Investments in Icelandic Banks

Alice Bury made this Freedom of Information request to Lancashire County Council

The request was successful.

From: Alice Bury

17 October 2008

Dear Sir or Madam,

The Daily Telegraph recently reported:

"But The Daily Telegraph has established that some local government
managers did act on warnings from international credit ratings
agencies that the Icelandic banks were becoming less secure. In
February, Moody’s Investors Service cut its ratings on all the
major Icelandic banks. Landsbanki’s long-term rating was downgraded
“in light of the weaker credit environment.” In May, Fitch, another
agency, cut the ratings of Glitnir Bank and Kaupthing Bank.
Standard & Poors said it had only rated one Icelandic bank,
Glitnir, and had cut its rating from A- to BBB+ in April. Martin
Winn, a spokesman for the agency said: “We have been highlighting a
growing risk about the Icelandic banking system since February
2007. The rating BBB+ is very high risk for a Western European
bank.” Those warnings were passed on to many local council
financial managers, prompting some to stop investing in Iceland.
More than 250 local authorities employ Sector Treasury Services to
act as financial advisers. Sector, which is owned by Capita, is
understood to have passed on the warnings about the Icelandic
banks’ prospects to clients earlier this year."

Extract from Daily Telegraph article, 9/10/08

Given this background information, I should like to know:
1 who is/are the council's financial adviser(s)?
2 which credit rating system(s) does the council use for guidance
on institutions to invest in?
3 who was responsible for investing £10,000,000 in
Landsbanki?
4 why did the above (Daily Telegraph reported) warnings
go unheeded?
5 what measures have been put in place to ensure
investment in low credit-rated banks does not recur?
6 what sanction, if any, has been taken against the
person(s) responsible for investment in low credit-rated bank(s)?

Yours faithfully,

Alice Bury

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From: Freedom of Information
Lancashire County Council

14 November 2008

Dear Ms Bury,

Request for information under the Freedom of Information Act 2000

Further to your email, dated 17^th October, in which you request the
disclosure of information under the provisions of the above Act, we are
now in a position to respond.

The County Council's Treasury Management adviser is Sector Treasury
Services.

The County Council uses Fitch credit ratings.

The investment in Landsbanki was made by the County Council in accordance
with its approved investment policy. At the time of the investment,
Landsbanki had a short term rating of `F1', a long term rating of `A', an
individual rating of `B/C' and a support rating of `2'. These ratings are
combined by Sector to provide an overall `green' colour rating, which
indicates an institution with which the County Council limits its total
investment to £10m and maximum investment period to 3 months. This was
not a `long term' investment; it was a short term investment with an
institution that had an `F1' (top) short-term rating at the time of the
investment. The County Council would not invest long term with an
institution with the above combination of ratings, but the ratings are
good for short term investments. The County Council has to invest
substantial balances each day amongst a diverse range of institutions that
have received good ratings. The size and duration of the investment
depends on the overall credit rating and investments range from £10m to
£50m and from 3 months to 3 years duration. Landsbanki did not have the
very highest credit rating, but was sufficiently high for an investment to
be made for a maximum of 3 months (i.e. `short term').

In the light of the Icelandic bank issue, the County Council has reviewed
its investment strategy and the current limits in place have broadly
remained unchanged; however, a greater emphasis will be placed on
sovereign state creditworthiness and guarantees given by governments to
their depositors. A close regard will be given to any negative rating
watches, even though the overall credit rating has remained unchanged.

At the time of the investment, the bank was not low credit rated by Fitch
and the investment was made entirely within the authority's approved
investment policy.  Consequently the County Council holds no information
about `sanctions' placed on any person(s) for "investment in low
credit-rated bank(s)".

We trust that you find our response informative, but in the event that you
wish to complain about the manner in which your enquiry has been handled,
you should write in the first instance to The Freedom of Information
Officer, Lancashire County Council, PO Box 78, County Hall, Preston PR1
8XJ, or email [1][Lancashire County Council request email]

If, after this stage, you remain dissatisfied, you have the right to refer
the matter to the Information Commissioner, whose contact details are as
follows:

The Information Commissioner

Wycliffe House

Water Lane

Wilmslow

Cheshire

SK9 5AF

Tel: 01625 545700

Email: [2][email address]

Website: [3]http://www.ico.gov.uk

If you have any queries regarding our response, or you require any
additional information, please do not hesitate to contact us.

Yours sincerely,

Freedom of Information

Lancashire County Council

PO Box 78

County Hall

Preston

PR1 8XJ

Tel: (01772) 531116

Fax: (01772) 530949

Email: [4][Lancashire County Council request email]

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