Icelandic Banking Crisis the latest

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

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• 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

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• 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.

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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
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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_at_bassetlaw.gov.uk
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• 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

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Cost Sharing Agreed principle that legal costs
apportioned on basis of size of deposits in
relevant banks
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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
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Bank Updates Heritable w/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
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Bank updates KSF Statutory proposals issued 1
December Statutory Creditors meeting. Peterborou
gh, Carmarthenshire and Bassetlaw acted as
proxies for other LAs. District Councils rep on
Creditor Committee Neil Taylor, Bassetlaw
District Council.
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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
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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
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• 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/guida
  nce 0809.pdf

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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.
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• 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

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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?
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External Auditors and Icelandic
Banks Responsibility for authorisation? Qualifica
tions and seniority of staff? Long and short term
ratings considered? Ratings applied appropriately
and judgement applied? Effective scrutiny and
review on a regular basis?
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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
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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
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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
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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?
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Bank updates more detail
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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
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Glitnir Bank (Contd) 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
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• Glitnir Bank (Contd)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

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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 (?)
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Landsbanki No timetable in place in respect of
potential payments No estimate of likely
payments Deloittes assisting Resolution
Committee See www.landsbanki.is/english/aboutlands
banki/oldlandsbanki/District Councilors Credit
Committee rep for Landsbanki and Glitnir Mark
Finch, Breckland DC
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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 December Claims 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
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Heritable Contd 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
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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
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KSF 1 December meeting Neil Taylor to provide
feedback