Council could lose £10M in collapsed Icelandic banks

SCOTTISH Borders Council praised their financial 'effectiveness' in a treasury report - just 48 hours before the announcement that the local authority had £10 million invested in two collapsed Icelandic banks.

The report, produced by head of financial administration Alan Bowman, said SBC's treasury management had performed well against other local authorities across the UK and had "once again proved our effectiveness against our peers."

The report also said that had the council not "actively managed" their cash investments by placing them in high interest Icelandic accounts, it would have cost 244,000 in lost interest.

However, by Thursday of last week the council were forced to release a statement assuring Borderers that the possible loss of their 10 million investment - 5 million each in Landsbanki and Heritable Bank - would not affect services in the region.

The statement released jointly by SBC depute leader Councillor Neil Calvert and director of corporate resources John Campbell said: "Scottish Borders Council does not have a liquidity problem and there will be no adverse impact on council services.

"Until very recently, the advice from the independent financial rating bodies was that these banks were a safe investment option. Scottish Borders Council has operated within all the rules relating to the deposit of Council funds.

"At the time of the deposits, the two banks were both authorised by the FSA to take deposits in the UK, and both had high credit ratings."

SBC depute leader and east Berwickshire councillor Michael Cook supported his colleagues' reasons for holding investments in the Icelandic banks, where a total of 45.5 million from eight Scottish councils was held.

He added that 10 million was only part of the investments made by SBC, whose leader David Parker discussed the possibility of central government assistance with the Scottish and UK Governments last Friday to discuss the crisis.

Councillor Cook said: "It's one of these things - the council rightly invested at a time when it was wise to do so, along with 100 or so other institutions at a top rated Icelandic bank. 10 million is a proportion of what we have on deposit and we do spread our investments.

"There is a failure to understand the situation among some people who have been asking 'why put money in Icelandic banks that are not part of the UK?'

"Access to these banks was made through the London market and banking is an international industry.

"Local authorities have a duty to make any investment secure and get the best return on it."

Mr Cook also dismissed claims by some that warnings were given about the Icelandic banks a year ago.

"I would be surprised (if warnings were made) - we would have had that reported back to us.

"An internal audit was carried out when news was heard about the banks. The council have been compliant with treasury management rules - this won't have an impact on services in the Borders."

Among the feared impacts of the banks' difficulties, after borrwoing money on international markets and unable to pay it back, was the suspension of work on building projects such as Eyemouth and Berwickshire new High Schools.

An SBC spokesperson said both PPP projects, which are funded partly by private companies , are "safe" as they had nothing to do with the Icelandic banks.

Michael Moore, MP for the Borders, called for inquiries to be made at council HQ to ensure all the correct procedures took place.