Bristol firm Unite fund's £30m in jeopardy

The UK's biggest student landlord Unite and investors in its property fund yesterday emerged as the latest victims of the Icelandic banking meltdown with losses that could amount to £67 million.

The Bristol-based firm's Unite Student Accommodation Fund (USAF) has £30m deposited with Landsbanki, one of the Icelandic banks renationalised last week.

Because the fund is able to raise loan capital from its cash deposits, if the sum cannot be recovered USAF will lose £67m of its investment power.

Unite set up the fund in December 2006 and retains a 20 per cent stake, meaning it could be £6m out of pocket.

Unite said: "On behalf of USAF, Unite is pursuing all available channels for the recovery of these funds, but the extent and timing of recovery is uncertain at the present time."

The investment capacity of USAF currently stands at £380m but this will tumble to £313m if all of the money is lost.

Landsbanki is under the control of the Icelandic Financial Supervisory Authority and it remains unclear what will happen to deposits by institutions at the bank.

While the UK government has guaranteed all individual savers' deposits, a long list of UK local councils, charities, police authorities and private companies are anxiously waiting to find out what will become of their money.

Landsbanki is one of three Icelandic banks along with Kaupthing and Glitnir to be renationalised last week as the country's financial sector collapsed under the strain of the global credit crunch.

But the Icelandic government does not have enough foreign currency reserves to pay back the $61bn of debt racked up by the banks during their rapid expansion in recent years.

In the West, 14 regional councils and the Dorset Police Authority have investments totalling £117.3m tied up in the Nordic island's banking system.

The upheaval in Iceland's banking system is also sending a shiver through the British high street, with 55,000 retail jobs estimated to be at risk because investment vehicle Baugur is backed by Icelandic money. Baugur owns stakes in Debenhams, House of Fraser, supermarket chain Iceland and fashion retailers such as Karen Millen.

Yesterday it was rumoured Iceland had agreed to accept a $6bn bailout from the International Monetary Fund and a consortium of Nordic and Japanese central banks but it is still not yet clear how much of the debt owed by the country's banks will be paid back.

Despite the loss, Unite said USAF continued to perform strongly, demonstrating the resilience of student accommodation as an asset class.

For the nine months ended September 30 the Bristol firm's fund was the top performing fund in a leading UK property funds index issued by real estate fund analyst IPD and the only fund in the index to record a positive return.