Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
16 October 2008
09:347588#1
I know debate has raged in the political section on this matter but I have decided to post this here because this is not in any way political and I am approaching it entirely from a financial point of view.
In the Dover Express today a great deal more information has been revealed about DDC's investment in this bank and I am commenting here as a finance professional.
1/ The £1m was invested with Landsbanki in a 1 year fixed term/rate investment 11 months ago when they were rated AA.
This is a high rating, higher than many British institutions. Anyone should be able to invest in a bank with such a rating in confidence.
2/ This money represented 4% of the portfolio.
This is not an unreasonable proportion to place in a single institution particularly one with an AA rating and for a one year deposit.
3/ The make up of the rest of the portfolio is not revealed other than the fact that Investec are manging a large proportion.
I know Investec from a retail perspective and have 8 of their retail funds approved for investment, though I have not used them much. They are a reputable and professional fund management company and quite suitable for this purpose. This was the only company who identified a problem some years ago with 'split caps' and as a result made changes to their Capital Accumulator Fund in good time to avoid the split cap crisis. They do know what they are doing. Also Paul revealed that DDC removed £8m from their control due to being disappointed over investment returns. That is a good sign because it shows DDC are not too passive and actively monitor their investments against benchmarks.
I believe therefore there is enough information to make a professional judgement. In particular the fact that the £1m was only a one year commitment into an AA rated bank (at time of investment) demonstrates that they were certainly not taking any excessive risk or in any way being irresponsible this public money.
We have had a most extraordinary set of circumstances that has led to this happening. Let me demonstrate just how difficult this has been. In the 'pinks' this week a case was highlighted in which a reputable, experienced financial adviser conducted what we call 'due diligance' on the other Icelandic Bank, Kaupthinge Singer & Friedlander in September THIS year. His checks were good enough for him to commit a six figure sum, of his retail client's money to this bank.
So where should the responsibility be laid?
I have said before that the rating agencies certainly need to review their methodology and the regulators, the Treasury, Bank of England and FSA also have a responsibility.
Investments need to be made with confidence in the regulatory system and the information from key agencies. Without that we are all in the dark.
So what about the other Councils, such as Brighton & Hove who have been milking this for good publicity? I do wonder whether they are being totally up front. It may be that their 'dis-investment' was at the maturity of one of these one year fixed rates in the last few months, or in some cases perhaps it referred to a smaller Icelandic Bank about which there were early rumours. It is possible that someone made a judgement, a good call, against the regulators information and rating agency details but somehow I doubt it. That person could earn a fortune in the money markets if that good. A lucky call, maybe. Spinning whatever happened to look good for their local electorate, certainly.
I believe that those who were so quick, on little information, to throw around wild accusations at DDC should be man enough to back down and even to apologise. I hope they will. There is absolutely no evidence at all to back up their accusations and recriminations, however 'human' it may be to feel that way.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
16 October 2008
10:077590#2
From the Telegraph today.
""""It appears that the Audit Commission, which exists to ensure public money is spent properly, had invested as much as £10m in an Icelandic financial institution. It will be lucky to see a third of it, if that, ever again.""""
If that does not tell us something about this I dont know what can.
Sid Pollitt
16 October 2008
10:397592#3
I think that most were concerned that there was not a full explanation being given by either DDC or KCC on the investment, and possible loss, of our money. I saw opinions rather than wild allegations. In a previous post Barry you said that you had read 1984 but not Animal Farm, with your 'DDC good/ Government bad' slant perhaps you should.
I have had dealings with Investec, I was on a committee looking to appoint fund managers and we were impressed enough to pick them.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
16 October 2008
10:507593#4
I have placed no DDC good/Government bad slant in this, Sid. I merely analysed from an investment perspective the information we now have.
As for wild allegations, there were calls for heads to roll, there were accusations of DDC taking excessive risk and so on.
Yes, I do acknowledge that this was an understandable and natural response, as I acknowledged above, but those who jumped in this way should openly now recognise that they were mistaken. There is enough information now to judge.
I am glad to see you back me up on Investec.
Guest 645- Registered: 12 Mar 2008
- Posts: 4,463
16 October 2008
11:407595#5
Barry
Thank you for your posting.
May I answer your question of whether "heads should roll" etc this way.In my previous employment if I made an error of judgement that resulted in someone being unfairly removed or refused entry to the UK the enquiry process that would entail would be a lengthy Home Office led investigation(complaint file) being raised,I would have to sit through various interrogations and interviews and basically prove my 'innocence' that it merely was not an error of judgement or a misinterpretation of facts given to me by the passenger and/ or sponsors.This enquiry could take weeks to conduct and conclude and could result, if proved against me,dismissal or a transfer out of the service ie counting paper clips in stores for the rest of my career.The main point would be that I would be seen to be guilty until proven otherwise.
What is going to happen to a) those at the DDC that made the decision to invest and b) to the financial institution that advised the council to invest in this bank?.
The least we deserve is an enquiry to ascertain if there had been any negligence upon their behalf and secondly were they aware of Dartfords decision to withdraw their council money from these banks a few weeks earlier because of their concerns and if DDC were warned about the state of the Icelandic economy why did they decide to ignore that advice.
Before any heads roll we should have a public enquiry to answer the above.That is the least that we deserve in order to reach a fair conclusion.
Marek
I think therefore I am (not a Tory supporter)
Guest 651- Registered: 12 Mar 2008
- Posts: 5,673
16 October 2008
12:247601#6
"I think that most were concerned that there was not a full explanation being given by either DDC or KCC on the investment, and possible loss, of our money"
There was a statement on the DDC website on the 10th.
http://www.dover.gov.uk/pr/template.asp?search=850
Heads won't role and I don't think they should - it is a gamble that has paid off for years for most people - would you sack a financial advisor if there was a townturn in the market that was unavoidable ?
Having said that Ashford Council were advised 2 years ago to get away from Icelandic Banks....
Been nice knowing you :)
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
16 October 2008
12:537603#7
Marek. I have to disagree with you.
As I have said there is no such thing as 'nil risk' - there are just many types of risk. The facts seem clear that the DDC investment was made at a time when the bank was rated AA and it was a small proportion of the overall portfolio.
What is important to note also is the fact that a local authority has placed upon it, by Government, a duty to achieve the best returns commensurate with risk. The risk, which can only be judged as reasonable based on independent rating agancies and being approved by the BoE, Treasury and FSA, was well within reason when the investment was made. Indeed, if an Audit Commission Review determined that DDC did not do enough to obtain the best returns then they could have been in trouble from that source.
This was a one year fixed term investment made 11 months before. If this crash happened a month later the headline would be 'DDC pulled money out of Icelandic Banks just before they crashed' and make no mistake they would have made the most of that publicity!
The threat/cost etc of enquiries would be a very dangerous route to go down. It could have unforseen consequences on future public body investment, forcing a greater degree of playing safe that would reduce returns and cost the taxpayers over time much more than this loss.
Who, incidentally, would conduct such an enquiry? The Audit Commission - thats who would normally do it? I now know they made their investment of £10m only a few months ago. If anyone knows the rules around public body investment and has all the resources available to make such decisions its that particular body.
What it shows is simply what an extraordingary situation we have experienced that has given rise to these losses. If only very few public bodies had been caught out by this then there might be a reason to justify further enquiry but that clearly is not so.
Guest 651- Registered: 12 Mar 2008
- Posts: 5,673
16 October 2008
14:287607#8
"The Audit Commission - thats who would normally do it? I now know they made their investment of £10m only a few months ago. If anyone knows the rules around public body investment and has all the resources available to make such decisions its that particular body. "
Must say that has caused a slight bit of smugness in the officer :)
Been nice knowing you :)
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
16 October 2008
16:287613#9
Forumites might like to know that I have just been researching the Chelsea Building Society and I have found that they have £55,000,000 with Icelandic Banks.
I have no reason to be concerned about them as this represents just under 2% of their portfolio. They do tend to finance their lending from savers, this being a Building Society and not a bank and they have little exposure to sub-prime. Given the current climate, however, if you have money with them I would suggest that you should make sure that you have no more than £50,000.
I repeat, I have no reason to think that they may go down or that there will be any kind of significant problem, but better safe than sorry given what has been happening.
Please do not take this as any kind of advice to invest with these.
Ross Miller
- Location: London Road, Dover
- Registered: 17 Sep 2008
- Posts: 3,709
16 October 2008
21:207637#10
Thanks Barry
I absolutely agree with you about the situation with DDC, they acted in accordance with government guidelines, took appropriate professional advice etc. etc. to sum it up thay all did their jobs.
"Dream as if you'll live forever. Live as if you'll die today." - James Dean
"Being deeply loved by someone gives you strength,
While loving someone deeply gives you courage" - Laozi
Guest 645- Registered: 12 Mar 2008
- Posts: 4,463
17 October 2008
05:547652#11
Well Ross I hope the DDC are as understanding as you are cos I invested all my money in Iceland and I'm now in the position that I can't afford to pay my council tax,,after all I did was to act within govt guidelines took appropriate professional advice etc etc.
Will keep in touch with the forum from Chokey..I could do with a break
Marek
I think therefore I am (not a Tory supporter)
Sid Pollitt
17 October 2008
16:047679#12
Icelandic Banks and DDC - I did see the statement on the DDC website, it did not give the details that the article in the Dover Express went into. Knowing the way the DDC operates it's investments I doubt there will be anything found that was negligent.
Icelandic Banks and KCC - this is where I think there may be problems, it's all very well saying services will not be affected but the possible loss of pension money is a worry. There was also the suggestion that KCC's advisors told Thanet to pull their money, if this is the case I'm sure they would have given KCC the same advice. The jury is still out on the KCC I think.
It is a great shame that David Cameron has now chosen to renew hostilities on the financial front. The pundits I have seen on TV today are saying that Gordon Brown appears to be vindicated in his stance that it is a global crisis triggered elsewhere, and they are asking if the Tories would have done any different. There are also saying that Cameron is not offering a clear alternative. It would seem that he has an eye on the polls rather than on the well being of the UK economy.
Ross Miller- Location: London Road, Dover
- Registered: 17 Sep 2008
- Posts: 3,709
17 October 2008
19:217690#13
Marek in DDCs defence it was 4% of their capital budget rather than all their money
Sid I agree that KCC are the worry and I think Cameron's comments about the City may well come back to haunt and may well be seen as a self inflicted wound
"Dream as if you'll live forever. Live as if you'll die today." - James Dean
"Being deeply loved by someone gives you strength,
While loving someone deeply gives you courage" - Laozi
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
18 October 2008
12:247741#14
Sid - You cannot whitewash Labour's appalling economic record by trying to camouflage it with the global crisis. Cameron was right to end the bi-partisan approach and to start talking about the real economy. I have mentioned and discussed Brown's economic mismanagement here in the political section many time, including well before the global crisis.
Interesting is it not that Brown had taken a Swedish approach, laced it with some ideas put forward by George Osborne, all pulled together by Alistair Darling and his Treasury team and then Brown goes on to take the credit for it!!!!
Guess what, it is not yet showing any real sign of working and one reason being the idiot dictat on dividends.
Sid Pollitt
18 October 2008
15:037746#15
The point I was making was that the TV pundits were suggesting that Cameron's eye was on his profile in the media and his party's standing in the polls. I've looked at today's papers and I cannot see that there is a big backing for Cameron's claims.
It is a global crisis and there are many factors, some stretching back many years. Gordon Brown is not responsible for the failure of Fanny Mae. He is not responsible for the failure of Freddie Mac. He is not responsible for the failure of Lehman Brothers, or the problems at Fortis, or at Dexia.
Gordon Brown did act in the case or Northern Rock when the Tories seemed to suggest that it should be left to fail. He did act over Bradford & Bingley and in th case of RBS. He acted over the speculation by hedge funds the day after George Osborne wouldnt comment on Newsnight on their betting on RBS shares. I have since heard that these hedge funds may be Tory Party donors, I do not know if that is correct though.
One of the things that has added to the problems in the UK economy has been the demutualisation of financial institutions such as building societies. I said at th time it was a mistake and I think I've been proved right.
howard mcsweeney1- Location: Dover
- Registered: 12 Mar 2008
- Posts: 62,352
18 October 2008
19:257755#16
good point regarding the mutual building societies.
the few remaining are being inundated with people investing their hard earned with them.
to some they are a quaint anachronism, however a lot of people would prefer the safe old fashioned approach from someone entrusted with their life savings.
Guest 675- Registered: 30 Jun 2008
- Posts: 1,610
19 October 2008
01:227769#17
Has anyone questioned why the council tax has to go up if the potentially lost investment of a million pounds by DDC represents only 4% of their capital?
Politics, it seems to me, for years, or all too long, has been concerned with right or left instead of right or wrong.
Richard Armour
19 October 2008
08:577774#18
Back in the day when the local bank manager knew customers by name and lived nearby there was a bit more trust, deservedly so. In these corporate times there is no trust, deservedly so. I realise globalisation is here to stay, but I resent and loathe it.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
19 October 2008
09:167775#19
Bern - yes it is true that life was better when we had local managers who really knew their customers and had the authority to make the decisions. The problem now is that the local bank managers do not have enough authority and are themselves having to look over their shoulder too much in exercising the authority they do have.
So Chris. Are you not a member of DTC? I do not believe that DTC had any money in Icelandic Banks, so why did their Council Tax shoot up (29% or something was it not?)
There are many factors that go into a Council Tax rise as you well know and the rises for next year will be announced much later than this. Council Tax ony accounts for a tiny proportion of District Council spending as you well remember.
I am sure that you did not intend to suggest that DDC have lied about the investment, after all it would have been an elaborate lie given the other information supplied about Investec who look after £14m from whom £8m was taken due to poor performance, do the maths.
Guest 660- Registered: 14 Mar 2008
- Posts: 3,205
19 October 2008
11:147778#20
Blimey I actually agree with Barry,must get a chair and sit down,DDC get very little out of Council Tax something like 10 per cent and the majority of the money go to KCC.and of course the rest go to the Police,The Fire service and the Parishes.
Most of the money that DDC use in fact doesn't come directly from Council tax but from the Goverment in the form of Grants,these grants normally come as 1 single amount which may be for a project that may run over a year,hence the reason why some money gets put away as an investment.
If you knew what I know,we would both be in trouble!