LOBO documentary puts councils in firing line

Local authority treasurers and banks face renewed pressure over LOBO loans, with a Channel 4 documentary set to probe the issue on Monday.

Producers from the investigative series Dispatches were this week putting the finishing touches to the programme, which will bring the issue to a national TV audience for the first time.

The programme, presented by reporter Anthony Barnett, is titled “How Councils Blew Your Millions” and set to claim that the loans are now costing taxpayers millions of pounds a year.

A programme summary from Channel 4 says: “Barnett tracks down the banks that made enormous profits from offering complex loans to local authorities. And he speaks to the insiders who describe how these deals have left some councils with mammoth interest bills to pay at a time of huge pressure on public services.”

Channel 4 is understood to have worked with finance campaigner Joel Benjamin and author Nick Dunbar – long standing critics of councils’ LOBO deals – on the preparation of the programme.

Last month, Barnett and Benjamin asked questions about LOBOs at the annual general meeting of Royal Bank of Scotland.
Benjamin criticised a number of “inverse floater” LOBO loans from RBS to Edinburgh City Council which he said were currently costing more than current Public Works Loan Board rates.

Councils around the country have also faced a torrent of freedom of information requests in recent months seeking information on when LOBO deals were signed, with which financial institution and who the councils were advised by. It is unclear if these are connected to the Dispatches programme.

Treasury adviser Arlingclose is among those understood to have been interviewed on camera for the programme.

David Green, client director at the firm, told Room151: “Depending on the terms of the loan, and the market expected volatility of interest rates at the time the deal was struck, a fair rate for a LOBO agreed before 2008 would have been somewhere around 1% below long-term PWLB rates.  But many councils only received around a quarter of that discount.

“Few councils had access to the complex option valuation models required, nor the market data needed as inputs for such models.”

He added that because interest rates have remained low since most LOBOs were taken out councils have benefitted.

In September last year, following coverage of LOBOs in Private Eye, Mike Jensen, chief investment at Lancashire County Council, told Room151 that councils had profited from the deals.

“Overall, so far, the local authority community had done very well from these deals. Most were written 10 years ago so council have had a decade of cheap financing and most deals will continue to run efficiently for some years yet.”

The Dispatches episode is scheduled to air at 8pm on Monday 6 July.