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Icelandic capital Rejkavik - The Town Hall has lost £17m worth of funds stored in failed banks there. |
Lost in Iceland? Town Hall tries to explain £17m investment bungle
Finance chiefs ‘missed the warning signs’ just two months before banks went bust
FINANCE chiefs stand accused of missing a series of critical warning signs as they ploughed millions of pounds into Icelandic banks just two months before they went bankrupt.
While other local authorities were removing their money from Landsbanki and Heritable bank through the summer, Westminster City Council has confirmed was still putting cash in.
City Hall pressed ahead despite two leading credit agencies downgrading the Icelandic banks’ ratings and pleas for caution from MPs.
Around £10 million was deposited in four separate investments in August. In total, Westminster has lost £17 million worth of funds stored in the failed banks. Council chiefs were told they had shown “bad judgment”.
Labour leader Councillor Paul Dimoldenberg said: “There were a long list of warnings and I don’t believe this catastrophe was inevitable.
“Other councils exercised better judgment and pulled out, most notably Brighton and Hove.”
He added: “Westminster was a slave to credit ratings, which by their nature are temperamental. There are other factors and they didn’t take heed of them.
“They say they are the best council in the world but tell that to residents who will have to pick up the bill in higher council tax and reduced services.”
Despite frantic lobbying, chancellor Alistair Darling is refusing to bail out the council after leader Colin Barrow admitted losing £17 million of taxpayers’ money when Heritable Bank and Landsbanki went bankrupt last week.
Cllr Barrow said: “Nearly £10 million of these deposits were placed in August when both banks had excellent credit ratings of the highest standard. This is, however, clearly a period of exceptional economic circumstances where events are changing by the minute and when the credit ratings of these banks were downgraded we were not in a legal position to demand early financial payment.”
Westminster is one of 116 local authorities staring down the barrel of an £850 million black hole following the crash.
As recently as July, Lib Dem peer Lord Oakeshott and Michael Fallon MP separately questioned ministers as to whether Icelandic banks were suitable for investment.
Cllr Melvyn Caplan, head of finance, said a £70 million reserve fund would act as buffer to stave of service cuts and tax hikes.
He said: “The credit ratings information we had at the time of the investments of both Landsbanki and its UK subsidary, Heritable, were strong.
“No one could have seen this coming and the suggestion that we were rash with our investment strategy is totally untrue.”
He added: “Westminster Council is by no means unique in basing its investments on such credit ratings and this is very much standard practice for local authorities and other organisations throughout the UK.” |
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