Minutes for Audit Committee meeting, Nov 13 2008, 5.45PM official page

Apologies for absence were submitted from Councillors Ellis and Vye.

If any Members have any interest in any item on the agenda, they are invited to declare the nature thereof, ie personal or prejudicial, when the relevant item is considered by the Committee.

In accordance with the Code of Conduct for Members:

Councillor Mrs Doyle declared a personal interest as her son was employed by the Royal Bank of Scotland.

Councillor Matthews declared a personal interest as he knew two people who worked for the Kent Reliance Building Society.

TO RECEIVE representations

No representations had been received.

TO CONSIDER the report of the Director of Corporate Services

The Committee received a report from the Director of Corporate Services, which provided details of the council’s investments, and the process followed for investing funds.  The report also referred to loans lodged with two Icelandic banks and their UK subsidiaries.  Finally, the report reviewed the annual investments strategy and set out a number of options for changing that strategy.

In stressing the importance of this matter the Director of Corporate Services took the Committee through his report in detail with particular reference to:

• The current global banking crisis.
• How the council had accumulated funds to invest (through property sales, reserve funds, housing revenue account balance, general fund balance and cashflow).
• Credit ratings and how the council used them in the investments strategy.
• The key elements of the council’s investments strategy, including the process followed and how deals were done and how funds were redeemed.
• The council’s current and past investments with banks and building societies.
• The £6m invested with Icelandic banks and action taken since their failure.
• Implications on the council’s budgets with particular reference to the loss of interest.
• What could have been done to protect the council’s funds?
• Steps to be taken in future.

The report concluded that the council should not cease to invest in banks and building societies because, as the Prime Minister had said, the world needed a secure banking system and the impact on the council of investing in the Debt Management Account would be a substantial reduction in interest which in turn would lead to further cuts in services.  The Director of Corporate Services referred to the seven options set out in his report and advised that it would be necessary for the Committee to consider these options and advise the Executive accordingly on the way forward.

He further added that it was proposed to introduce more frequent reporting to Members on the investment portfolio.

Members then commented on the report taking into account the seven options in it regarding the future investment strategy.

The general view was that there was little point looking back but it was necessary to ensure that the investment of the council’s funds was protected.  Some Members supported option C in the report others supported option F in the report. Option C would have a “cost” to the revenue account whilst Option F would carry more risk but with a reduced “cost” to the revenue account.

At this point in the meeting, Richard Bason, Regional Director of SECTOR, the council’s treasury management advisers, briefed the Committee on how money market funds operated and explained the workings of SECTOR.  He stressed that SECTOR was a conduit for credit rating agencies.  He also reported that SECTOR could only set a framework for investments and that it was the city council who took the decisions on investment counterparties.

RESOLVED –

(a)       That the following options be referred to the Executive for consideration:

i)                   Invest only in two AAA/MR1+ Money Market Funds and a call account.

The difference in interest rates between  ...  view the full minutes text for item 485.