Councils' compensation from Iceland 'past halfway'

The banking crisis in Iceland caused severe difficulties for many local authorities in the UK

More than half of the money lost by UK councils following the collapse of Icelandic banks has now been recovered.

The Local Government Association (LGA) said it was confident that the "vast majority" of funds would be returned to councils.

When Landsbanki and other banks went under in 2008, they took nearly £1bn of investments from over 100 authorities.

Most individuals in the UK who deposited money in the banks have received compensation.

This was paid by the Financial Services Compensation Scheme (FSCS), with the backing of the UK Treasury.

Banking crisis

A string of local authorities lost money when the Icelandic banks collapsed in October 2008, as did charities such as the Cats Protection League.

In June 2009, the Communities and Local Government Select Committee published a report criticising councils for failing to spot the warning signs surrounding Icelandic banks.

The all-party group of MPs said complacency, lack of expertise and inaction had all helped put taxpayers' money at risk, although the councils blamed poor advice.

Now, the LGA has said that much of the hard work in recovering the money has been achieved.

"The vast majority of the money will be returning to local authorities and well over half has already come back," said Stephen Jones, director of finance and resources at the LGA.

"So, while the job is still not finished most of the heavy lifting has now been done."

He said that councils were expecting to recover:

• About 86p to 90p in the pound from Heritable, of which 71p in the pound had been paid to date

• All of the lost funds from Glitnir. This was paid by March, although 18% is in Icelandic kronur

• All of the lost funds from Landsbanki. About a third had been received by councils, but the total was not expected in full until beyond 2018

Kaupthing Singer and Friedlander was the UK arm of Kaupthing Bank - the largest of the Icelandic banks that went into administration in October 2008.

The latest figures show that it has paid 73 pence in the pound back to creditors - including local authorities - who were owed about £4.6bn.

The total level expected to be paid back in time is 81p to 86p in the pound.

The FSCS, which is the biggest creditor owing to the compensation paid to individual UK depositors, said it did not want to comment on whether the final amount was sufficient.

Since the outset of the banking crisis, protection for an individual's savings has increased. Now, the FSCS guarantees the first £85,000 per individual, per institution if a bank goes bust.

Kaupthing, Singer and Friedlander's loan book is being managed for the next two years by Singer and Friedlander Asset Management (SFAM).

Meanwhile attempts are being made to recover £3bn in loans made by the bank before its collapse, according to a spokesman for SFAM.

This included money lent across the world to buy property and super yachts, as well as bridging loans for football player transfers, he said.