Commenting on the mis-selling of LOBO loans, described by derivatives expert Abhishek Sachdev as a “lose-lose bet for councils“ Rob Whiteman – CEO of the Chartered Institute of Public Finance and Accountancy told Andrew Hosken for the BBC World Tonight, councils should now be considering legal action against the banks (from 43″00).
Commenting for Debt Resistance UK – Campaigner Joel Benjamin said:
It’s welcome news the Chartered Institute of Public Finance and Accountancy (CIPFA) are using their considerable influence to nudge councils to pursue legal action against the banks and advisors who mis-sold LOBO loans. We thank CEO Rob Whiteman for his intervention.
Ultimately, it should not take media exposure to force Council officials to act in the public interest. Not when Councils have a legal duty to protect and serve the public, and billions of pounds of taxpayer money is at stake.
We only have toxic LOBO loans and PFI because banks and advisors including CAPITA, ICAP and big 4 accountancy firms were able to game public procurement and value for money rules, while the City regulator refused to take action against conflicted advisory firms committing market abuse, taking kickbacks from banks on LOBO loans, mis-sold at local taxpayers expense.
The FSA/FCA failed to intervene, despite being explicitly instructed to regulate TMA firms, following the 2009 Iceland banking collapse inquiry by the CLG Committee [para 119] – leaving more ethical TMA companies to propose their own voluntary Code of Conduct in the vacuum of regulatory scrutiny.
As Abhishek Sachdev MD of Vedanta Hedging explained to Craig Lewis for BBC Northamptonshire, you cannot simply blame Councillors and Audit Committees at councils for borrowing via LOBO loans, when the professional advice they were paying for under contract was fundamentally conflicted.
On BBC Question Time, RBS Chairman Sir Howard Davies labelled PFI a ‘Fraud Against The People‘ because in his expert opinion “it is always cheaper for Government to borrow than anybody else and if you are going to hand over the total provision [of public services] to someone whose borrowing costs are higher than yours, what is the advantage of doing that?”
We wonder how banks including Barclays and RBS came to be involved in more than £15 billion of LOBO loan lending to councils like Newham, Edinburgh, Kent, Cornwall and NCC to fund public services, with banks booking £2billion in up-front, day one profit, if it is always cheaper for councils to borrow via their usual source of funding, the Public Works Loan Board? (i.e. Government).
Council financial advisors – CAPITA (known as a Treasury Management Advisors) provide part of that answer. On LOBO loans, CAPITA have conceded they received facilitation payments – which they refer to as “commissions” when local authority LOBO loan brokerage business was referred exclusively to preferred money brokers including Tullet Prebon and ICAP.
CAPITA were named in the July 2015 C4 Dispatches documentary “How Councils Blow Your Millions” on LOBO loans, and were also heavily implicated in the 2008 Icelandic banking crisis, having advised hundreds of local authorities to invest in failed Icelandic banks.
Debt Resistance UK questioned CAPITA CEO Andy Parker regarding kickback/ commission payments at CAPITA’s 2015 AGM [listen here]. In addition, we note CAPITA submitted evidence to consultation by the Ministry of Justice on the introduction of the 2010 Bribery Act, suggesting CAPITA had concerns regarding the implementation of the Act on its existing business model.
An investigation by the Competition Commission in 2010 into the merger of Butlers (part of ICAP) and Sector (part of CAPITA) found that 50-100% of respective business unit profits were from commission/ facilitation payments from LOBO Loans, which averaged £25,000 payable by a local authority on an typical £10 million LOBO loan.
Debt Resistance UK have been warning for several years that the toxic combination of austerity cuts, lack of scrutiny and independent oversight of council finances following closure of the Audit Commission in 2015, conflicted financial advice from firms like CAPITA and ICAP and growing debt loading would soon lead to financial disaster in town halls.
Now, with the first Section 114 notice in almost two decades being registered at Northamptonshire – it is increasingly clear that local government finances, shredded by austerity, are beginning to unravel.
The only questions left to ask are which councils will be next, and why did authorities not react sooner to protect councils and taxpayers when given several advance warnings of these problems?
Find out more about LOBO loans and if your council has them on the Debt Resistance UK website.