Thursday, December 10, 2015

LOBOs. Cllr Whitworth's Response to Newham Council’s Annual Treasury Management Report 2014/15

This is the concerns expressed by Cllr John Whitworth during the discussion on item 14 at Monday evening (7.12.15) at Full Council. 

"The issue of the servicing and repayment of the Council’s debt is obviously of major importance at a time when we are obliged to make savings in most areas because of the progressive reduction in government funding.

In the Annual Treasury Management Report 2014/15 in Appendix 4 p.76 we have the statement in bold type that: “It is estimated that the Council’s prudent borrowing decisions generated £64m of savings to our debt portfolio since 2002”.

The state of the borrowing is shown on p.75, which indicates that the Council has a debt portfolio of Public Works Loan Board (PWLB) loans totalling £63.5 million and Lender Option Borrow Option (LOBO) loans totalling £563.5 million. This suggests that the Council’s savings are due for the most part to the taking out of very large LOBO loans.

However, the benefit of LOBO loans to local authority borrowers was called into question by the Channel 4 Dispatches programme on 6th July - to the point that the House of Commons Communities and Local Government Select Committee called in the Dispatches reporter and two experts on derivatives and hedging to give evidence at its meeting of 20th July. All three witnesses were of the view that under most circumstances borrowers did not benefit from taking out LOBO loans.

Financial journalist, Nick Dunbar has done a study of our LOBO loans using the Bloomberg terminal and concluded that: “By choosing to borrow from Barclays, RBS and other banks rather than from the government, Newham actually lost £10 million since 2002, using prevailing rates on PWLB debt” (http://nickdunbar.net/ Newham’s broken crystal ball). In other words, he says we have paid £10 million more since 2002 by taking out our LOBO loans than we would have if we had borrowed the same amount in PWLB loans.

I therefore suggest that, given the doubt cast upon the Council’s estimation, it should be re-examined to verify whether money is actually being saved by owing this large amount inLOBO loans and - if it is found that money is really being lost - then measures should be taken to try to remedy the situation".

I will post my contribution later. 
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