Below is a press release from Debt Resistance, who I do not always agree with but let us all say well done for their work in exposing this national scandal.
The Communities and Local Government Select Committee inquiry into LOBO loans to local authorities heard evidence on Monday from Vedanta Hedging CEO Abishek Sachdev and former Barclays Capital trader Rob Carver on the back of Debt Resistance UK FOI research featured in C4 Dispatches – ‘How Councils Blow Your Millions’. Presenter and C4 journalist Antony Barnett also fronted the committee, broadcast live on Parliament TV.
Highlights of evidence submitted during the hearing included:
Antony Barnett (C4 Dispatches):
on data obtained via FOI's by Debt Resistance UK,
Dispatches, and from Government sources, we estimate 250 councils have
LOBO loans, and there are around 1000 individual LOBO loan contracts'
'Brokerage fees [on LOBO
loans] are significant and this is public money, we can estimate from
Freedom of Information requests councils paid £25,000.00 in
brokerage fees on £10million pound LOBOs. So over all, we are talking tens of
millions of public money, being paid to ICAP, Tullet Prebon and other brokers -
who were also being paid commissions from the other side. On an equivalent
Government PWLB loans, I think they only paid £75'.
[LOBO loans] are: 'the kind of risk
that makes traders and hedge fund managers wake up at night screaming. It’s
just horrible, horrible stuff, and I don’t think anyone who understands it
would do it.'.... ‘I wouldn’t do these deals with a gun to
'On average, looking at
interests rates now, you'd expect LOBO loans to be worse value
than Public Works Loan Board (PWLB) loans. The reason you know
that is because thats what the loan breakage costs tell you. The break
costs tell you the expected value of that loan going into the future. The fact
the breakage costs are so much higher tells you on average all the
derivative models think LOBO loans will be a worse
deal than PWLB loans.'
Abhishek Sachdev (CEO Vedanta
'I would categorically say
I don’t believe you could find a finance officer or treasury officer in a
council who could assess the risks and rewards of these LOBO products. Even
FTSE 250 businesses wouldn’t be able to analyse these on their own.’
'We looked at exit
(breakage) fees for both PWLB loans and LOBO loans. On PWLB loans the exit fees
were 38% of the loan value. On LOBO loans, the exit fees were greater than 90%
of the loan value'.
In response to evidence
submitted during the hearing, Newham
Council Labour Councillor John Gray said:
'I was incensed to hear of
the massive hidden LOBO loan kickbacks that banks paid 'independent' council
advisors that were supposed to be representing the interests of residents and
Despite damning evidence of
profiteering, amounting to the systematic manipulation of local government
finance by the financial sector, the Commons CLG Committee has not
announced a full inquiry, nor scheduled further evidence sessions at this
Instead, individual named parties will be privately invited to submit evidence
to the Committee, with no further action expected on this matter until at
least September, when a summary report will be prepared.
In response to the news the CLG Committee will not conduct a full
Benjamin of Debt Resistance UK said:
I fail to see how
this opaque arrangement is in the interests of UK taxpayers, who are billions
of pounds out of pocket as a result of LOBO loan borrowing from banks and
demand answers as to why this scandal has occurred, despite attempts
to toughen regulation since the banking crisis. Parliament and The FSA
both failed in their duty to fully investigate Treasury
Advisors following the Iceland banking crisis in 2009. This matter
cannot be swept under the carpet yet again.
Billions of pounds of
taxpayer money is ultimately at stake here, with serious questions of
impropriety to be answered. Parliament must fully scrutinise public sector
borrowing from City of London banks and address conflicts of interest with
the unregulated financial advisors that recommend LOBOs whilst accepting
undeclared kickback payments from banks and brokers.”
of the CLG Committee to initiate a full public inquiry highlights the
limits of institutions including the Financial Conduct Authority
and Local Government Association that failed to spot the LOBO loan scandal
to act in the public interest. DRUK insists citizen debt audit
pressure must be applied to local authorities to ensure this issue is
Many local authorities which do not
fully comprehend the long term risk and cost implications of LOBO loans have
rushed to defend LOBO deals. DRUK's Jamie
"LOBO loans present
terrible value for taxpayers despite arguments to the contrary. By extending
the life of the loan and giving up the ability to repay when interest rates are
low, councils end up paying significantly greater sums in interest than they
would by borrowing from central government. While so-called 'independent'
auditors look the other way, taxes collected by councils end up paying not for
essential services but to feather the nests of bankers, brokers and advisers."
Already City Watchdog The FCA are seeking to distance themselves from
responsibility for this fiasco, despite being directed
to investigate Treasury Management Advisors by DCLG in 2009, yet
refusing to do so.
The FCA claim to lack the powers required to investigate conflicts of interest
within the very firms they are supposed to regulate – with an FCA spokesperson
confirming that local authorities are "sophisticated" borrowers:
Rogers from Debt Resistance UK continues:
For press inquiries email: firstname.lastname@example.org Phone:
"DRUK is calling for
a UK wide audit of Local Authority debts, a thorough regulatory investigation
into the systemic abuse of Local Authority finance by the financial sector and
where appropriate legal and enforcement action.
We call on people and
local grass-roots groups to join the campaign and start organising their own
local action group. We need a localised decentralised campaign spread across
the country run by citizens for citizens.
This is not a campaign
against Local Government. It is a campaign to reclaim our democratic
institutions from the clutches of the financial sector. We need to keep the
pressure up and insist that our Local Authorities are run in the interest of
their citizens and not the interests of the City of London.”
Debt Resistance UK intend to submit FOI evidence to the CLG Committee
on LOBO loans, but as yet have not been called by the CLG
Committee to provide evidence.
Links to further information:
UK Local Authority Debt Audit website: http://lada.debtresistance.uk/
Debt Resistance UK website: http://debtresistance.uk/
Interactive map of local authority debt: bit.ly/LADAmap
What is a LOBO loan? http://bit.ly/LOBOLoan
LOBO Loans are potentially illegal http://bit.ly/DebtTrap
The conflicts of interest http://bit.ly/LADA3