PKC has £1m in Iceland bank

Oct 10 2008 by Les Stewart, Perthshire Advertiser Friday

PERTH and Kinross Council were taking urgent action yesterday to try and recoup the £1million they have invested in a stricken Icelandic bank, one of several hit by the catastrophic world-wide financial meltdown.

But, even in the worst case scenario – and no cash is returned – Councillor Ian Miller, leader of the administration, stressed that there would be “no impact” on council services or on Council Tax levels.

Prior to briefing opposition councillors on the situation yesterday afternoon, Councillor Miller said: “We are working as hard as we can to find out what the current situation is.

“We understand that the Glitnir Bank is in receivership but are still checking that out. We will make every effort to get the money back,” he stressed.

Chancellor Alistair Darling has already given guarantees to private investors that they will not lose out because of the current situation in Iceland.

“I shall be writing to him this afternoon to ask him to extend that same guarantee to local government,” said Councillor Miller

The council invested their £1million with Icelandic bank Glitnir on March 19 this year. At that time the bank had an AA rating – the second highest available. The nine-month deal was due to be repaid on December 19, along with interest.

“When concerns were raised about banks in that country, we immediately reviewed the situation but we were locked in until December,”explained Councillor Miller.

“It needs both parties to agree before any changes can be made to the investment terms. Nobody could have foreseen the current situation when we made our investment with them.”

A council statement issued yesterday afternoon said: “Perth and Kinross Council has a very good track record in sound and prudent management of our finances.

“Our approach has been confirmed as effective by external auditors and Audit Scotland.

“We make decisions on where to deposit funding only after taking advice from recognised industry-wide independent financial experts. We work only with institutions that have the most robust financial ratings.

“We monitor an institution's performance on a daily basis. If an institution's ratings drop, we take action immediately to suspend lending with that institution on that day.

“Based on our sound management of funds, this council is achieving an average income return on investments of more than £2million per year, which equates to approximately 3% of Council Tax.

“We have a short term investment of £1million with Icelandic bank, Glitnir. We will continue to keep this situation under review.

“We can reassure the people of Perth and Kinross that there will be no impact on council services or on Council Tax levels from this situation.”

Councillor Miller pointed out that in February they had boosted their reserves by an additional £2 million, which would be there “for a rainy day”.

“If the worst comes to the worst and we don’t get our money back, we will have more than enough to cover that shortfall.”