LGA weighs up Iceland legal action

The move follows the LGA last month calling for a Financial Services Authority inquiry into the data produced by the agencies which led councils to decide to invest in the four Icelandic banks that then collapsed.

Stephen Jones, LGA director of finance and performance, told the association’s executive meeting last Thursday: “We are taking advice about whether there is legal action we can pursue.”

Individual councils rather than the LGA would need to pursue the ratings agencies, Mr Jones later told LGC.

But local government lawyers were quick to pour cold water onto the possibility of a successful law suit, with some privately labelling it an LGA “PR job”.

One local government legal consultant said: “I would have thought the chances of a council successfully suing a ratings agency would be pretty slim.

“While it might be slightly disingenuous, the ratings agency could argue that it does not offer advice - it merely publishes research and what councils do with that research is up to them.”

Following the Icelandic banking crisis, treasury management has shot up the agenda as councils bid to avoid further losses should other institutions collapse.

Some authorities are considering subscribing to more than one agency to gain additional information on which to base investment decisions.

Oxfordshire CC leader Keith Mitchell (Con) said: “We currently only subscribe to one agency, but we are looking into the possibility of subscribing to others.”

But with subscriptions costing councils tens of thousands of pounds, the increase in costs would be significant.

Another group of organisations under the microscope is investment advisory firms. LGC research revealed that Butlers had advised six out of the seven councils facing the largest potential losses from the Iceland fallout (LGC - 06/11/08) .

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