• Home
  • About
  • Subscribe
  • LATIF
  • Conferences
  • Dashboard
  • Edit My Profile
  • Log In
  • Logout
  • Register
  • Edit this post

Room 151

  • 151 BRIEF

    What's New?

  • WMCA signs £4bn investment agreement with L&G

    May 18, 2022

  • Bill will give UK Infrastructure Bank power to lend directly to councils

    May 18, 2022

  • £400bn pension group collaborates on climate transition initiative

    May 17, 2022

  • CIPFA rejects proposal for vote on publication of fraud hub report

    May 17, 2022

  • John Turnbull elected president of the SLT

    May 12, 2022

  • Pension pool identifies biodiversity as a priority

    May 11, 2022

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews
  • Briefs

Inter-authority exchange could save millions in brokerage fees

2
  • by Editor
  • in Treasury
  • — 18 Jul, 2012

Local authorities could be spending millions more than they need to in brokerage fees, simply to lend to each other.

Statistics released by the DCLG for the financial year ending March 31, 2011 put lending between UK local authorities at around £3.3bn. With voice brokers typically charging 10 basis points (bps) to borrowers, the sector would arguably benefit from a peer-to-peer, electronic exchange which could provide a more transparent and competitive marketplace.

Boston Borough Council’s chief executive, Richard Harbord, recalls a peer-to-peer, paper-based system: “A long while ago we had the CIPFA loans bureau and instead of going to the market we all put our loans on there and lent and borrowed among ourselves.”

“It took care of a large amount of local authority surplus money in a very effective and efficient fashion. So this would work – you just need to organise it.”

Since 2008, credit risk has been at the top of most treasurers’ agendas and other local authorities have come to be viewed as a low-risk, cheap source of borrowing.

“The lack of any resolution to economic problems both here and abroad is making local authorities lending to each other a more entrenched position,” said Mark Horsfield founding director of treasury consultants Arlingclose. “It used to be a short-term tactical position but it is now a reasonably embedded strategic position: authorities view it as an essential.”

According to Arlingclose brokers charge 10-24 bps for matching local authorities with each other. This fee could be reduced substantially through an electronic exchange which would allow the lenders and borrowers to find each other directly.

Room151 understands the cost of maintaining such a platform, based on the levels of lending DCLG reported for 2010-11, could be as little as 1 basis point.

Rob Woolnough, managing director of Sterling International Brokers argues, however, that the volume of business isn’t there to attract a private sector company to launch an exchange: “The majority of local authorities are lenders. The amount that they actually borrow on a regular basis, other than in the latter stages of their financial year, isn’t large enough and we do all of our lending, in the local authority market, for nothing … If somebody’s going to set this up as a pure business venture it makes no real logical sense.”

On the strengths of voice broking, Woolnough added: “I think electronic broking is very black and white. You either decide you want to do something or you don’t do it. The voice broker can give you a bit of flavour and understanding of the markets. And there’s always opportunities to talk about slightly different offers or periods of time for a counterparty’s money that might generate better yields.”

The efficacy of the voice brokerage business model, though, is coming under closer scrutiny in the ratings world. Moody’s, for example, changed its outlook for brokerage firm Tullet Prebon to negative earlier this year, citing, “Moody’s opinion that while voice brokerage will continue to provide an important service for dealers, over the longer-term its role could diminish as more business transfers to electronic broking,” an agency spokesperson said.

Like Woolnough, Horsfield points to better pricing with a broker as an advantage. “There is potential for an inter-authority exchange, but there is a belief that the brokerage will act on your behalf and match the best available terms,” he commented. “If you go direct you may be able to tweak that a bit more but the cost in time may not be worth the effort. It may just be easiest to have someone who is practised in it, facilitating it at this reasonably modest level.”

While an exchange costing one basis point per transaction may not prove attractive in itself to a private sector firm, the benefit of creating a captive online community for local authority lenders and borrowers, with the ability to cross-sell money market funds and other investment instruments, for example, is manifest. DCLG lending stats for the financial year ending March 31, 2012 are expected within the next 2-3 weeks when the cost of lending will come into focus once more.

Richard Harbord argues that LA treasurers could take the initiative: “I think if you took London on its own, the 33 boroughs could run a mutual scheme and they could save a bit even among themselves.”

He added: “It’s something that the treasurers associations should be getting together on. They’re the sort of people who would stimulate discussion…The thing is we’re making relatively small savings all the time now to add up much bigger savings – so every bit helps.”

——————————————————————————————————————————————–
The Local Authority Treasurers’ Investment Forum September 25th, 2012, London Stock Exchange
——————————————————————————————————————————————–

 

Share

You may also like...

  • Collaboration the key to district recovery post-pandemic 13th Apr, 2021
  • Is local government funding “broken”? 12th Feb, 2021
  • What would negative sterling interest rates mean for UK money market funds? 25th Feb, 2021
  • What role will climate change have on the pricing of government bonds? 24th Feb, 2021

2 Comments

  1. SteveWright says:
    2012/07/19 at 09:30

    R P Martin Brokers have had an electronic broking platform since March 2001 -firmly aimed at the local authority sector- (www.uk-locals.com) This provides local authorities with the ability to trade without using a voice broker- and yet most local authorities still prefer to use the service as a pricing tool and would rather deal over a phone line.

    Log in to Reply
    • Editor says:
      2012/07/19 at 14:05

      Thanks Steve. We did contact R P Martin to comment in the article and were keen to establish the costs and coverage of your UK Locals site.
      Cheers
      Peter

      Log in to Reply

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 52 mins ago

    Great piece from Peter Findlay on the PWLB’s tightening of its lending criteria. He raises some pointed questions for the Treasury and explains why the ‘casino council’ characterisation was simplistic and inaccurate. #PWLB #localgov room151.co.uk/treasury/back-…

    Room151 2 hours ago

    The Queen's speech highlighted the need for accelerating UK infrastructure investment into levelling up projects and cutting emissions. @UKInfraBank #QueensSpeech #ClimateAction #emissions Click the link below to read 🔻🔻 room151.co.uk/brief/bill-wil… pic.twitter.com/hFmF2veVIa

    Room151 2 hours ago

    Huge funding heading to the @WestMids_CA from @landg. @andy4wm #LevellingUp #netzero #regeneration Click the link below to read 🔻🔻 room151.co.uk/brief/wmca-sig… pic.twitter.com/ajhZhia6mx

    Room151 6 hours ago

    LGPS governance, Cagney and Lacey style: What regulatory response can be expected following the publication of the Good Governance project’s Phase 3 report and the closure of the Single Code of Practice consultation? Susan Black offers[...] dlvr.it/SQbfXf pic.twitter.com/xwqHOEu2AP

    Room151 1 day ago

    More evidence of the importance of emerging markets in the journey to net-zero. @BordertoCoast @BrunelPP @northernlgps @EAPensionFund @WYPF_LGPS Click the link below to read 🔻🔻 #LGPS #NetZero #NetZeroCarbon #EmergingMarkets room151.co.uk/brief/400bn-pe… pic.twitter.com/qCm0EGxzLn

    Room151 5 days ago

    ‘Urgent consultation’ issued in response to continuing audit delays: CIPFA and the Local Authority Scotland Accounts Advisory Committee (LASAAC) have announced another “urgent consultation” to consider proposals to address the latest issue that has led… dlvr.it/SQJ0kV pic.twitter.com/s6vw0bnGXO

    Room151 6 days ago

    Bags of capacity – now to housing delivery: HRAs have been freed up and councils are starting to invest, but some remain cautious, writes Steve Partridge. He suggests that a minimum of £10bn of additional borrowing could be[...] dlvr.it/SQDvxk pic.twitter.com/yZmoWzHv6U

    Room151 6 days ago

    Bags of capacity – now to housing delivery room151.co.uk/treasury/bags-…

    Room151 1 week ago

    To Michael Gove: a modest proposal: Conrad Hall has written an open letter to the levelling up secretary suggesting an unusual (and tongue-in-cheek) proposal to help councils predict next year’s government grant. Dear Secretary of State,[...] dlvr.it/SQ9GpX pic.twitter.com/mSX1xgeL8a

    Room151 1 week ago

    Queen’s Speech: an ambitious plan hampered by omissions: Richard Harbord examines the impact of the government’s legislative proposals on councils, and concludes that local authorities expect and need more from central government. However you view the… dlvr.it/SQ8hmP pic.twitter.com/BsnziyNPIO

  • Categories

    • 151 News
    • Agent 151
    • Audit
    • Blogs
    • Business rates
    • Chris Buss
    • Cllr John Clancy
    • Council tax
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Education
    • Forum
    • Funding
    • Governance
    • Graham Liddell
    • Housing
    • Ian O'Donnell
    • Infrastructure
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • Levelling up
    • LGPS
    • Mark Finnegan
    • Net Zero
    • Private markets
    • Recent Posts
    • Regulation
    • Resources
    • Responsible investing
    • Richard Harbord
    • Risk management
    • Social care
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Transport
    • Treasury
    • Uncategorized
    • William Bourne
  • Archives

    • 2022
    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Social housing for LGPS funds?
  • Next story Improving public reporting in local government

© Copyright 2022 Room 151. Typegrid Theme by WPBandit.

0 shares