Herefordshire Council and Icelandic banks

4:31pm Wednesday 15th October 2008

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HEREFORDSHIRE Council froze Icelandic banks out of its investment portfolio just before the credit crunch sent a chill through several neighbouring authorities.

Icelandic banks and their UK subsidiaries came off the council’s approved lending list as early as April this year. At the time, the treasury team weren’t tempted by interest yields, thought too good to be true as credit ratings reduced.

Instead, the council kept its cash close to home with around £14 million invested in UK-based “blue chip” institutions, those that the government is most likely to protect if the crisis in the financial markets continues.

Around a third of that sum has been put into overnight accounts, which don’t earn much in interest, but can be withdrawn quickly.

Prudence paid off, with the council making nearly £3 million on its investments over 2007/2008, a sum that went more than £800,000 over the original earnings target.

The level of funding available for the council to invest increased last year because nearly £8 million of investments that had been managed by an outside firm on the authority’s behalf was brought back in-house.

The council’s cabinet has already been warned that, in the current market climate, it can’t bank on the same kind of profit being made on investments by the end of this financial year.