Six of the seven councils facing the largest potential losses from investments in Icelandic banks were advised by one firm, Butler’s, analysis by LGC reveals. Only Haringey of the most affected seven local authorities was advised by another firm, Sector Treasury.
Asked for an explanation, Butler’s representative, Mike Sheard – the communications director of parent company ICAP – said its position reflected its strength in the market. “It’s just the numbers game. Butler’s advise 144 authorities.” However, Sector Management claim to advise 250 councils on investment policy.
Told about the results of LGC’s analysis, Butler’s Mike Sheard declined to comment further. A spokeswoman for Capita, which owns Sector Management, also declined to comment.
Neither Butler nor Sector provides investment advice, which they are prevented by regulation from giving to local authorities. Both supply credit ratings information which they purchase on councils’ behalf from the credit ratings agencies and assist local authorities in developing structures that enable them to make investment decisions. Both Butler and Sector say it is councils’ responsibility to use credit ratings agency information in an appropriate way.
However, Westminster City Council – which has £16m at risk – says that possible investment destinations are ‘flagged’ by its advisors, Sector, to indicate risk factors. Spokesman Oliver Finegold adds that the council also obtains “strategic treasury management advice and advice/guidance on credit ratings information” from Sector.
Kent County Council stands to lose the most, £50m, unless investments are recovered. Its spokesman says: “Kent County Council made these deposits based on the assessments of three ratings agencies and our professional advisers, Butlers. We have quarterly meetings with Butlers and talk to them in between. They help us form a view on where we should deposit our funds.”
Northumberland County Council is the ninth largest local government investor in Icelandic banks. Its spokeswoman Louise Charnock explains: “Sector Treasury Services Ltd, Northumberland County Council’s advisers, do not give direct advice to invest in any particular bank, they give general advice based on credit ratings and general financial soundness.”
No one from CIPFA or the Local Government Association was available to comment.