The claim follows widespread criticism of the authority’s investment decisions last year, when it deposited £10m with the now defunct Glitnir bank. It had amassed a £200m cash mountain by shunning investment in riskier assets such as equities.
The authority, whose rules stipulate it can deposit only £10m with a single bank, placed the sum after research indicated Glitnir was among only 20 banks in the world with a high credit rating.
After taking advice from experts, the authority decided the Icelandic government’s 75% stake in the bank made it very secure. The authority dismissed Glitnir’s credit rating downgrade on September 30, 2008.
The bank deposited £10m on October 2, and the bank collapsed just over a week later.
A report from the Audit Commission argues the move breached the authority’s treasury management protocols and guidance issued by the Chartered Institute of Public Finance and Accountancy, which emphasises the need to prioritise the security and liquidity of investments over rates of return.
Steve Bundred, chief executive of the Audit Commission,said: “We found that most local authorities heeded the warning signs about Icelandic banks. But some did not, and a number were negligent.”
Bill Wilkinson, the authority’s clerk and treasurer, said the report had failed to reflect the authority’s research before the move.
However, he conceded: “As a pension fund, we did not subscribe to all of the rating agency reports referred to by the Audit Commission. With hindsight, our confidence was misplaced.”
