Universities risk £77 million in Icelandic financial collapse

As the global financial crisis begins to take effect beyond the trading floors of world's financial centres, it has emerged that twelve British universities are at risk of losing £77 million of funds frozen in Icelandic bank accounts.

The money was deposited in the failing institutions Landsbanki, Glitnir and Kaupthing Singer and Friedlander, with Oxford, Cambridge, the Open University and Manchester Metropolitan University standing to suffer the worst losses.

Giles Kerr, Oxford University's director of finance, said it had £8.5 million invested in Iceland's Heritable bank—a subsidiary of Landsbanki—and £2.5 million in Glitnir, while Manchester Metropolitan University had £10 million invested in Heritable.

The University of Glasgow and the University of Edinburgh have confirmed that they do not have any funds invested in Icelandic banks. A University of Edinburgh spokesperson said: "We have investments in a range of equities and bonds, which will include many of the major UK banks.

It is thought that none of Edinburgh other four universities had investments in the affected Icelandic banks.

"Clearly in the last year there have been a substantial fall in the capital value of those investments, but they are long-term investments, and their capital value does not directly impact in the short term on the activity of the university."

Oxford University stated that it had made no financial investments in Icelandic banks in the last 18 months. At the time the deposits were made, Iceland’s banks held an AAA credit assurance rating, the highest possible credit rating, according to Moody’s Investors Service.

Under Iceland's financial regulations, the Icelandic government is obliged to pay up to £16,000 compensation per frozen account until the £2.2 billion mark is reached.

Prime Minister Gordon Brown has declared his anger with the lack of assurances from the Icelandic government that they will meet even this initial commitment.

It is estimated that British investors have a total of £8 billion deposited in the Icelandic banks.

In response to fears over the prospective losses faced by Oxford University, Mr Kerr, in a statement published on the university’s website, assured that the university’s cash pool had more than sufficient liquidity to meet their financial requirements. He also said that the university would make every effort to recover the deposits in full.

A statement from the University of Oxford said: “We're not in a position to fully determine how much we'll recover," adding: “We've notified the funding council, and seek to coordinate recovery through them.”

Mr Kerr has written to the Higher Education Funding Council for England (HEFCE) urging it to do everything in its power to aid the institutions affected.

Mr Kerr said: "It is important that we get co-ordinated action and I know that HEFCE, the Department for Universities, Innovation and Skills (DUIS) and the Treasury are well aware of the challenges faced by the sector.

"We expect them to do all they can to protect the position of higher education institutions, which are vital to the country’s future prosperity."

In a written statement to parliament, John Denham, secretary of state for DUIS said: “Clearly this is a serious matter for each of these universities, and officials from HM Treasury are engaging with them and HEFCE about their concerns.

“However, it should be noted that HEFCE has concluded that no university is at risk as a result of its exposure to Icelandic banks. Certainly no university faces a level of exposure that would raise questions about its continuing solvency.

"Students, businesses, charities and others may deal with universities with exactly the same level of confidence as before.”

Professor Brenda Gourley, vice-chancellor of the Open University which stands to lose more than £6 million, stated: "The funds at risk with these banks, although significant, represent less than 4 percent of the University's cash holdings and 1.5 per cent of the university's expenditure this budget this year.

"There is no threat to the university's operations and staff, and suppliers will be paid as normal."

A spokesman for Manchester Metropolitan University said: "We are hopeful that the authorities will secure the unfreezing of our assets, particularly in the light of John Denham's assurance in the House of Commons on 14 October.

"We would like to emphasise that the freezing of these investments will not have a negative impact on the day-to-day functioning of the university. MMU remains a financially strong university, and will continue with its current development plans."

The announcement of Cambridge University's potential losses comes only 18 months after the institution appointed its first chief investment officer, Nick Cavalla, an investment professional.

In April 2007, the university created the first professional in-house investment office of any UK university in order to help spread the university’s financial risk.

A Cambridge spokesman insisted the investment board had helped the university minimise its financial risk: "It was all about diversification, and having a broad spread of investments to diversify risks. There's no doubt the board has helped with that," he said.