The following open letter has been co-authored by councillors, MPs, citizens, and civil society organisations in support of recent calls by Clive Betts MP and John Mann MP for a Treasury Select Committee and Financial Conduct Authority inquiry into Lender Option, Borrower Option (LOBO) loans to local authorities, and the banks, brokers and treasury management advisors who sold and arranged them.
The original letter has been sent to Andrew Tyrie MP and the Treasury Select Committee with the initial signatories.
Debt Resistance UK is now hosting a version of the letter on this site to collect further supporting signatures. Do get in touch to add your name to the list.
We are writing in response to coverage of Lender Option, Borrower option (LOBO) loans sold to local authorities and housing associations – exposed by Channel 4 Dispatches and recently covered by the Evening Standard, The Independent and Financial Times (9-12 March), where banks are reported to have made up-front trading profits of £1.5 billion.
We believe it is important to understand how 250 local authorities came to take out at least £15 billion in LOBO loans, containing embedded derivatives. Since the 1989 Hammersmith and Fulham swaps case, the use of derivatives by UK local government has been potentially unlawful.
LOBO loans are described by the Chartered Institute of Public Finance and Accountancy (CIPFA) April 2015 Bulletin as “inherently risky” products.
We note that this is the third time in eight years there have been calls for a Financial Conduct Authority (FCA) inquiry into brokers and treasury management advisors (TMAs) to local government, the last occasions being during the 2008/09 Icelandic banking collapse when councils lost £1bn on deposit, and in July 2015 following the Channel 4 Dispatches expose of LOBO loans in “How Councils Blow Your Millions.”
On each occasion, calls for the FSA/ FCA to investigate the conduct of regulated treasury advisory firms it supervises, including Capita and ICAP were ignored, with DCLG accusing the FSA in 2009 of: “deliberate obfuscation .”
As councillors, MPs, citizens and civil society organisations, we wish to lend our voice to calls from MPs John Mann and Clive Betts for an inquiry into LOBO loans, and the conflicts of interest between Banks, Brokers, and Advisors who promoted them, by the Treasury Select Committee (TSC) and The FCA, and demand a financial system that operates in the interests of society.
At the heart of this matter is the assertion by regulators, acting under FSMA 2000 that local authorities are “sophisticated” investors, able to transact safely with global investment banks and brokers selling derivatives products, including LOBOs.
A string of municipal swaps and derivatives mis-selling legal cases across Italy, France, Germany, Portugal and Belgium are testament to the fact that local authorities were not in a position to safely use complex products like derivatives, and could not be accurately described as “sophisticated” investors with full understanding of derivatives risks.
Banks pitched highly complex, opaque and risky products such as ‘inverse floaters’ and ‘range LOBOs’ which were inappropriate for the needs of local authorities. In the case of Newham council, this has had a significant adverse financial impact on its position.
The Communities and Local Government Committee inquiry into local government bank loans heard testimony from Abhishek Sachdev (CEO Vedanta Hedging) and Rob Carver (a former LOBO loan trader with Barclays) that even FTSE 200 Treasurers would be unable to accurately price LOBO loans.
Unlike professional investors such as hedge funds, local authorities did not understand the inherent risks with LOBO loans, being reliant upon external treasury management advisers (TMAs) – who received undeclared income streams in the form of commissions from brokers when councils borrowed from banks.
Brokers held themselves out as offering best execution services for local authorities and prior to 2009, failed to disclose relationships with treasury advisers and banks.
It should be remembered that local authority finance is entirely unregulated, and that ultimately, it is local taxpayers picking up the tab when councils are mis-sold risky financial products.
With the closure of the Local Government Audit Commission in 2015, severe cuts to town hall budgets since 2010, and plans outlined in the Devolution for Cities agenda granting additional financial powers to local authorities, it has never been more important to stamp out market abuse along the financial advisory chain to town halls.
CIPFA and the Department for Communities and Local Government (DCLG) both assert that it should be the FCA, not councils, which investigate and regulate the conduct of financial consultants and advisors to councils.
We call upon the Treasury Select Committee to conduct an inquiry, and to ensure the FCA is given appropriate powers/ forced to investigate and regulate the conduct of treasury management advisors (TMAs) and financial consultants to local government.
- Cllr Ruthi Brandt – Deputy Leader (Green Group), Oxford City Council
- Cllr Matthew Brown – Preston City Council (Labour)
- Cllr Stephen Clarke – Bristol City Council (Green)
- Cllr Sam Coates – Oxford County Council (Green)
- Cllr Rokhsana Fiaz – London Borough of Newham (Labour)
- Cllr John Gray – London Borough of Newham (Labour)
- Cllr Nick Hands – Oxfordshire County Council (Labour)
- Cllr Richard Kemp – Leader Liverpool Council (Lib Dem Group)
- Daniel Lee – London Borough of Tower Hamlets (Greens)
- Murad Qureshi – London Assembly Member (Labour)
- Cllr Martyn Rawlinson – Preston City Council (Labour)
- Cllr Abhishek Sachdev – Hertsmere Council (Conservative)
- Cllr Sam Tarry – London Borough of Barking & Dagenham (Labour)
- Cllr John Whitworth – London Borough of Newham (Labour)
- Jeremy Smith – former Chief Executive Officer London Borough of Camden
- John McDonnell MP – Shadow Chancellor of the Exchequer (Labour)
- Caroline Lucas MP – Brighton and Hove (Green Party)
- Ann Pettifor – Economist and Director, Advocacy International
- John Christensen – Director Tax Justice Network
- Prem Sikka – Professor of Accounting, Essex Business School
- Professor Johnna Montgomerie – Goldsmiths University PERC
- Richard Murphy – Professor of International Political Economy, City University, London
- Natalie Bennett – Leader of Green Party of England and Wales
- Nick Dunbar – Financial Analyst and Journalist
- Antony Barnett – Journalist and Presenter, Channel 4 Dispatches
- Sarah-Jayne Clifton – Director, Jubilee Debt Campaign
- Professor Steve Keen – Kingston University
- Marc Stears – CEO, New Economics Foundation
- Fran Boait – Director, Positive Money
- Frances Coppola – Financial Journalist, Forbes Magazine
- Fionn Travers-Smith – Campaign Manager, Move Your Money
- Ludovica Rogers – Debt Resistance UK
- SME Alliance
- Rob Carver – Former Barclays LOBO loan trader
- Dr Gary Kendall – Director, CDO2
- Rachel Collinson – London Borough of Newham resident and GLA London candidate (Green Party)
- Hannah Caller – Focus E15
- Angus McNelly – London Borough of Tower Hamlets resident
- Sian Berry – Candidate, Mayor of London (Green Party)
- Carl Packman – Author and researcher on payday loans
- Damon Gibbons – Centre for Responsible Credit
- Professor Mark Burton – Steady State Manchester/ Manchester Metropolitan University
- Emma Aviles – Citizens Debt Audit Platform (PACD) Spain
- Chris Hewett – The Finance Lab
- Ben Wray – Common Space
- Peter Crowley – Windsor Actuarial
- Nicholas Wilson – Financial Whistleblower
- Romayne Phoenix – London Borough of Lewisham resident
- Ross Ashcroft – Renegade Inc
- Cat Hobbs – Director, We Own It
- Andrew Caldwell – Unite, City of Edinburgh Branch
- Brian Robertson – Unite, City of Edinburgh Branch
- Peter Lawson – Unite, City of Edinburgh Branch
- Peter McColl – Former Rector, University of Edinburgh
- Centre for Local Economic Strategies (CLES)
- Bryan Rylands – Kent County Council resident
- Adrian Beard MBE – Argyll and Bute Council resident
- Simon Jose – Leeds City Council resident
- Kerry-Anne Mendoza – Editor in Chief , The Canary
- Mark McGowan – London Borough of Bromley resident
- Joel Benjamin – Community Reinvest
- Sameer Khan
- Andrew Guilfoyle
- Ivan Mack
- Bill Kruse
- Gordon Peters – Haringey Green Party
- Joanna Burns – Maidstone Momentum
- Jules Newman
- Robin McAlpine – Director of Common Weal
- Robert Gordon
- Robert Simmons – Fensec Ltd
- John Burgess – Barnet Unison
- Paul Gilbert – University of Sussex
- Mike Jackson
- Rob Lemkin – Momentum Oxford
- Bari Hadjikyriacou – Debt Resistance UK
- Fanny Malinen – Independent Journalist
- Jonathan Stevenson – Haringey resident
- Vincent Guermond – PhD candidate, Queen Mary University
- Steve Rushton – Independent Journalist
- Lauren Tooker – Doctoral researcher, Warwick University
- Jamie Griffiths – Debt Resistance UK
- Dan Goss – Move Your Money
- Shane Bothby
- Mary Ridgley
- Marion Nicolaides – Debt Resistance UK
- Benjamin Kinsey
- David Dewhurst – Charter of the Forest Group
- Nick Stoop – Warwick Risk Management
- Marian Anderson
- Isobel Roell