Landsbanki debt auction to free up council cash

A group of councils have today taken part in an auction aimed at immediately recouping most of the money they are owed by defunct Icelandic bank Landsbanki.
The auction, organised by the Local Government Association and law firm Bevan Brittan, saw private sector distressed debt buyers bid for the remaining claims of the participating councils against the bank.
Landsbanki collapsed in 2008, owing £413 million to UK councils, and it is understood that around half of that amount is still waiting to be paid back.
A spokesman for the LGA said: ” The majority of councils which had money tied up in Landsbanki participated in the auction.” We expect to make a further announcement on Tuesday once the money has been paid into council bank accounts.”
Councils were approached by the LGA last year to gauge interest in any potential auction which would give them the opportunity to weigh up the risks of waiting for the full amount against converting the paper into cash at a capital loss.
A report by officers at the London Borough of Haringey said: “By selling its claim, the council will receive a known amount of cash in replacement for future unknown cash flows and accounting entries.”
A number of factors make it risky for the councils to keep hold of the debt, including the fact that repayment relies on the sale of assets formerly owned by the bank.
In addition, due to controls imposed by the Icelandic government in the wake of the 2008 crash, recovered money would have to be repaid in Krona, and thus subject to exchange rate fluctuations. Councils would have to have held onto the Krona until such time as capital controls were relaxed to turn it into Sterling.
On the other side of the coin, commercial investors will expect to make a profit, so councils are understood to have been willing to accept less than the full amount outstanding.
Surrey County Councillor Stuart Selleck, who is also director at broking firm Tradition, said: “This will draw a line under the Icelandic banking issue for many of them. If they get back 95 per cent of their money then I am sure they will be very happy.”
In 2012, the LGA, working with Kent County Council’s s151, Nick Vickers, secured priority debtor status for UK councils, and the following year received the first payment of £100 million followed by further instalments.
One of the other Icelandic banks involved in the crisis, Glitnir, repaid the £186 million it owed to more than 50 councils in 2012.