Icelandic Banking Crisis - the latest
Jim McDonald
Director of Corporate Services
Canterbury City Council
Context
English LAs and related authorities 31 March 2008
£24.7bn invested
Deposits in Icelandic Banks 9 Oct 2008 £926 mill
= 3.7% of March 2007 total
LGA Activity
LGA working with councils
• to ensure scale of problem properly understood
• to manage reporting to ensure balanced a.f.a.p.
• to ensure recovery in efficient and co-ordinated
manner
Had dialogue with
• councils
• administrators and Resolution Committees
• H M Treasury and CLG
General meetings of Creditors
Most recent 20 November 2008
Received updates/feedback on
• LGA/LA reps meeting with HMT and CLG reps
• Overarching Steering Committee set up
• Cost sharing
• Banks updates
• Communications
LGA/LA reps meeting with HMT and CLG Reps
Case put for
• relaxation of capitalisation process
• a financial Bellwin type scheme
• change in PWLB early redemption rules, and
• LGA pursuing delayed NDR payments to Central
Pool
Govt officials stonewalled all.
Next Steps
(as a result of Government officials inaction)
LGA to pursue at political level
LAs to take similar action to lobby MPs
LGA is to send its letter to Government to LAs
Overarching Steering committee for LAs
Terms of Reference agreed on 20 November
Composition
1 named rep from each Treasurer Society plus others
SDCT rep Neil Taylor, Bassetlaw District Council
Contact: Neil.Taylor@bassetlaw.gov.uk
Terms of Reference
Of Overarching Steering Committee include:
• Co-ordinate recovery action
• Commission legal and other advice
• Manage budget and cost sharing methods
• Monitor developments in relation to Banks’ assets
Cost Sharing
Agreed principle that
legal costs apportioned on basis of size of
deposits in relevant banks
Bank updates (more details at end)
All – Resolution Committees and Administrators all
looking to maximise realisation of assets
Glitnir – Informal Creditors meeting due in December
2008. Fair value estimate of Assets and Liabilities
February 09? Moratorium order in place.
Landsbanki – No timetable in place and no estimate of
potential payments
District Councils rep on creditor committee
Mark Finch Breckland DC
Bank Updates
Heritable
w/c 24 November – Administrators proposals issued
9 December – Statutory Creditors meeting.
Administrators consider ‘there will be a material dividend
in due course’.
District councils LA Creditor Committee rep
Mick Nuttall, South Ribble DC
Bank updates
KSF – Statutory proposals issued
1 December – Statutory Creditors meeting.
Peterborough, Carmarthenshire and Bassetlaw acted
as proxies for other LAs.
District Councils rep on Creditor Committee
Neil Taylor, Bassetlaw District Council.
Communications
LGA has set up a Community of Practice
www.communities.idea.gov.uk/welcome.do
to register
LGA weekly updates
No more general meetings, so
Overarching Steering committee
LA Creditor Committees
Actions at National level
PBR – Better regulation of Banks
Review of Role of Credit Ratings Agencies
Select Committee Inquiry – evidence submitted by:
LGA, SDCT and CIPFA (all worth reading)
SoS announcement 26 November 2008
Revised CIPFA TM Guidance Spring 09
Secretary of State Announcement – 26 November
2008
• Councils will be able to defer impact of impairments
on Icelandic investments until 2010/11
• LAs will still have to make estimates of impairment
for 2009/10 but can bring a credit into account.
• No need to seek capitalisation directions in 2008/09.
• If LA chooses not to use the new regulation they
should not expect a capitalisation direction to be
granted in 2008/09.
Advice on capitalisation directions is at
www.local.communities.gov.uk/finance/capital/guidance
0809.pdf
Accounting Issues
Issued in November 2008
LAAP 78 – Impairment of Financial Assets
Impairment cannot be charged to HRA – see paras 4448
LAAP 77 – Local Authority Reserves and Balances
Updates LAAP 55 – Provides guidance on
establishment and maintenance of reserves and
balances.
LAAP 77
• Guidance represents good financial management and
should be followed as a matter of course
• Flooding and Icelandic bank events prompt LAs to
review levels of reserves and balances
• Review level of earmarked reserves as part of annual
budget preparation
External Auditors and Icelandic Banks
Recent activity to review U o R scores
Issues being examined:
All deposits in compliance with investment policy?
Deposits made, taking account of all appropriate
information?
Limits set for all counter parties, taking account of
subsidiaries?
Not over concentration in one bank?
External Auditors and Icelandic Banks
Responsibility for authorisation?
Qualifications and seniority of staff?
Long and short term ratings considered?
Ratings applied appropriately and judgement
applied?
Effective scrutiny and review on a regular basis?
Actions for all to consider
Review and ensure shared understanding of role of
advisors
Review how use credit ratings
Review records kept
Review counter party lists and limits in light of
prevailing market conditions
Actions for all to consider
For counter party lists and limits consider:
Criteria used to create/manage lists and limits
including sovereign ratings
Rating agency special reports
Independent sources of advice and information
Individual Records including records of reviews of
decisions
How reported to Councillors
Actions for all to consider
Reporting
Additional information in A I S, eg Policy on use of
Credit Ratings, full listing of counter parties and
limits?
More frequent reporting to councillors
Publication of information about TM transactions
Clear and honest, if things go wrong
Actions for all to consider
Recording
Against each investment decision
Nature and extent of risks
Prevailing market conditions
Credit worthiness of counter party
Staff
Qualifications - CIPFA and Association of Corporate
Treasurers – new qualification launches Spring 09?
Bank updates – more detail
Glitnir Bank
Resolution Committee appointed to take executive
control of bank and maximise realisation of assets.
Bank split Old and New – LA deposits in Old Bank?
Informal Creditors Committee – 13 November 2008
ICC acts as body to be consulted
Glitnir Bank (Cont’d)
Glitnir now under Moratorium so protected against
claims from creditors for two years.
Fair value estimate of Assets and Liabilities Feb 09?
ICC meeting due in December 08
Glitnir Bank (Cont’d)
24 November 2008
Moratorium Order will
• ensure all creditors treated fairly
• give time to consider Banks options
Resolution Committee
• has no intention of selling significant assets except
in exceptional circumstances
• believes retaining and managing assets will
maximise value of those assets
See FAQs on Glitnir website
Landsbanki
Resolution Committee seeking to maximise long term
value and protect assets for stakeholders
ICC met 14 November 2008
Bank split Old and New
LA deposits likely in Old (?)
Landsbanki
No timetable in place in respect of potential
payments
No estimate of likely payments
Deloitte’s assisting Resolution Committee
See
www.landsbanki.is/english/aboutlandsbanki/oldlands
banki/
District Councilors Credit Committee rep for
Landsbanki and Glitnir – Mark Finch, Breckland DC
Heritable
Administrators proposals to creditors issued w/c 24 November
8 and 9 December Key Dates
See letter dated 1 Dec 08 – new Proxy Form and approach
8 December
Claims to be registered if wanting to vote
Proxy voting forms to be submitted
(Gerald Almeroth (Haringey), Lynda McMullan (KCC) and Derek
Coates (Gateshead))
Election to SCC: Gerald Almeroth (Haringey) and
Lynda McMullan (KCC) being put forward
9 December
Statutory Creditors Meeting
LGA looking to get LA rep on Committee
Heritable Cont’d
Book value of assets £1.2bn
Book value of liabilities £1bn
But significant uncertainties including status of a
Landsbanki guarantee
Administrators ‘consider there will be a material
dividend in due course’
District Councils LA Creditor Committee rep –
Mick Nuttall, South Ribble District Council
KSF
Administrators have set out Statutory Proposals
Creditor meeting 1 December
Peterborough, Carmarthenshire and Bassetlaw acted
as proxies for other LAs
TFL hold significant deposits
Administrators looking for best long term solution for
creditors
District Council rep on LA Credit Committee –
Neil Taylor, Bassetlaw District Council
KSF
1 December meeting
Neil Taylor to provide feedback