Fresh doubts on compensation deal for big Icelandic investors

Mark Branagan

YORKSHIRE organisations caught up in Iceland’s financial meltdown faced renewed uncertainty over shares in a 3.4bn repayment package after a quarter of Iceland’s voters said no to the deal.

Yesterday, the Treasury’s confidence that compensation would be coming from Iceland remained undented by the petition urging Icelandic President Olaf Ragnar Grimsson to scrap the legislation and conduct a public referendum on the issue.

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Whatever voters think, the Icelandic government has already agreed a compensation package to cover losses by savers in Britain and the Netherlands.

Most private savers have already been compensated by the Treasury, which expects to recoup 2.3bn from Iceland under the compensation package.

But local authorities – including a number in Yorkshire – also had millions tied up in Iceland when the country’s banking system collapsed.

Kevin Mountford, head of banking at moneysupermarket.com, said: “By and large this money would be used to pay back the Government effectively having paid out UK savers.

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“But the institutional investors were not covered under the same scheme. Some may have got money back by their own efforts.

“But the UK Government has not bailed these institutions out the same way they have consumers.”

He was concerned the British Government had set a precedent by jumping in and transferring a consumer debt to the national purse, rather than deal through the EU.

It remained to be seen if the petition influenced the Icelandic Government, Mr Mountford added. But if the compensation scheme did fall through the losers would be the UK national tax payer, he feared.

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Yorkshire Building Society snapped up Barnsley Building Society a year ago after the South Yorkshire mutual’s investment in Icelandic banks backfired, leaving it financially vulnerable. Other Yorkshire local authorities had upwards of 54m invested.

They included Wakefield, Doncaster, Rotherham, Kirklees, Bassetlaw, North East Lincolnshire and North Lincolnshire councils, Humberside and West Yorkshire Police Authorities, and South Yorkshire Passenger Transport Executive.

The Treasury is unable to say who had been paid, and who has not been. But it is understood generally it is mainly the institutional investors still out of pocket.

Earlier this week Iceland’s MPs backed the amended Icesave Bill to reimburse Britain and the Netherlands by a narrow margin of 33 votes to 30.

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There has been strong opposition to the Bill in Iceland amid fears that the country cannot afford repayments.

More than 56,000 people – around 23 per cent of the country’s voters – signed the petition calling on the president not to sign the Bill

Whatever the opposition in Iceland the Treasury said: “The UK welcomes the latest step taken by the Icelandic government to draw a line under the financial crisis.

“This action, along with support from the IMF, EU and Nordic countries, will enable Iceland to recover confidence in international markets and focus upon economic recovery.”