At least five West Midlands councils are among scores of local authorities feared to have lost three quarters of a billion pounds in the melt-down of Icelandic banks.
Wyre Forest Council, in Worcestershire, has £9 million at stake, Solihull Borough Council £3 million, Wychavon District Council £1.5 million, East Staffordshire Borough Council £4 million and Nuneaton and Bedworth Council £3 million.
West Midlands Police Authority also said it had an investment in one of the Icelandic banks - Landsbanki, which has been taken over by the Icelandic government - but refused to reveal the amount.
Midland council leaders joined colleagues across the country in urging Chancellor Alistair Darling to intervene.
More than 85 councils and other public bodies deposited the cash in Icelandic banks, putting at risk an estimated £750 million or more of UK taxpayers’ money.
Local authorities invested in the country’s banks in order to gain generous interest payments.
They said they did so after being urged by the Government to seek a better return when investing savings. But all of the money appeared to have been lost after several major Icelandic banks collapsed.
The Local Government Association warned that cuts in services would follow if the councils were not compensated by either the Iceland government or the British Government.
Officials for Birmingham, Sandwell, Wolverhampton and Dudley councils confirmed the local authorities had no money in Iceland.
The West Midlands local government pension fund has also avoided investing in Iceland, as has Worcestershire County Council.
Birmingham City Council does, however, have a total of £77 million invested in six foreign banks. The bulk is deposited in the Allied Irish Bank, the Anglo Irish Bank and the Bank of Ireland. The rest of Birmingham’s overseas holdings are with the National Australia Bank, the Riyad Bank and German financial conglomerate DEPFA.
The Irish government has recently guaranteed all individual savings accounts, but it is not known whether the pledge extends to foreign investors.
Jon Warlow, director of corporate finance at Birmingham City Council, said: “The council each year approves an investment policy which restricts lending to financial institutions with high investment grade credit ratings.”
Warwickshire County Council, which has not invested in Iceland, is warning that local authorities are facing a struggle to identify safe havens.
Oliver Winters, the council’s head of finance, said: “We continue to monitor the events in the investment world and are taking a very cautious approach to our investments. Our overriding objective is to protect the principal sums invested even if this means we may not be achieving the maximum return offered by some investment institutions.”
The British arm of Iceland’s Kaupthing bank, which has an office in Birmingham, is now in the control of the Icelandic Financial Supervisory Authority. The country’s government has already seized control of rivals Landsbanki and Glitnir.
Kaupthing earned nearly a third of its income from the UK. An estimated 800 staff at the group’s UK investment banking subsidiary Kaupthing Singer & Friedlander (KSF), which was put into administration by the UK Treasury, were facing an uncertain future.
The operation has an office in Birmingham as well as London, Dorking in Surrey and Glasgow.
Trevor Foster, Kaupthing Singer & Friedlander’s managing director, banking, said: “I have been in banking for more than 32 years and I have never experienced such a tumultuous period in global financial markets - a period where facts appear to be irrelevant and perception is everything. Regrettably it has taken its toll on Kaupthing Singer & Friedlander.
“I shall be working very hard alongside the administrators for as long as they wish to do what is best for our clients and our staff.
“I continue to believe that we were building a great brand and business across the UK, especially in Birmingham and the Midlands, where we had a tight-knit and dedicated team serving some very successful clients. We were making a real difference on the region’s commercial scene.
“I have been touched by the incredible number of well-wishers that have taken the time to call or drop me a note.”
The Local Government Association is urging Mr Darling to extend protection given to British savers to local authorities.
The Chancellor pledged to make good all losses suffered by 300,000 British savers caught in the collapse of Icesave, the on-line bank that went into reveivership last week. The move will cost the Treasury £4.5 billion.