Newham Council dumps high-interest Lobo loans
- Credit: Archant
Newham Council aims to save £94 million by dumping some of the controversial high-interest bank loans it took out in the noughties.
The town hall has switched 55 per cent of its Lobo loans (lender option borrower option) totalling £248 million to a normal fixed-rate loan after reaching an agreement with a high street bank.
The move follows months of campaigning from three Newham councillors and members of the public who claimed the Lobos, which totalled 90 per cent of the council’s debt portfolio from 2014 to 2015, had left it in a “precarious financial position”.
Lobos were taken out by numerous councils in the early noughties as a prudent measure when interest rates were volatile.
However they proved to be a costly gamble as the borrower became saddled with debt as interest rates remained low.
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The loans often came with costly exit fees so it forced councils to be locked into agreements.
The new deal means the bank – widely thought to be Barclays – can no longer change the interest rate levels at regular intervals over the remaining 60-year lifetime of the loans.
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However, the council still has £184m in fixed rate Lobos and £150m in inverse floaters, believed to be the most expensive and risky type of Lobo.
At a full council budget meeting last night, Cllr John Whitworth asked Cllr Lester Hudson, cabinet member for finance, oneSource and commercial opportunities, whether the remaining Lobo loans would be now scrapped.
Cllr Hudson said that a “continued review” of the remaining Lobo loans would remain, adding: “If I knew what interest rates were going to be I wouldn’t be here, I would be a multi-million owner.”
Speaking about the Lobo loans earlier, he said: “We took out these types of Lobos as they represented the best deal for the council at the time and have saved us millions of pounds in interest payments.
“We have taken independent legal and financial advice on this agreement and it is now the right time for us to restructure these loans.”
Newham Council took out 27 Lobos worth £564m between 2002 and 2009 but will not incur any fees to switch back to fixed rate loans, a spokeswoman has confirmed.
In July last year, Cllr Rokshana Fiaz presented a petition requesting the council take the banks to court for being mis-sold Lobo loans, not long after three Barclays traders were convicted of conspiring to rig the Libor interest rate.
Range Lobos are those in which the council must pay a higher rate if Libor falls above or below a certain range.
Cllr John Gray then raised the issue in a question, saying: “This was precisely the same time that Barclays sold £238m of so-called range Lobos loans to Newham Council.”
In response, Cllr Hudson then said it would be “inappropriate for Newham Council to consider taking action against the banks as an individual authority”.
Speaking to the Recorder, Cllr Gray said that while he was “really pleased” with the decision, he remained cautious saying information about the council’s outstanding Lobo loans as well as the terms and conditions of the new loan needed to be made public.
Lobo campaigner Joel Benjamin agreed: “The council was talking about saving millions of pounds in taking out these Lobo loans.
“How can they continue to say that these were savings yet now they are going to be saving £94m in costs. It is obvious one of these statements isn’t true.”