Local authorities in the UK are due to receive 90% or more of the money they deposited into Icesave before its collapse in the autumn of 2008.
The Financial Times reports that numerous town councils were attracted to the high returns Icesave was offering to depositors. As a result, local authorities deposited a total of some 1 billion GBP into the online bank.
Cipfa is more bullish still about the prospects for local authorities with deposits in Glitnir and Landsbanki. It believes Glitnir, which accounted for 21 per cent of local authorities’ Icelandic deposits, or £220m, according to the Audit Commission, will ultimately repay the entire sum, while Landsbanki, with 38 per cent of deposits or £363m, will repay 95 per cent.
If so, it would restrict local authorities’ overall losses to about £88m, or 9.2 per cent of their deposits. However, this outcome rests on the Icelandic supreme court, which will in September hear separate appeals against lower court rulings that local authority creditors of Glitnir and Landsbanki merit priority status, granting them seniority in the allocation of the available assets.
“Preferred creditor status would result in a much better pay-out but some of the bondholders are saying ‘these people are professional investors, we are professional investors, why should they get preferential treatment and we are left to carry the can?’” says [Mark] Horsfield [director of Arlingclose Partners, an adviser to almost 100 local authorities], who fears far lower recovery rates if the appeals are successful.
“There is not a lot of money in there. These banks went bust because they were geared nine, 10, 11 times,” he adds.
For now, while the British remain optimistic, the next word on the matter will come from the courts next month.