Majority of council cash lost in bank crash is retrieved

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More than three-quarters of the money lost by the council after a major economic meltdown in Iceland has been repaid.

Northumberland County Council had £23million invested in various banks based on the northern European island when the financial crisis hit, causing them to crash in autumn 2008.

But while the retrieval of the money is a lengthy and complex process, the county, now struggling under budget pressures of its own, has had £17.6million repaid.

Last week, a spokeswoman for Northumberland County Council told the Gazette: “Of the £23million invested in Icelandic banks, £5.4million remains outstanding.

“£17.6million having been repaid, the current situation with regards to recovery of the sums outstanding varies between each institution and the amounts and timing of payments to depositors such as the council will be determined by the administrators/receivers.”

The county council put £8million into the Glitner Bank in February 2008, while a further £7million was deposited with Kaupthing, Singer, Friedlander in early April.

Landsbanki Islands received £5million in February that year and a further £1million in March and September, despite the bank’s credit rating being cut that month.

The county also invested £1million in Heritable Bank in March 2008.

At the time of the collapse in October 2008, the then new chief executive of the county council, Steve Stewart, issued reassurances that the crisis would not affect taxpayers or local services, explaining that the money was part of the council’s short-term cash balances.

All of the investments were taken out in line with the council’s Treasury Management Policy Statement and took the prevailing positive credit ratings, prior to the credit crunch, into account.

However, in February 2009, an independent audit by accountants Deloitte found that warnings about risky investments in Icelandic banks had not been heeded by the county council.

And the report also suggested that even though the council’s advisors had downgraded the credit ratings in two banks on April 1, a further £8million was invested in them.