Council looks to spread Iceland bank losses

Bill Chisolm.
Bill Chisolm.

A COURT decision and a nod from Holyrood means that Scottish Borders Council will be able to spread the losses incurred from its ill-fated £10million investment in two failed Icelandic banks over the next five years.

It was announced last week that the local authority is taking advantage of the Scottish Government’s consent-to-borrow scheme to fund the loss, which finance spokesman Councillor Neil Calvert has revealed to be £1.021million.

This is considerably less than the £3.1million deficit contained in a note to SBC’s accounts for 2009/10, the council having already agreed to devote the sale of an electronics factory which it owned in Kelso to defray, if required, the total losses.

But Mr Calvert said the council was still required to account for losses on the £5million deposited in both Landsbanki and Heritable after two years of uncertainty about anticipated recovery levels.

“The recent decision on the Icelandic courts in favour of councils being preferred creditors, plus the ongoing administration of Heritable, which is yielding regular dividend payments, means the situation has become clearer in recent months,” said Mr Calvert.

“The council is now anticipating recovery of 95 per cent of the Landsbanki deposit and 85 per cent of the deposit with Heritable. We expect to be able to repay the borrowing over the next five years from our £270million annual revenue budget.

“The offer of consent to borrow from the Scottish Government and the Icelandic court decision gives us an opportunity to account for our losses and minimise any negative impact on our services.”

Meanwhile, the retired journalist who sought a public inquiry into SBC’s Icelandic adventure has described the local authority’s investments in offshore accounts in that country between 2006 and 2008 as “akin to money laundering”.

Bill Chisholm from Jedburgh makes his comments in a letter to Bill Leishman, of the national public spending watchdog Audit Scotland, after learning, via a Freedom of Information request, that in the two years prior to the collapse of the Icelandic banking sector, “senior officers” at Newtown made no fewer than 94 separate short-term deposits totalling £172million.

These high interest loans were made in four banks – Landsbanki, Heritable, Singer and Glitnir – all of which went to the wall in October 2008.

They included two investments totalling £7million, made on a single day – November 2, 2007.

The four deposits amounting to £10million in Landsbanki and Heritable which turned toxic were made long after the alarm bells started ringing from credit rating agencies, according to Mr Chisholm.

In her response to Mr Chisholm’s FoI request in April, Doreen Broom, SBC’s data compliance officer, stated: “The senior officers who authorised the deposits in the Icelandic banks … were senior officers who were in the then financial administration section of the finance department.”

Mr Chisholm has now written again to Audit Scotland, telling Mr Leishman that the revelation that SBC had made 94 short-term deposits worth £172million in Iceland over two years was “incredible and akin to money laundering”.

“You will see that £7million of public money was deposited offshore on a single day by one of the smallest local authorities in Scotland,” wrote Mr Chisholm. “Yet I find no mention of these transactions in the council’s accounts and I was told previously there had been no involvement by elected members. Was the scale of this activity picked up in your organisation’s audits and was this level of speculation deemed acceptable?

“Does Audit Scotland still consider that SBC councillors were maintaining proper control over my local authority’s finances?”

Mr Chisholm has now received confirmation that Audit Scotland has received his communication.

“I am considering it under our procedures for dealing with correspondence we receive about the public bodies we audit,” said Mr Leishman.

But Mr Calvert, SBC’s depute leader with executive responsibility for finance, told us: “All our deposits during this period were made within the confines of our treasury management strategy and policy which has obviously been tightened up considerably.

“At no time was the policy breached in placing deposits with Icelandic financial institutions.

“The circumstances were fully reviewed by both internal and external auditors following the collapse of the two institutions with whom we had deposits.”