Council urged to avoid knee-jerk reaction to financial turmoil
THE SIC should not make any knee-jerk reaction to the latest drastic downturn in the stock market, the council’s finance chief has warned.
Members voiced their “shock and horror” at news of the UK’s biggest eight banks being bailed out by the government after share prices tumbled this week and sought reassurances that their current budgets and plans would not be thrown askew by the turmoil.
Head of finance Graham Johnston said that although the recent crisis in the financial markets was “pretty unprecedented” and that we were living in “chaotic and anxious” times, the SIC’s strategy remained a long-term one. “We’re going to have to ride out this particular storm,” he told members of the audit and scrutiny committee on Wednesday. He said any drastic action would serve to “realise losses which we do not have to realise” when stocks are at a low ebb.
Mr Johnston pointed out that the movement in the equity markets had been much more sustained during the crisis of 2002-3, when the FTSE fell to around 3,600 points; as of close of play on Wednesday it stood at 4,366.69 points.
The balance sheet of the council’s reserves was at just under £289m at the end of the last financial year and Mr Johnston said that despite the decline in economic fortunes he did not believe the reserves were below £250m, the figure which the council has agreed to maintain the reserves above.
Councillor Jonathan Wills said it was “inconceivable” that there would be no affect on next year’s budget and that the council would have to look at protecting its reserves through safer investments and less exposure to the stock market. That, though, will mean lower income and the people of Shetland would have to get used to lower spending, he noted.
The council’s reserves are made up of the capital fund, which stood at £116m on 1st April this year, the repairs and renewals fund which stood at £89m and the reserve fund, which was worth £84m.