Did councils ignore warnings on Iceland banks?
From the
Daily Telegraph:
Local government leaders have argued that councils could not have foreseen the risks involved in the Icelandic financial sector when they invested public money.
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.
2 comments:
Clearly they did. Yesterday I was sick of those yapping LA people saying how they used the best advisers and it was only last week or even this Monday that their advice changed. If you can't stand the heat, get out of the kitchen. And remember that its our money.
So often in public sector matters does "best advisers" really mean "the ones who won a Framework Agreement bid contest during which we were not able to judge how good they are because we are out of our depth". We need better skills in the public sector, starting at the top.
I am a rerired corporate treasurer and can say catagorically that these councils were incompetent. Most corporates require banks to have a AA long term credit rating from both Standard and Poors and Moodys and spread risk by having low investment limits for each bank. Given the chaos in the markets I would also have expected each council to have a special meeting to review their investment strategy. None of this is difficult.
The three Icelandic banks involved all had ratings below AA and no council should have touched them. Given the magnitude of some the investments it is also clear that some councils were not spreading their risk.
The whole thing is a disgrace and those responsible should be sacked:but it won't happen.
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