LATIF delegates to decrease investments with UK banks

Local authorities are losing faith in banks as counterparties for their investments, according to a survey of treasurers undertaken by Room151.
An electronic survey held during last week’s Local Authority Treasurers’ Investment Forum in London found that only 5% were planning to significantly increase their allocations to UK banks in the coming year, compared to 35% planning to significantly reduce them.

The finding comes in the wake of continuing low yields from bank deposit accounts, and the introduction of bail-in regulations by the UK government which are set to impact the credit rating of banks.
Earlier in the day, delegates had heard panellists urge the audience to look beyond traditional bank deposit accounts, which they said were no longer an unconditionally safe home for money.

The survey also found that, despite concerns over possible European regulations affecting money market funds, 16% of treasurers are planning to increase the amount placed in these vehicles.
Significantly, 28% of those surveyed said they were planning to increase the amount they lent to other local authorities, compared to just 7% who said they were likely to reduce these amounts.
When asked about corporate bonds, 32% said they would be likely to increase their allocation, compared to just 3% saying they are unlikely to do so.
Only 2% of the conference delegates said they were likely to increase deposits with the Debt Management Account Deposit Facility (DMADF), compared to 10% who said they were looking to row back from it.

Strikingly, not a single delegate said they were likely to use a challenger bank to place cash with over the coming year, with 67% saying they would definitely not. Such banks were also rated the highest risk of all counterparties by 25% of the audience.
There is some hope for the new kids on the block, however, with 29% saying they were undecided on whether to open an account with a challenger bank.

On borrowing, there was good news for the nascent municipal bonds agency, which is being promoted and partially funded by the Local Government Association.
Almost two-thirds (61%) of delegates said that they would consider borrowing from the vehicle if it offered lower rates than the Public Loan Works Board. However, with only 3% saying they would borrow from the agency irrespective of PWLB rates, the scheme could be vulnerable to a cut in rates at the PWLB in response to its creation. A quarter (24%) said they would not be borrowing from the vehicle.

The agency announced earlier this month that it has raised enough money to proceed towards the next phase of development, appointing a team of executives to prepare the first bond launch. Some 26% of the Forum audience said they would consider taking an equity share in the agency.

The survey reflected some appetite in the market for further borrowing, with 55% of respondents saying that their authority is currently under-borrowed, versus 43% saying they weren’t.
However, only 37% had a firm intention to take out more loans in the next 12 months.

Although 57% said they were happy with the advice they received from their treasury advisor, there was a strong feeling that more competition in the market would be welcome.
A whopping 88% answered ‘no’ to the question “Do you think there is a sufficient choice of treasury advisors?”