Council rapped over Iceland money

Councils invested in Landsbanki when the markets were more stable

A council that has £7m invested in failed Icelandic banks did not heed warnings from financial advisers about the looming crisis, a report has said.

North East Lincolnshire Council could have amended its portfolio if weekly updates from advisers had been acted upon, the internal audit report said.

"There was potential for warnings about Icelandic banks to have been picked up at an earlier opportunity," it said.

The council said it would learn lessons from the "hard-hitting" report.

Council chief executive Tony Hunter said: "Of course, with hindsight, we wish that we had pulled out of Icelandic banks.

'No whitewash'

"But let's remember the speed at which the economic downturn has occurred. That is a global issue and we, as well as many institutions, have suffered as a result."

Of the report presented to the council's audit committee on Monday, he said: "There is no whitewash here.

"The report you see is quite hard-hitting and we have got to learn the lessons from that."

Auditors have found the council did not even fully understand the basis on which it would receive updates about the Icelandic banks from its advisers.

"If the council had understood that... it was not receiving direct notifications regarding the status of Icelandic banks, then it is conceivable that the investments, particularly those placed in October 2008, would not have been made," their report said.

"In addition, although the council was not receiving direct notifications about its Icelandic investments, there were also opportunities to amend the council's portfolio if the weekly investment monitors it received from its advisers had been acted upon."

Updates on 3 March and 12 May 2008 included specific reference to the downgrading of credit ratings for each of the collapsed Icelandic banks.

In the meantime, the council still does not know whether it will recover any of the £2.5m on deposit with Landsbanki or the £4.5m on deposit with Kaupthing, Singer and Friedlander.