UK - Local authorities in England have reported investments totalling £923.2m (€1.03bn) in Icelandic banks at the end of 2008, some of which may have been held on behalf of pension funds.

Updated figures form the Communities and Local Government (CLG) department revealed 125 out of 482 local authorities had been affected by the Icelandic banking collapse.

The figures do not show the proportion invested on behalf of local government pension schemes (LGPS) as it is widely understood pension fund asset are not necessarily ringfenced from the authority’s other assets, and may therefore form part of a wider pool of monies invested.

However, a number of Icelandic banks, including Glitnir and Landsbanki Islands collapsed in October 2008 and were nationalised by the Icelandic government causing the UK government to freeze Icelandic assets in the UK in an attempt to recoup some of the losses.

Figures from the CLG, updated to 31 December 2008, showed £923.2m of money from English local authorities was invested in Landsbanki, Heritable Bank - a subsidiary of Landsbanki - Glitnir and Kaupthing, and Singer & Friedlander.

It said almost two-fifths of the total, 39%, was invested in Landsbanki, while 29% was held by Heritable Bank, 20% was with Glitnir and the remaining 12% was in Kaupthing.

In addition, the report showed the local authorities manage 94% of the investments internally and councils with just 6%, or £38.9m, externally-managed although no externally-managed investments were held in Heritable Bank.

According to the figures supplied by the CLG, 357 authorities - excluding Wales, Scotland and Northern Ireland - were not invested in the Icelandic banks, but 23 had investments of £10m or more, while 78 had invested assets of between £2-10m.

Kent had the largest exposure at the end of the year with investments of £48.85m, across Heritable, Landsbanki and Glitnir, while the City of Nottingham Unitary Authority reported investments of £41.6m in the same three banks.

The publication of the figures follows the release of the final ‘Capital Finance Amendment Regulations’ allowing local authorities with funds invested in Icelandic banks to “postpone the impact of the impairments required by accounting practice, from 2008-09 to 2010-11”.

According to the CLG, the “immediate practical benefit is that authorities have been relieved of the need to make provision in their budgets for 2009-10 for any possible loss on these investments” - other than the loss of interest.

The new regulations will come into effect from 31 March 2009 and are broadly designed to “help local authorities with funds in banks where there is uncertainty about the recovery of the investment”.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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