MPs call for answers over council millions invested in crisis-hit Icelandic bank

MPs ARE keeping a close eye on the fallout from the Icelandic banking crisis as councils look for the best way to recoup taxpayers' money.

Several authorities in the area have been left wondering what will happen to more than £20 million invested with collapsed bank Landsbanki and its UK subsidiary Heritable Bank.

Stoke-on-Trent City Council has had £5 million frozen, and Newcastle Borough Council £2.5 million. East Staffordshire Borough Council has £4 million invested and Cheshire County Council has £8.5 million tied up with Heritable.

The Local Government Association (LGA) has met with the Government as it looks to secure members' money.

More than 100 authorities nationwide have invested almost £1 billion and cases are to be reviewed on an authority-by-authority basis, with the LGA and Government stressing that members had not acted recklessly.

A statement issued by the city council yesterday said it follows Treasury guidelines and only deposits public money in the safest places, spreading money around so it is not dependant on one bank.

It said the council can meet its current financial obligations and services will not be affected as it works with the LGA to recover the cash. It added: "The council is committed to keeping city taxpayers informed, and will continue to do so."

Newcastle Borough Council had invested "a small proportion" of its investment portfolio.

A statement said that without the portfolio, residents would face council tax hikes of 15 per cent or service cuts.

But local MPs have now called for details to be revealed about the nature of the investments.

Stoke-on-Trent Central MP Mark Fisher said authorities across the country had been enticed by the bank's good interest rates. But he added that the best return was not always the best option. Mr Fisher said: "The city council has got to publish its portfolio so we can see if there are other things. This is taxpayers' money and we have a right to know what they have invested in." The MP added that he was also interested to see how much money the council had invested within the region, and why its portfolio was arranged in such a way.

Rob Flello, MP for Stoke-on-Trent South, pictured, said he was probing Landsbanki's previous credit rating, and hoped it would not a repeat of the 1991 collapse of the Bank Of Credit And Commerce International (BCCI). He added: "A few years ago the BCCI went bump and a number of councils got their fingers burned because they were putting money into accounts that were high return but high risk.

"I am investigating to see what the credit rating was of these banks because if there is a repeat of what happened at the BCCI then heads must roll.

"But, if it was an AA-rated bank, then I shall be pressing Government to make good any losses if they have occurred."