Authority 'ignored bank risks'

More than �950m was deposited in Icelandic banks by public bodies

South Yorkshire Pensions Authority has been accused of "negligence" for putting money into an Icelandic bank days before it went bust.

The authority renewed an investment of £10m with the Glitnir Bank on 2 October, three days after the partial nationalisation of the bank.

The Audit Commission has criticised public bodies which it says ignored the risks and behaved "negligently".

The authority said: "With hindsight our confidence was misplaced."

The Audit Commission said most authorities had "heeded warnings" about the declining credit-worthiness of Icelandic banks during 2008 and taken action accordingly.

But seven authorities, including the South Yorkshire Pensions Authority, paid money into the banks between 30 September, when their credit ratings were downgraded, and 7 October when they collapsed.

Risks 'underestimated'

"There is no doubt that the circumstances leading up to the collapse of Icelandic banks were highly exceptional but the potential loss of nearly a billion pounds is of great concern," said Steve Bundred, chief executive of the Audit Commission - which itself deposited £10m in Icelandic banks.

"Good treasury managers recognised those risks and managed them appropriately," Mr Bundred added.

"Others either did not appreciate the risks or underestimated their significance."

Bill Wilkinson, clerk and treasurer to the South Yorkshire Pensions Authority, said the authority monitored the situation with Icelandic banks and reduced its total holdings during 2008.

He said: "As a pension fund we do not subscribe to all of the rating agency reports referred to by the Audit Commission.

"Instead we deal directly with the money market experts and opinion was that 75% nationalisation made Glitnir Bank as secure as many other banks around the world.

"With hindsight our confidence was misplaced."

Mr Wilkinson said the authority had reviewed its internal systems to ensure it accesses "every piece of market information at any time".

He said: "We continue to work closely with the Local Government Association to ensure the pension monies are secure for the people of South Yorkshire."

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