Councils count cost of Iceland banks disaster

MILLIONS of pounds of public money invested in Icelandic banks is unlikely to be returned, it has emerged.

MILLIONS of pounds of public money invested in Icelandic banks is unlikely to be returned, it has emerged.

A number of councils in the North East, along with Northumbria Police Authority, had £28m invested in Icelandic banks before they faltered two years ago.

Northumberland County Council, which invested £23m in failed banks, stands to lose £9.1m, while Gateshead Council, which deposited £2.7m, has estimated losses in its accounts of £460,361.

Gateshead also provides support for Northumbria Police Authority, which invested £3m.

Nationwide, around 120 authorities invested £1bn in failed Icelandic banks. Just £143m has been returned, putting financial pressure on town halls already facing spending cuts.

But total losses hinge on a court case deciding whether UK councils will get “priority” status ahead of other creditors.

Northumberland County Council expects to lose £364,000 from a £4m investment in Landsbanki, a return of 71% of the original investment, including interest up to April 2009.

But its estimated return would fall to 38% if the council does not get priority status.

Labour MP Ronnie Campbell, who represents Blyth Valley, said investments in Icelandic banks had been a “disaster” and there were warnings before they collapsed.

“It’s just terrible. I mean, what can you say? It’s just terrible. That goes along with the Government telling them they have to save,” said Mr Campbell.

Hexham’s Conservative MP Guy Opperman said: “Any money we get back from the Icelandic disaster is good money. And the Government, I know, will be doing everything they can to maximise the return. If it’s only a limited amount in the pound, then so be it, provided we get something back.”

Andrew Tebbutt, Northumberland council’s executive member for corporate resource, said the authority had made provision for a £9.1m loss as required by the Government and warned it would several years to recover money.

“That doesn’t mean we will lose £9.1m. The last figures that I have been talked to about is we would expect somewhere between £2.5m and £3.5m. It is still a lot of money. But most of that, of course, is lost interest payments rather than actual loss of the capital.”

But Mr Tebbutt defended the original decision to invest, saying: “There was no reason to believe that our investment in Iceland was risky. It looked a very good investment.”

The council also stressed that it – as with other affected authorities – had been allowed by the Government to reduce the impact of potential losses through borrowing and using money raised from asset sales to fill any financial gap.

Derek Coates, Gateshead council’s director of finance and ICT, said it originally had a £2.7m deposit outstanding in Heritable Bank – a UK subsidiary of an Icelandic bank - when it went into administration. The administrator of the bank is paying regular dividends, which has reduced this amount to £1.6m.

“Latest indications are that we can expect to recover at least 90% of this deposit, though this situation may change and we remain confident of ultimately recovering the full amount,” he said.

Mr Coates added: “Northumbria Police Authority currently has £3m deposited in Heritable Bank and, again, we expect to recover at least 90% of that and possibly more.”

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