Monday 19 January 2009

Barnet Council Icelandic Investments - The smell of something rotten

There is a rather disturbing report in the Independent today regarding Barnet Council's Investments in Iceland (Click HERE to read).

It seems that the treasurer of the Conservative Party, Michael Spencer, runs Butlers, the Company that Barnet Council used to produce ratings of the banks where funds were invested. He also runs ICAP which according to the Independent is the company which brokered the deals, taking a commission on the loan. There are 468 local authorities in Britain. Of these, over 50% of those facing losses in Icelandic banks took advice from Butlers.

The article states that another organisation, Arlingclose advised no councils which have exposure to Iceland. Here is the top 10 Council's affected by the Icelandic collapse

Top 10 council investors in Icelandic banks

Council (Political control); Investments; Advisor; Brokers

1. Kent (Con); £50.3m; Butlers; ICAP, Martins, Tullett Prebon, Garban
2. Nottingham (Lab); £41.6m; Butlers; City Deposit, Martins, Sterling
3. Haringey (Lab); £37m; Sector; Martins, Tullett Prebon, Sterling
4. Norfolk (Con); £32.5m; Butlers; ICAP, Sterling
5. Dorset (Con); £28.1m; Butlers; ICAP, Tullett Prebon, Tradition
6. Hertfordshire (Con); £28m; Butlers; ICAP, Martins, Tullett Prebon, Sterling, Tradition
7. Barnet (Con); £27.4m; Butlers; ICAP
8. Somerset (No overall control); £25m; No advisor; ICAP, Sterling, Tradition, Tullett Prebon
9. Northumberland (No overall control); £23m; Sector; ICAP, Martins, Tullett Prebon
10 Surrey (Con); £20m; Butlers; Martins, Stirling, Tradition, Tullett Prebon

Given that all of the Conservative Councils with exposure to the problems used Butlers, and that it's owned by the Tories treasurer it is a rather disturbing pattern. All apart from Surrey also used ICAP. Now I know little about the functionings of the Tory Party or how much influence the treasurer has. I do know from the various organisations I've been associated with that everyone knows the treasurer as he holds the purse strings.

In all of the explanations of the whole sorry episode, Mike Freer has been consistent in one thing. This man who aspires to be a Tory MP has cited as his justification for the crisis that Butlers gave the banks a clean bill of health. He claims that when the loans were taken out, on his watch, that the advice was sound. Well I didn't realise it until I read the report, but that advice was provided by a company which received a commission for arranging that loan. A company owned by the treasurer of the Conservative Party. Did Mike Freer know that the people advising the council were owned by the Tories treasurer? Did he know that they were (presumably) receiving fat commissions for arranging these loans? Well Mike is a banker and he is Barnets top Tory so he should have had some idea. I think that as Mike Freer is also head of Barnet Council resource management portfolio, for which he receives a big fat responsibility allowance of several thousand pounds, he should have know quite a lot about all of this. He was paid to.

Mike sent one of the Council's senior officers to Iceland to try and get some of the money we've lost back. Has he sent anyone around to the Butlers head office to ask for some of the cash we paid for this rotten advice back? Has he sent anyone around to ICAP's offices to ask for a share of the fat commissions they were paid to arrange the loans? If Mike Freer gives me a letter of authorisation, I'll go and knock on Mr Michael Spencers door and ask for our money back on behalf of the people of Barnet - I'll do it for free. If you pay for something and it's not fit for purpose, then you are entitled to your money back under the sale of goods act. I assume that when Freer and his merry men asked Butlers and ICAP for advice they didn't say "Can you please help us find some dodgy institutions where we can lose £27.4 Million of taxpayers money".

Let me just remind you of what Mike Freer said on his blog about the Icelandic Investmenst (Click HERE for the full text). The BOLD ITALICS are my additions in light of todays revelations.

One burning question is why did we not withdraw our deposits when warnings were being sounded about Iceland? The simple answer is that each credit rating agency did not downgrade the banks with which we deposited our money until the end of September 2008. The terms of the deposits were of a fixed term nature which meant that we would have to negotiate the return of the funds before their maturity date. Advice given to the Council since the start of this crisis is that the banks would have refused to renegotiate or would have imposed massive penalties which would have seen a guaranteed loss to the Council, something which is not yet set in stone.

As you can see, Mike clearly stated that his credit rating agency didn't downgrade the Icelandic Banks status until September - way after other agencies mentioned in the Independent article

Nobody foresaw the collapse of the entire banking sector either in the United Kingdom or Iceland. Claims that Council’s saw this collapse coming are spurious, and after contacting a number of authorities including Brighton & Hove they have advised that they were lucky, and that their deposits simply matured and were paid back on the due date originally agreed with the banks. They did not make the conscious decision to withdraw and indeed, Icelandic banks remained on their approved list of banks for use well into 2008.

The independent article makes it quite clear that Councils using Butlers, were far more likely to be affected by the problems. It seems that Councils not advised by Butlers were much luckier than those which were. Who rates the ratings agencies.

I used to think that the Tories were the party with the business acumen. The more I find out about them, the less true it seems. Their treasurer owns a company which advised Councils to invest in Iceland, when other agencies were screaming "bail out" with a foghorn. Council Cabinet member Lynne Hillan ran a company which went bust owing tens of thousands to suppliers and the taxman. Matthew Offord boasted about arranging contractors for Aerodrome Road who've overrun by millions. Mike Freer thinks responsibilty means blaming everyone else.

Mike, I know you read this blog (especially when you are the star) so now's your chance to stand up for Barnet and get some money back. Who knows, you might even recover enough to cancel the rise in costs that you will be charging the parents of dead babies as described in your draft budget. I would hope that the fact that the owner of Butlers is a senior Tory will in no way deter Mike Freer from sticking up for the hard pressed taxpayers of Barnet. If you don't, I don't think I'll be alone in saying that something smells rotten at the heart of the Barnet Council.


Anonymous said...

I turned up towards the end of the Cabinet Resources Committee tonight to hear an 'emergency' report on Investments. The report was so last minute that the members of the Committee had not had a chance to read it. First up was Councillor Andrew Harper was one of those who said he hadn't really read it yet that didn't stop him for praising it effusively as being 'really well written' (!?)

Councillor Richard Cornelius posed the question to a rather awkward looking Freer, about the Butler's issue. Freer's reply was firstly that Barnet had placed it's Iceland investments before Butler's had started to advise Barnet. Secondly he said that they would only be looking to change advisors once Butler's contract was up towards the end of the year.

A very good point was advanced by Barnet's 'Ken Clarke', Cllr Anthony Finn, who challenged as to why Barnet was stashing money away on 3 month notice and not looking for instant access to funds in light of the circumstances. He was told by Mike Freer that was impossible as "the Council would get 0% interest on those terms."

Ms Hillan sat with her head buried in the report for the duration of the item. She didn't contribute.

Cllr Offord had left before the item started.

All in all Freer looked most awkward and his colleagues seem more and more confident in questioning and challenging him now his reputation for Financial Management has all been trashed, in the opinion of many.

Despite this, the whole edifice of investment policy is now solely in Mike Freer's hands. He has been given the power to amend the policy at any time. The buck stops with him. Let's hope nothing goes wrong on his watch.

Rog T said...

So he admitted that Butlers were chosen on his watch.

He's also admitted that we're going to go on paying for rather dodgy advice till the end of the year.

If my advisers lost me £27.4 million, I'd sack them on the spot and ask for a refund. Then again Freer will be off soon so what does he care. Doesn't want to upset the party treasurer.

I suppose Offord will claim he missed it so "he knows nothing".

They are trashing the reputation of the Tories for competence.

Thanks for the update.

Don't Call Me Dave said...

It is worth noting that there were no opposition councillors at Cabinet Resources to hear the report. Did they know there would be an emergency statement?

The most telling comment came right at the end when the officer giving the report said that the rate of interest the council is now paying on the money it borrowed is higher than the rate it is receiving from its investments. Well that’s the risk you take when you play the markets.

These guys thought they were being so clever when it was the other way around. Did they not understand that reward is commensurate with risk?

Anonymous said...

I don't know why Cllr Offord left, however he left immediately before a report on the Hendon Town Hall complex. [The Chairman didn't appear to know, and had to be pulled up by the Clerk, that the report wasn't ready and had been pulled (!?).]

In the past Cllr Offord has declared a prejudicial interest as he lives (lived?) in a flat that backs on to the Town Hall complex.

That may or may not have been the reason but I could have been.

Of course, that doesn't explain why he went home and didn't return for the 'emergency' item.

Don't Call Me Dave said...

Actually, my comment above is not quite correct - there was a far more telling comment made. According to the report, the council now has a further £40m at risk in Irish banks which have apparently been downgraded.

Presumably the council will now have to get that money out a.s.a.p. but is running out of places to invest it. As it’s borrowed money anyway, perhaps they can pay some if it back and stop gambling.