on the present information provided by the administrators of Heritable Bank the council is expecting at least 70 to 80% of its original investment to be returned.

“However as this is a minimum level the council is expecting to receive more – and remains optimistic that the full value of its investment will be returned.”