RBS LOBO loans a "fraud on the people"

Newham Cllr John Whitworth labels RBS 'inverse floater' LOBO loans a "fraud on the people" at RBS AGM, demanding further disclosure from the bank.

Newham Councillor John Whitworth who is also the Chair of the Scrutiny Committee at the Council posed a series of questions to RBS Chairman Sir Howard Davies regarding RBS LOBO Loans- which Mr Whitworth likened to a: "fraud on the people" at the RBS AGM in Edinburgh.

Sir Howard Davies said during BBC Question Time that PFI was a fraud on the people because "it is always cheaper for Government to borrow than anybody else." Mr Whitworth proceeded to outline that Newham was having to pay an interest rate of 7.6% on its LOBO loans, borrowed in 2010, when RBS was accessing credit from the Bank of England at just 0.5% interest.

Mr Whitworth noted local authorities were still struggling financially having received the bulk of austerity cuts, caused in no small part by RBS, which was the largest bank in the world when it collapsed in 2008. Yet despite this, RBS was looking to extract the "maximum interest possible" from local authorities struggling with cuts.

Commenting for Debt Resistance UK, campaigner Joel Benjamin said:

"Sir Howard Davies admits that it is always cheaper for Government to borrow than banks, and that PFI and by extension LOBO loans are therefore a fraud. What Mr Davies fails to recognise in an act of cognitive dissonance all to commonplace in the banking profession is the role of his own bank in facilitating those frauds, as one of the largest PFI and LOBO loan lenders to UK public authorities.

Frankly, I would have expected more from the man who once ran the Audit Commission and Chaired the Financial Services Authority"

Newham Council currently pays around 70% of all council tax income on servicing interest on debts including £563million of LOBOs borrowed from RBS and Barclays.

You can read the full transcript of Mr Whitworth's AGM question here and watch the video footage, including RBS's response.

Other major LOBO borrowers including Leeds, Kent, Edinburgh, Manchester, Cornwall, Liverpool and Glasgow  should now take action to ensure hundreds of millions in interest savings for local taxpayers can be delivered.

At least 240 councils across the UK have taken out LOBO loans, totalling £15bn. Auditors are currently considering legal objections from residents in 18 councils, filed under the Audit Commission Act last year, which could result in some LOBO loans being ruled unlawful.

Find out more about LOBO loans and if your council has them on the Debt Resistance UK website. For press inquiries email: press@debtresistance.uk  Phone: 07429637423
 Links to further information:
UK Local Authority Debt Audit website: http://lada.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

The role of pensions in building Community Wealth

Professional Pensions: John Gray says we should think about investing more locally, but there are a number of serious practical investment problems to overcome

As austerity bites and local authorities up and down the country struggle to provide services following cuts in central government expenditure and grants, communities are looking for alternative sources of investment.

The £250bn Local Government Pension Scheme (LGPS) is being eyed as one possible source. In the recent past it was the Conservative chancellor, George Osborne, who wanted to turn the LGPS into a "British sovereign wealth fund" and direct it to invest in local infrastructure projects. That big idea fell away due to opposition from councils, which dislike being told what to do and also demanded that the government guarantee the money if it all goes horribly wrong.

This time, the interest in the LGPS (and other pension funds) is from the Left. The community wealth movement championed in the UK by Preston City Council wants the LGPS and banks to provide local financing for investment. The idea that workers should invest their savings to not only secure their retirement but also to improve their local economy is on the face of things attractive. Who wouldn't want to help provide jobs for their children and better local infrastructure?

On a wider point, finance activist Joel Benjamin has noted that 30 years ago 60% of the LGPS was invested in the UK while now it is only 30%. He argues that this makes pension funds vulnerable to currency speculation and political risk.

However, there is the inevitable 'but'. The primary purpose of all pension funds is to pay pensions and by law a pension fund must be run solely in the interests of its beneficiaries. The LGPS is a statutory scheme but there is no Crown Promise and no Pension Protection Fund. While on one level it is unthinkable that pensions would not be paid, we now have a number of large councils showing signs of financial stress, and in February Northamptonshire County Council declared effective bankruptcy. The history of direct council investment in local projects has not been great, with too much money wasted on ill-thought-out 'vanity' projects.

The Carillion and Capita private finance initiative disasters also remind us that it is far cheaper and safer in the long run for government to borrow money and invest, but all this doesn't mean  there is no role for pension funds to invest locally.

On the positive side, the LGPS is being effectively merged and scaled up in size into large £25bn plus 'pools'. This should mean  they can widen their asset allocation, spread risk and acquire greater investment expertise.

There is also a possible window of opportunity with the growth of the campaign to divest in fossil fuels and reinvest in new 'low carbon' green industries. There is currently around £14bn in the LGPS invested in fossil fuels. Some councils have already decided to disinvest within five years.

So we should be thinking about investing more 'locally' as long as we deal with a number of serious practical investment problems to overcome such as the lack of accountability to beneficiaries (hardly any of the pools have employee representation) costs, risk, volatility, conflicts etc.

Meanwhile, there is nothing stopping pension funds actively engaging with the companies they own and getting them to support other community wealth building measures, such as making sure  they are responsible lenders or pay all their workers (including agency) the real national living wage, decent sickness and pension benefits; insource services; use local suppliers (especially mutual and other co-operatives); train and upskill their workers. In a landmark report by the Law Commission last year, it said: "There are no legal or regulatory barriers to pension schemes making social investments." Hopefully the time has come for pensions to play its part in community wealth building. 

John Gray is a member of the London Borough of Tower Hamlets Pension Board, and is speaking in a personal capacity

BBC "World Tonight" LOBOs Loans and why Councils including Newham are still being being ripped off by the Banks

On BBC Radio 4 "World Tonight" on Wednesday there was a feature on the LOBO derivative loans scandal  and how they have played a role in the recent bankruptcy of Northamptonshire County Council.

Check out World Tonight - 36 minutes 25 seconds into programme. (lasts about 10 minutes).

Northamptonshire had £150 million exposure in these toxic loans. Local Councillors were quoted as saying that they have to pay twice as much as they should - an extra £3 million per year. Paying up to 11.35 % interest per year, which is 22 times the current base rate.

Joel Benjamin from the campaigning group, Debt Resistance pointed out that these are 50-60 year loans and not only do you face financial mark risks from such derivatives but that you face crippling exist penalties of up to 90% of the face value if you try to get out of them.

The biggest LOBO derivative loans borrower in the Country is Newham with exposure at one stage of £532 million (now apparently reduced).

I was interviewed as one of the many Councillors in Newham, who are convinced that we have been totally ripped off by the Banks.

"We are paying far more than we should.  If we had taken out different loans from the government we would be paying about 1 or 2% per year but instead we are paying up to 7.6% in interest per year. We we are paying millions of pounds per year, to the banks, rather than spending that money on services to our residents"

I was pleased to hear on the programme Rob Whiteman, the CIPFA Chief Executive (which is the professional accountancy body for local government) made it clear that Council should actively consider suing the banks. Whiteman (a former Chief Executive of  next door Barking & Dagenham Council) said that councils could consider suing banks over the issue.

He said, “If councils have made bad deals I think they should not be defensive about that but go to litigation and challenge the banks and say, ‘We think we have been mis-sold’, or, ‘We think there are bad deals here and we want to change the nature of the deal’.

“It is very difficult for banks to defend what may be demonstrably a bad deal and so I see no reason at all why councils shouldn’t try and remedy this through the courts if that is the right thing to do.

He did however couch his remarks with caution about making sure there was a proper legal case before spending money on suing the banks.

This is what Newham Councillors including myself, Cllr Roksana Fiaz and Cllr John Whitworth have been saying for years.

Finally, LOBO stands for the seemingly innocuous "Lender Option, Borrowing Option" derivative loans. However, LOBO is also the Spanish term for "wolves".

Apparently, it was the Bank's sale teams who coined the term "LOBO" and these City traders who earned millions in commission had a great laugh at our expense that they were really wolves ripping off local government treasury teams. Who had forgotten this biblical warning:-

Matthew 7:15:
"Beware of false prophets, which come to you in sheep's clothing, but inwardly they are ravening wolves".

50 councils face residents’ objections to LOBO loans

Check out MJ article (Municipal Journal - you need to have a paid account unfortunately) on the up to 50 objections by residents in different Councils (including Newham) at the use of  "controversial Lender Option Borrower Option (LOBO) loans,

a campaigner has predicted. Joel Benjamin, of Debt Resistance UK, said the next step after that would be to ‘escalate the issue up the chain to the Local Government Association [LGA] Mr Benjamin revealed the strategy after Newham LBC’s cabinet member for finance, Cllr Lester Hudson, said his council had discussed the issue with the LGA and would consider participating in joint legal action’.

LOBOs are a National Scandal

Last week there was extensive coverage in the Standard and Independent on the UK LOBOs scandal. I have posted before on LOBOs (see labels)

Yesterday the Independent published a new report that John Mann MP and Chair of select committee, Clive Betts MP, had called for a Financial Conduct Authority and Parliamentary investigation into the scandal.

This is not just about Newham's exposure to LOBOs but a real national crisis. Councils all over the country, regardless of political control, have been completely ripped off by the banks. At the time of unprecedented austerity cuts to services, 250 Councils have £11 billion in toxic loans. It is not only Councils but Housing Associations have huge exposure as well. 

It is clear that these loans have been mis-sold but there are allegations of wide spread "kick backs" by banks to Council advisors. At the same time the banks were selling these loans some of their own traders were criminally conspiring to manipulate the Libor rate (which most of the LOBOs are linked).

The FT waded in on Friday also with a measured article by Jim Pickard, its Chief Political Correspondent (see below).

This is also an urgent problem due to legal time limits since as pointed out by in the Independent  “If councils are not looking at this they should be,” said Janine Alexander, a partner at the law firm Collyer Bristow. “If they don’t act quickly, they may run out of time.” . 

Doing nothing is not an option. I hope that the Government, the regulators, all Councils impacted and the LGA will get their act together and do something urgently. 

"Local councils suffer after taking out exotic loans

In 2009, Newham Council took what it thought was a canny financial bet: that interest rates would rise. The east London borough, the second most deprived local authority in England at the time, was an unlikely participant in the complicated world of structured finance.

The council took out six loans worth £150m on which the rate of interest would fall if long-term interest rates rose: and vice versa. But interest rates did not go up: they fell to a historic low. And now the council is facing mounting questions about its gamble.

Newham is not alone. Across Britain, councils have taken on hundreds of opaque loans. England’s local authorities have about £70bn of debt, according to the Chartered Institute of Public Finance and Accountancy.

Of that, so-called Lobo loans (Lender Option Borrower Option) make up in excess of £11bn. They were all taken out before 2012. Freedom of Information requests by Debt Resistance, a campaign group, have discovered 805 such loans to 250 councils.

The loans usually have a lifespan of about 50 years. Many are regular fixed rate loans but some are exotic products with embedded derivatives.

Even on the “vanilla” Lobos, a lender has the option at certain dates — typically every five years — to impose a higher fixed rate. At that point the borrower must either accept this or repay the loan.

Newham is in the spotlight because it is the biggest borrower of Lobo loans in Britain. During the 2000s it took out 27 such products at a face value of £563m instead of turning to the usual source of municipal lending: the state.

In its last set of accounts for 2014-15, Newham admitted the “fair value” of those loans had jumped by £256m in a year: up from £703m to £959m. “The increase in fair value is largely due to long-term interest rates falling over 2014-15,” it said.

Newham’s debts are a sensitive issue because it is seeking savings of £50m in 2016-17 after government cutbacks. It took out the loans between 2002 and 2009 to refinance £179m of old state loans and then raise £385m for capital investment including the Olympic stadium.

Cornwall also took out Lobo loans, as did Edinburgh, Brent, Newham, Lancashire and North Lanarkshire

It says the borrowing — from lenders including RBS and Barclays — led to a “dramatic reduction” in interest payments compared to its old fixed-rate loans from the Public Works Loan Board (PWLB), a wing of government.

But critics question whether Newham is still getting a good deal. Some loans appeared cheap at first but are now generating interest rates of up to 7.6 per cent.

Joel Benjamin from Debt Resistance said Newham should have borrowed from the PWLB instead. “There was no need to enter into speculative derivative contracts . . . for what ultimately constitutes a gamble with local taxpayers’ money,” he said.

Newham’s 27 loans represent a mixed bag including some ordinary fixed-rate loans. There are nine “range Lobos” under which the council must pay a higher rate if Libor falls above or below a certain range — which has happened.

Most contentious are its six “inverse floating Lobos” from RBS under which the interest rate payable rises as the 10-year interest rate falls. If the rate had risen, this would have provided a hedge: instead it fell. The six loans have a face value of £150m but their “fair value” has leapt from £176m in March 2014 to £271m in March 2015.

The council says that it took out the loans in 2009 when yields were expected to rise, not fall. “This situation was not predicted by the best pundits,” it says. It admitted the inverse floater Lobos were “expensive” but said their rate should fall amid expectations of an interest rate rise.

Other councils which took out “inverse floaters” from RBS include Cornwall, Edinburgh, Brent, Lancashire and North Lanarkshire.

Overall, Newham claims to have saved money through its Lobos, calling them “prudent, affordable and sustainable”. It says its rump of £65m of PWLB loans have a slightly higher average interest than its Lobo loans.

But campaigners say this is an “apples vs pears” comparison because the legacy PWLB loans were taken out when interest rates were much higher.

There was no need to enter into speculative derivative contracts . . . for what ultimately constitutes a gamble with local taxpayers’ money

- Joel Benjamin, Debt Resistance

A committee of MPs last year held an inquiry into Lobo loans amid criticism of their opaque nature and high exit penalties. There are also concerns about the potential conflict of interest when firms which advised councils received commission from City brokers.

Robert Carver, a former derivatives trader at Barclays Capital, told the committee Lobo loans were “horrible stuff”. “I do not think anyone who fully understood it would do it,” he said.

Barclays said it rejected any suggestion that it had not acted in councils’ best interests. It said no council had ever complained about the “straightforward, fair” loans. A source at the bank said it had made losses on its council Lobo loan book. “This is a conspiracy without a victim,” he said.

RBS said council finance functions were run by “qualified officers”.

Meanwhile, three Labour Newham councillors have criticised the authority for initially refusing to hand over copies of the original loan contracts. “If we are spending more on interest rates than we should be . . . this is an extremely important matter of concern to our constituents,” they said.

Treasury management firms, which advised the sector, typically advised councils to hold less than 30 per cent of their debt in variable rate Lobos. Newham’s Lobos — by contrast — make up 90 per cent of its debt.

That figure spiked in 2012 when £544m of Newham’s PWLB debt was wiped out as a result of the government’s abolition of the housing revenue account system.

The Local Government Association admitted Lobos were “riskier instruments” in the long term. But it said low interest rates meant no lender had yet exercised their “lender option” to increase rates.

“Some local authorities may have been able to get better deals by delaying their borrowing if they had anticipated the credit crunch . . . they can hardly be criticised for not doing so,” it said.

"Dealing with debt", Osborne-style

Can someone please tell me just why the Tories have this reputation for economic competency? Hat tip Joel from Debt Resistance.

LOBOs: Putting up and not shutting up

At the Newham Full Council meeting last Monday, the Cabinet member for Finance, Lester Hudson, responded to the arguments that myself and Cllr Whitworth put forward here and here about the exposure Newham has to LOBO loans.

Cllr Hudson said that the Council had saved £64 million in reduced interest rates because it had redeemed old expensive debt and taken out "cheaper" new LOBO debt to replace it. He believes that this amounts now to £64 million of savings and this is a fact and has been checked by PwC (auditors). He invited us to check this.

He also explained that we were criticising the choice of LOBO loans with the benefit of "20/20" hindsight. The real test should be what a "Reasonable person" looking at financial forecasts at the time would have expected interest rates to be. At the time the Bank of England was predicting interest rates (in the short term) to rise. No one anticipated the fall in interest rates that has since taken place. In terms of financial modelling, you should look at previous recessions and there has been nothing comparable has happened in previous recessions except for 1929-1935. The key issue is that they took out fixed rate loans based on reasonable forecasts at the time. If he had a time machine and could have anticipated the collapse in interest rates we would have made different decisions. If we could dig out a different economic forecast he would listen to our argument so he challenged us to "Put Up or Shut Up".

Unfortunately neither myself or Cllr Whitworth was able to respond to his points so I thought I would take up his challenge and say what I would have said if I had the chance.

The key issue about the £64 million savings (I will as invited be contacting PwC for them to confirm this calculation) is not that we "paid off" early some expensive loans and took out newer "cheaper" loans but that instead of taking out the safer and transparent loans from the Government (called PWLB) we took out inherently risky derivative based loans (called LOBOs) from British and Foreign Banks? Also why did we put all our eggs in one basket and take out all "fixed rate" (not that LOBOs have turned out to be "fixed") loans instead of a prudent mixture of floating and fixed loans?

Why did we take out loans for up to 70 years that did not protect us against falling interest rates but allows the Banks to raise rates if the market rate rises?

With regard to the argument about "hindsight". The Bank of England and other forecasters report "market expectations" and not "predictions". All forecasts are educated guesses to a greater or less degree. No one really knows what interest rates will be in the future. The real "reasonable person test" is "what will happen if it all goes wrong" and interest rates do not go the way we think.

Robert Carver an ex Hedge fund manager and derivatives trader who used to work for Barclay's points out "Seventy years ago it was 1945. Who then could have predicted that (bank base) rates would go from 2%, to 17% in the late 1970's, then back down to 0.5%?!"

He also reminds us of Robert Citron, treasurer of Orange Country California on making a prediction that interest rates wouldn't rise. A few months later Orange County was bankrupt after losing $1.6 billion on interest rate derivatives). "I am one of the largest investors in America. I know these things."

I will also respond to the comments made by the Mayor at the meeting.

Hat tip Nick Dunbar and Joel Benjamin.

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

I spoke after Cllr Whitworth raised concerns on this item 14 at Monday evening (7.12.15) at Full
Council.

"Thank you Chair. John Gray, West Ham ward, speaking as a Councillor, expressing concerns on behalf of my constituents about Newham Council’s exposure to LOBO loans, in this report referred to my colleague, Cllr Whitworth. It now appears to be accepted internally that these concerns are to some extent at least justified.

I refer to appendix 4 of the report pages 75-79 which I interpret as a clear acceptance that due to what is called “unforeseen” events after we took out these loans, it now means that they are now quote “expensive” - so my chief issue now, is whether or not, we can do anything about our ongoing exposure to these loans. I think we have to fully admit that we are in a hole and rule number one when you are in a hole, is to stop digging.

This is after all public money, very large amounts of public money, so it is of importance that in the best of times that every penny is spent wisely and now in the worst of times, that this is of even greater importance.

We must learn the lessons from the past. Especially when the Council is considering taking advantage of current low interest rates to invest in capital projects, that are aimed at getting a commercial return in order to try and offset some of the ‎cuts in income.  We have suffered due to savage cuts in Government grants and financial support in Newham. Further loans will not only increase our risk but the cost of existing loans will have a negative impact on our ability to service new ones.

It is clear that even though we are a relatively small outer London borough, we have the single largest exposure to LOBOs in the country. We are paying more for our loans than any other local authority in the country. The correct interest rate comparison is not with the toxic long term fixed rate PWB loans still on our books but with what we would be paying otherwise. We will have this exposure possibly for the next 65 years. ‎

I posted an article yesterday on my website written by a leading solicitor on LOBOs and then was sent the following private message. “John... When I was Treasury Manager at **** we avoided any fancy products. We reasoned that the banks were offering products for their benefit rather than ours, and if we couldn't completely understand and explain it then we didn't want it”.

Before we apply for any new loans,  we must apply in my view, this “fancy products” test.

I was pleased that the audit board has decided to investigate whether or not there is a legal case to be made against ‎the Banks and our advisers. Remember at the same time LOBO salesmen were selling these loans, the Bank traders were conspiring and manipulating interest rates. Remember also that the Banks earned enormous profits from day one of a LOBO sale and that some banks paid some brokers and advisers huge commissions or kickbacks without telling or fully disclosing to clients.

Finally, council, we must clean up the British financial services industry. When will these financial scandals end? It allowed pensions fraud by Robert Maxwell, insurance mis-selling, payment protection insurance fraud and in 2007 and 2008 they almost completely destroyed our economy. We currently face a new the scandal developing of grotesque and hidden fees and charges on our investments.

I fear that I cannot support this report in its current format but shall await the response from Executive before making my decision".

I will post the response from the Executive Member and Mayor later. 

Hat tip photo Joel Benjamin.

Select Committee Hear Damning Evidence on LOBO Loan Scandal And Conflicts

I was at the Parliamentary select committee hearing yesterday with Newham Councillors, Cllr Fiaz and Cllr Whitworth. Bearing in mind the savage cuts in our budget, I was incensed to hear futher details how Councils were duped into buying LOBOs when paid advisers were also receiving commissions from the Banks. I will post my thoughts later.

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. 

"Communities and Local Government Select Committee Hear Damning Evidence on Local Government LOBO Loan Scandal And Conflicts Of Interest With ICAP and CAPITA Treasury Advice.

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):

'Based 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'. 

Rob Carver (former derivatives trader - Barclays Capital):

[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 my head.'

'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 Hedging):

'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 taxpayers'.

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 stage.

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 inquiry, Joel Benjamin of Debt Resistance UK said:

 "Instead of a full public hearing, where evidence is scrutinised and broadcast live on Parliamentary TV, the CLG Committee have allowed a situation where CAPITA, ICAP, Tullet Prebon, RBS and Barclays are granted preferential treatment and will submit written evidence to the Committee in private, with no scope for either forensic questioning by MP's, nor public oversight.

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.” 

Failure 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 taken seriously.

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 Griffiths observes:

"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:

 

Ludovica Rogers from Debt Resistance UK continues:
"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.

For press inquiries email: press@debtresistance.uk  Phone: 07543219635

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