There will hopefully be a more detailed report of yesterday's council proceedings in the Neath/Port Talbot Guardian next week, but a few outcomes should be stated right away.
Firstly, there was no direct answer to the question tabled by Cllr Keith Davies, about the whereabouts of the council investments not placed with Icelandic banks already named. The council has something over £80m on deposit, £20m of which we now know to be frozen in Icelandic bank deposits, either off-shore or in UK subsidiaries. Where is the other £60m+ deposited? There was no direct refusal to answer the question, just an evasion each time it was put. It was implied, but not directly stated, that Cllr. Davies will receive an answer in writing. We are not holding our breath.
At least the question enabled a vigorous debate about council finance, for which we should be grateful.
Secondly, members of the cabinet, and of the policy and resources committee, rely totally on the decisions of officers, who are in turn expected to follow the guidance of firms of treasury management advisers. Neath Port Talbot retains the services of two of these: Sector Treasury Services and another (unnamed by Derek Vaughan, the council leader, yesterday, but presumably one of Arlingclose**, Butler or Sterling). Since the first official notification to the leader that there was any doubt about the Icelandic banks was September 30th last, one must doubt the advisability of the future use of these firms*.
The alarm bells should have been ringing in April at the latest, when the best-known of the international credit-rating agencies, Standard & Poor's, downgraded the only Icelandic bank to which it did assign a rating to BBB+. There had been warnings months in advance that this was going to happen.
Cllr. Peter Rees made much of the fact that treasury management had functioned for twelve-and-a-half years up until now, without questions being raised. One wonders, though, whether independent treasury advisers were employed in 1996, or whether the director of finance then used his common sense and his own view of HM Treasury's ratings in deciding where to deposit the council's balances. Moreover, there was not so much pressure to achieve the maximum rate of interest then as in recent years, when the increases in the support grant (80% of council income) from the Assembly Government have been consistently less than inflation.
The leader was dismissive of Wrexham's decision to switch out of Icelandic banks. (Fellow Liberal Democrats have informed us that Northampton, as well as Brighton and Telford, took a similar course of action.) They were able to do this because their deposit's fixed term had come to an end, he said. Of course. We didn't say anything different; to have withdrawn the money before the end would obviously have involved financial penalties. The point is that the council was offered the opportunity to start another contract, but declined. We have still to hear whether Neath Port Talbot made new deposits with Icelandic banks between February and October this year.
The Icelandic deposits are not lost, thank goodness, but they are frozen. There is a glimmer of light in that the leader had received information that one of the UK banks in question had assets exceeeding its liabilities. One trusts that the book value of these assets is genuine, and that they are not in the form of Northern Rock style mortgages. and that all or most of the other deposits can be repatriated.
Finally, the local authority's bankers are Alliance & Leicester. This bank had its tricky times when the credit crunch hit, but it is shortly to be acquired, subject to the usual formalities, by Banco Santander. Because Spanish banks have been more tightly regulated than American, British or even most other European nations' banks, they did not become dependent on dubious securities, nor lend extravagantly. They have therefore become a safe haven in the raging sea of unreliable deposit-takers. That is another fact over which citizens of Neath Port Talbot can heave a sigh of relief.
*Private Eye reports that, though STS warned in its September credit-ratings bulletin that Landsbanki had a "negative outlook" for long-term deposits, it was still recommending the bank for "short-term maturities".
** Update at 2008/11/19: Arlingclose has confirmed that the company is not the second advisor