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Saturday 16th of May 2009
May 5, 2009

Councils set to withdraw funds from building societies


by Kay Murchie
”Councils

The Sunday Telegraph has reported that local councils are planning to withdraw billions of pounds of deposits from building societies.

The move follows the decision by Moody’s last month to downgrade the credit ratings of several building societies due to concerns they will be hit by losses due to the housing market slump.

The downgrade by Moody’s was criticised by the Building Societies Association (BSA) who said: “All the building societies are fundamentally sound despite the difficult economic environment we are in“.

Meanwhile, it has been confirmed that Westminster, Haringey, Dorset and Barnet councils are to withdraw funds held with the affected societies once fixed terms come to an end.

A spokesperson for Westminster council said it will “not invest in any institution with a rating of less than AA-” and added: “We will be withdrawing our investments once they’ve matured.”

Barnet said Nationwide and Britannia “are currently the only societies which meet our depositing criteria” and will be withdrawing funds from others when they expire.

Chelsea Building Society was downgraded from a C to E+, while West Bromwich has fallen from C- to E+.

Furthermore, Britannia, Newcastle, Norwich and Peterborough, Principality, Skipton, and Yorkshire building societies have been downgraded from C, to a riskier D.

In addition, Leeds and Nottingham have had their outlook changed to ‘negative’ due to the possibility their ratings may fall in the medium term.

According to the BSA, at the end of last year around £10 billion was invested in the sector by local authorities, the majority on fixed-term deposits, making up for 3% of overall funding.

Having lost around £900 million following the collapse of Icelandic banks, councils have been particularly wary with regard to investment strategies.

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