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