CASE STUDIES 215 Case 6: Credit ratings and fundamental analysis Icelanders recently voted not to repay the £3bn owed to Britain and the Netherlands following the crash of the country's banking system in 2008. Britain and the Netherlands compensated their nationals who lost savings deposited with Icesave accounts owned by Landisbanki, which collapsed in 2008. Deposits made to failed Icelandic banks included those from indi- vidual citizens and also 127 English local authorities holding English public funds. It is one thing for an individual to make a bad invest- ment but another for a professional treasurer at a local authority to risk public funds. Understanding risk and whether one is authorized to take one is a key factor worth examining here. A treasurer handling public money has a prime responsibility to protect it. Is s/he empowered to take anything other than the lowest-risk investment available? How many authorities continued to make investments of public money after the credit ratings of the collapsed Icelandic banks were reduced? So, we have public treasurers making bad investments with public money entrusted to them and Iceland not standing behind its debt. One way or another the public lose out, either through their direct investments or through their money being invested on their behalf by public authorities. What lessons have we learned from this and how will these affect our future investment decisions? What this has reminded us is: Don't ignore fundamental analysis. Don't assume that a big name is a sound investment if the fundamentals don't stack up. Don't ignore credit ratings. Don't just follow others ­ they may be heading for the rocks. Do understand your risks. Assume that when things go wrong it may take years for you to get some of your money back and that you might never get any of it back in you lifetime. A business cannot afford to ignore these basic principles ­ there are few government or taxpayer hand-outs to a business. Theses principles do not just apply to investments but also to any other judgements