IT cost Scottish Borders Council well over £1 million in lost capital and interest when two Icelandic banks crashed in 2008.
Despite that much publicised debacle, councillors have now backed a plan to deposit up to £5 million in another Nordic financial institution – Svenska Handelsbanken.
The Swedish bank, recently accorded a triple A (AAA) credit rating, is “one of the safer bets”, according to SBC’s chief financial officer David Roberston.
Presenting his mid-year treasury management report to the full council last week Mr Robertson said: “I am, of course, aware of previous issues relating to the Icelandic banks.
“By opening an account with Handelsbanken, the council has instant access to its short-term deposits.
“The bank is registered in the UK and, based on an objective assessment, it is one of the safer bets.”
Mr Robertson said the council’s updated investment policy reflected “a prudent approach to risk and the council’s concerns about the security of investments”.
Such concerns sprang from the decision by previous finance officers who advised the council to invest in two Icelandic banks which offered interest rates of 6.5%. Unfortunately the banks spectacularly collapsed in 2008.
When the crash came, the council had £5 million in Landsbanki and £5 million in another bank called Heritable.
The council eventually recovered £4.7 million of the latter investment.
Earlier this year, in an auction organised by the Local Government Association, the council sold off its £2.4 million claim on the unpaid balance of its Landsbanki holding for just over £2 million – thus finally netting £4.68 million of its investment with that bank.
Interest on the two deposits, estimated at around £600,000, was never recouped.
Mr Roberston explained that, at September 30, the council had £17.6 million in interest-bearing accounts with an investment yield for the first six months of this financial year of 0.37%.
“It is a very difficult investment market in terms of earning the level of interest rates commonly seen in previous decades,” he stated
“The potential for a prolonging of the Eurozone sovereign debt crisis and its impact on banks prompts a low risk and short-term strategy and investment returns are likely to remain low.”
He said the use of Handelsbanken for deposits of up to £5 million – in additional to the £17.6 million already invested - reflected the need for the council to “explore opportunities to invest surplus balances in the short term”.
““The potential for a prolonging of the Eurozone sovereign debt crisis and its impact on banks prompts a low risk and short-term strategy and investment returns are likely to remain low.”
Councillor Michelle Ballantyne, chair of SBC’s audit committee, said: “Our treasury management team does an excellent job and the first thing they do every morning is check that our money is safe.
“The banking system is not as secure as we once believed it to be, but I know our staff are extremely prudent and use sound judgement to make the best decisions.”