A CHILDREN'S hospice with £5.7m in a failed bank is unlikely to share in a £3.4bn payout.

Naomi House at Sutton Scotney is trying to recover its cash after the Icelandic banking collapse.

The island's parliament has now agreed to compensate Britain and the Netherlands, two of the nations worst hit.

However, the £3.4bn sum will be split between the British and Dutch governments, which covered individual investors during the October 2008 crisis.

Businesses and local authorities were not covered, and charities like Naomi House were put in the same category.

Khalid Aziz, who chairs the hospice, said they now hoped to visit Iceland later this month (January) to lobby its politicians.

He said: "We have spoken to some Icelandic MPs who have expressed concerns for the way that we've been affected."

He added that the £3.4bn deal was unlikely to help the charity.

He said: "Iceland voted this money through because it's desperate to join the European Union.

"What we're saying to them is if they can afford this money, why can't they cover the few million that we've lost?"

The hospice has received some good news though, as two thirds of its cash in the failed Kaupthing, Singer and Friedlander bank could now be safe.

Administrators have already returned 30 per cent of the £5.7m, and had predicted at least 50 per cent could be rescued.

This week, Prof Aziz said the estimate had risen to between 65 and 70 per cent, but it was unclear when the cash would arrive.

He added that donations to the hospice rose 10 per cent in 2009. As a result, its £12m extension for older children and teenagers, Jacksplace, still opened on time.

The first youngsters arrived just before Christmas for daytime visits, and overnight stays will begin in mid-January.

Winchester City Council, which had £1m caught in the Icelandic meltdown, has also received some good news.

It received a second payment from the administrators of its bank, Heritable, in December, with the final one due in March.

Cllr Freddie Allgood, the council's cabinet member for finance, said they expected £800,000 of their £1m would be saved.

"With this latest news from Iceland, if there's anything that we can do to get some more of that money back, then we certainly will," he added.

Following the banking crisis, the council put more of its money into rock-solid Government schemes.

However, council members are due to discuss whether to change the policy at their meeting on Wednesday, January 7.

The Tory-run authority is proposing to transfer some cash from Westminster to stable banks and other councils for a higher return.