Councils feel chill as bank collapses

10:40am Friday 10th October 2008

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By Matthew Pardo »

FINANCE chiefs at two Wiltshire councils have admitted they had millions of pounds tied up in a collapsed Icelandic bank.

And unless the cash can be reclaimed there could be an effect on services.

Swindon Council has said it had no cash in Icelandic banks.

Wiltshire County Council and North Wiltshire District Council had, between them, some £12m invested in Icelandic financial institutions.

But on Wednesday the Heritable Bank, which is owned by the Icelandic Landsbanki Island Group, went into administration.

That has left finance chiefs at the two authorities anxiously waiting to see what Government does to help.

Wiltshire County Council three months ago invested £8m with Heritable.

A spokesman for the county council said: “The council invested with Heritable which was a reputable bank with a strong credit rating as part of the council’s policy to optimise investment income while ensuring security by investing in strongly rated banks.

“At this point in time we are waiting for the appointed administrators Ernst & Young to inform us of the process to recover our funds.

“We are confident this will have no impact on the immediate provision of services to people in Wiltshire.

“However, if we are unable to recover some or all of these funds we, like many other councils, will have to review our longer term plans.

“At any one time the county council like all local authorities has money it is holding to use for forthcoming activities.

“This money is invested until it is needed to ensure we get the best possible income for the people in Wiltshire.”

North Wiltshire District Council is also in a difficult position.

It invested £1m in Heritable Bank nine months ago.

It also ploughed £3m into a long term investment with Landesbanki, which is due to mature in March 2009.

“The district council is in robust financial health and this difficulty will not affect the services provided to the people of North Wiltshire,” said Coun Dick Tonge, leader of North Wilts Council.

“Based on the information we have at this time we are confident that the monies deposited will be repaid.”

A spokeswoman for Swindon Council said: “Swindon Council does not have any money invested in Landsbanki or other Icelandic financial institutions.

“Our savings are spread across various UK and international banks with short term ratings of F1+, the highest available, according to Fitch Ratings Ltd, which is an authorised credit rating agency.”

The two Wiltshire councils are not alone. Around 100 local authorities in Britain are thought to have at least £760m tied up in Icelandic financial institutions.