No reform of strategy in the wake of Icelandic bank lossBy Alice Murphy
July 06, 2009
Taxpayers’ money trapped in two Icelandic banks will not prompt major reform in Wokingham Borough Council’s finance strategies.
A report written by councillors with recommendations for how the borough should change its strategy for investing money was examined by the council’s executive.
The report has been taken apart by finance bosses, who have poked holes in many of its conclusions and recommendations.
No changes will be made to the treasury management strategy but some working practices should be adjusted, it has been decided.
The council had £5 million invested in two Icelandic banks when they went into administration last year.
The borough will receive most of the money back, however has lost the interest it would have gained on the cash.
Councillor Anthony Pollock, executive member for budgets, reiterated at the meeting he was confident the money in the banks would be returned.
The council’s finance overview and scrutiny panel carried out the review of the investment strategy and Icelandic investments.
The scrutiny committee members, audit committee members and key executive members will now all receive annual treasury management training.
Treasury management will be added to the responsibilities of the executive member for council budgets.
The review finished in April, but the general manager of business services, Graham Ebers, did not feel the report accurately summarised current practices or the replies given by the council officers to the committee during information gathering.
Mr Ebers inserted numerous corrections and clarifications into the report, which was circulated at the council’s executive meeting.
Members said at the meeting they felt the suggestions for future investment practices were too harsh and were not practical.
Executive member Cllr Matt Deegan singled out the plan to tighten up where cash could be held.
Under the suggestions all investments would have to be in the highest rated security category, but some investment holders, such as building societies, do not receive security ratings.
Cllr Deegan said it was restrictive and it was better to spread money more thinly, for example with £30 million in 30 different sources rather than £6 million in five banks, in case other banks went into administration.
Another suggestion was hiring dedicated staff to oversee investments.
Cllr Deegan said a dedicated employee would not be suitable and it was better to have an external team.
“We would not have the back-up of working with a team,” he said.
“I would argue it’s a stretch too far.”
Giving the example of NatWest, which is owned by the Royal Bank of Scotland, Cllr Pollock said: “With restrictions on how much to invest it would mean that it limits the group as a whole.
“I would not propose we take that on board.”
They said there was bound to be some risk with any investments.
Council leader Cllr David Lee said: “If we wanted no risk, we would put it [the money] under the mattress.”
He added the experience with the Icelandic bank accounts had been a “learning curve”.