Councils demand 'every penny back' from Iceland

Craig Woodhouse,Press Association
Thursday 17 December 2009 08:48 GMT
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Councils will demand "every penny" back from failed Icelandic banks today.

Representatives of the Local Government Association (LGA) are attending a creditors' meeting in the country's capital Reykjavik in an attempt to ensure that councils are treated as "priority" customers and repaid in full.

Local authorities lost almost £1 billion investing in Icelandic banks which collapsed late last year.

While some banks say they will repay the councils in full, Glitnir has warned that only a quarter of cash could be handed back as part of a winding up process.

LGA deputy chairman Richard Kemp said Glitnir was breaking the law, which he argued was clear that councils should be treated as priority customers.

Speaking ahead of the meeting in Iceland, he told BBC Radio 4's Today programme: "We want every penny back for British council taxpayers.

"We deposited it in good faith with these banks, they were banks that were regulated under Western democracies, with external auditors, with credit reference agencies giving AAA ratings until hours before they went under.

"We made those deposits in good faith, we expect to be paid back in good faith by those banks in return."

Mr Kemp said £110 million had already been repaid to councils, and more money was expected early in the new year.

And he called on the Government to launch an independent inquiry into why ratings agencies had continued to give Icelandic banks top marks shortly before they failed.

Mr Kemp said: "They were giving AAA ratings, which are top investment categories, hours before they went broke.

"We should be able to rely on that - as should every investor - and unless the British Government looks into the way these agencies work then my prediction is in 10 years someone - not me - will be sitting answering similar questions about the next bank to fail.

"So this is an urgent question, not just for local government but for any British investor - what information can we rely on?"

Yesterday the Serious Fraud Office (SFO) launched a probe into suspected UK fraud at failed Icelandic bank Kaupthing before its collapse in October 2008.

The SFO will examine whether the bank misled savers to encourage deposits into its Kaupthing Edge account and investigate why large sums flooded out of the bank in the days before it failed.

More than 30,000 UK individuals, companies and organisations invested in Kaupthing Edge accounts, the SFO estimates.

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