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Icelandic Banking Crisis - the latest

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

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Icelandic Banking Crisis - the latest

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  1. Icelandic Banking Crisis - the latest Jim McDonaldDirector of Corporate ServicesCanterbury City Council

  2. 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

  3. 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

  4. 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

  5. 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.

  6. 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

  7. 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

  8. 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

  9. Cost Sharing Agreed principle that legal costs apportioned on basis of size of deposits in relevant banks

  10. 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

  11. Bank Updates Heritablew/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

  12. 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.

  13. 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

  14. 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

  15. 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

  16. Accounting Issues Issued in November 2008 LAAP 78 – Impairment of Financial Assets Impairment cannot be charged to HRA – see paras 44-48 LAAP 77 – Local Authority Reserves and Balances Updates LAAP 55 – Provides guidance on establishment and maintenance of reserves and balances.

  17. 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

  18. 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?

  19. 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?

  20. 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

  21. 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

  22. 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

  23. Actions for all to considerRecording 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?

  24. Bank updates – more detail

  25. 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

  26. 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

  27. 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

  28. 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 (?)

  29. 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/oldlandsbanki/District Councilors Credit Committee rep for Landsbanki and Glitnir – Mark Finch, Breckland DC

  30. Heritable Administrators proposals to creditors issued w/c 24 November 8 and 9 December Key DatesSee letter dated 1 Dec 08 – new Proxy Form and approach 8 DecemberClaims 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 DecemberStatutory Creditors MeetingLGA looking to get LA rep on Committee

  31. 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

  32. 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

  33. KSF 1 December meeting Neil Taylor to provide feedback

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