Page last updated at 22:00 GMT, Friday, 10 October 2008 23:00 UK

Charities' fear over failed banks

Cat (generic)
The Cats Protection League said its deposits were for long-term projects

UK charities fear they may have lost up to 120m of funds invested in failed Icelandic banks.

The National Council for Voluntary Organisations says at least 60 members have reported funds may be at risk.

The NCVO has met ministers, who are promising to do all they can to protect an estimated 1bn held by charities, UK councils and other bodies in Iceland.

A Treasury delegation is in Reykjavik and the UK and Iceland say they will now work together for a solution.

The group includes officials from the Bank of England and the Financial Services Authority.

'Disconcerting remarks'

The crisis sparked a war of words between London and Reykjavik on Thursday, with Gordon Brown criticising the Icelandic authorities for failing to guarantee UK depositors would get their money back.

Under Iceland's financial regulations, the government is supposed to pay up to 16,000 compensation per account at a total cost of 2.2bn.

A spokesman for Mr Brown said the UK now hoped to work "constructively and co-operatively" with the Icelandic authorities.

Icelandic Prime Minister Geir Haarde had accused the UK of being responsible for the collapse of the country's largest bank, Kaupthing, after anti-terrorism laws were used to freeze assets in the UK.

Iceland's Prime Minister Geir Haarde said he had received a letter from Gordon Brown

On Friday, Mr Haarde confirmed both countries were working together but said Mr Brown's comments had been "disconcerting" and "not very helpful".

Meanwhile, the UK government has denied claims of "complacency" after it apparently ignored warnings in July about Icelandic banks facing collapse.

Lib Dem peer Lord Oakeshott and Tory MP Michael Fallon both raised the issue with ministers on separate occasions.

They were reassured savers would be protected by law.

A Treasury spokesman said: "As the minister made clear at the time, the Icelandic authorities have a legal obligation to pay out depositors under their existing compensation scheme and we expect them to honour this commitment."

He added it was not the role of the UK government to advise UK residents and citizens of financial institutions around the world, and few people had anticipated the current situation.

Chancellor Alistair Darling, who is in Washington for meetings with other G7 finance ministers and the International Monetary Fund, told the BBC that simply "talking" would not lead to a solution.

'Uncertain position'

Meanwhile, as details of charity deposits emerged, a cancer hospital in Manchester has announced it was the latest victim of the Icelandic bank collapse.

The Christie NHS Foundation Trust, based in Withington is facing losses of 7.5m after depositing the funds with Kaupthing Singer and Friedlander. Up to 6.5m was charity money.

The Cats Protection League said it also had 11.2m deposited in a UK bank owned by the collapsed Kaupthing.

NCVO said City Minister Paul Myners had given no guarantees during their meeting that such assets would be secure, although he was "reassuring".

Chief executive Stuart Etherington said: "He was saying the government would do all it can to ensure the assets of these charities are reunited with them. He was very positive about that.

"What's important is the charities which have been affected by this come forward. If we're going to secure adequate compensation for them, with the strength of the UK government, it's important they come forward."

Some NCVO members which provide services for councils fear they will not be paid if town halls lose money in the crisis.

Most of the charities which have investments in troubled Icelandic banks have not yet been named, but they are thought to include major organisations.

Other charities known to be affected include Naomi House children's hospice in Sutton Scotney, near Winchester, which has 5.7m of deposits invested with KSF

The Physiological Society in London has 523,000 invested with the same bank, and Samaritans has links to KSF because it is the parent company of Investment Managers, which looks after the charity's investment portfolio.

Graham McGeown, of the Physiological Society, said: "This is a difficult time for our organisation. We have 523k tied up in KSF and are not entirely sure if we will get this money back.

"With NCVO we are calling on the government to help protect our money as well as other organisations who may also be involved in the banking crisis."

For many smaller organisations non-payment for their work could be disastrous or even spell their death knell
Louis High

Under the Financial Services Compensation Scheme, charities classified as small businesses are covered for the first 50,000 of any investments.

But it is not clear whether they would benefit from the wider guarantee given to individual savers by the chancellor that they would recover all of their money.

The NCVO's head of campaigns and communications, Louis High, said many of its members were also concerned about local authorities' ability to pay for services.

He said: "For many smaller organisations that rely on this money and have tight financial constraints, non-payment for their work could be disastrous or even spell their death knell."

The organisation has called a sector-wide summit to examine the potential impact of a recession and what can be done to protect charities from financial disaster.

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