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Wednesday, February 08 2012

October 2: Councils icelandic cash - one year on

What has happened to the millions of pounds that Kent councils deposited in Icelandic banks? One year on, the answer: not much - at least in terms of the money that has been recovered.

As we report, a fraction of the £63million locked in three banks has been returned, with KCC - which has £50million on deposit - securing the most at £3million.

Not that this all means that a large slice of the money won't come back - just that, as many suspected, it was always going to be a lengthy process. The winding up of any business takes time - so no-one should be surprised that the administration of any bank that has collapsed might proceed rather cautiously.

Icelandic cash - how councils are still waiting>>>

 

There remains a high degree of optimism among councils that they will get most of their cash back and they may well do. The key issue is whether the authorities will be treated as preferential creditors, meaning they will get priority treatment when it comes to divvying up the remaining bank assets. 

But don't expect a speedy resolution. Previous events suggest a wait of several years could be in the offing. When the BCCI bank collapsed and went into administration in 1991, the Western Isles council in Scotland had £24million at stake.

Nine years later in 2000, it had still only recovered just over half the money.

The main impact on councils is what they've had to do post the Iceland collapse. In an understandable move, most have opted for a safety first approach to invsetment and stuck all their money with the Treasury, whose interest rates are parsimonious to say the least. (Deposits into the Treasury increased from £1.5billion in August last year to £7.9bn in January.)

That means they're making less money on interest which might have proved helpful in cushioning the impact of any squeeze on their budgets.

KCC has already suggested lost interest could be significant - around £600,000 but interestingly looks poised to re-enter the investment market and will soon be considering investments in other institutions.

Finance chiefs believe they have enough safeguards in place to dip their toes back  into the investment world - but will be staying with UK banks.

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Meanwhile, will KCC stick with its advisers Butlers, who were involved in the controversy over its £50million deposits?

Relations got decidedly chilly last year but have since thawed a touch. The council is now about to re-tender its contract for Treasury management advisors and while once it seemed Butlers might be out of the equation, we hear that there is an expectation they will pitch for the business.

With so few specialist firms around in dealing in this area, it is not a crowded market.

 

 

 

 

 

 

Friday, October 02 2009

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