As reported in the Newham Recorder, a full council meeting at the town hall in East Ham on Monday saw the leadership reject further calls by councillors to reconsider the Council’s position on LOBO loans, backed by a public petition demanding legal action. But while the headline is factually accurate, what the Recorder failed to convey was a potential softening in the Council’s official stance on building a case against the banks that stitched them up.
Newham’s LOBO loans (a recap)
These toxic loans, which were possibly ‘mis-sold’ to the council by LIBOR rigging banks Barclays and RBS (among others) – and the terms of which are heavily lop-sided in favour of the banks – are bleeding Newham of tens of millions of pounds each year, at a time of huge cuts in funding to local authorities.
Between 2002 and 2010 Newham borrowed £563.5m in the form of Lender Option, Borrower Option loans from Barclays (£248.5m), RBS (£150m), the failed German bank DePfa (£115m) and the failed Franco-Belgian Bank Dexia (£40m). The council is currently paying around £32m per annum in interest on these loans at a time when it is cutting spending on public services by around £50m.
The loans contain embedded financial derivatives and essentially represent a bet on interest rates. A bet that the council lost. The respected financial journalist Nick Dunbar has calculated that the council could have saved at least £10m in interest payments had it borrowed from the Treasury (via the Public Works Loan Board) instead. And that’s just to date. With low interest rates predicted to remain low for some time, the council will continue to lose money hand over fist.
Unless it can successfully find an exit from the onerous terms of the loan contracts through legal action.
Newham residents demand action through online petition
A petition on 38 degrees started by Newham local and environmental campaigner Elisabeth Whitebread has gathered nearly 800 signatures from people urging the Mayor of Newham, Sir Robin Wales to “take the banks to court for mis-selling LOBO loans to Newham Council, just like we can do with PPI.”
The petition, which was presented at the meeting by Councillor Rokhsana Fiaz (Custom House) elicited no response from the Mayor. But that wasn’t the only intervention on the subject of LOBO loans.
Deputy Mayor says ‘we would look at’ a class action, says no to ‘no win, no fee’
When it came time for the executive to answer questions, Councillor John Grey (West Ham), who has done much to bring the LOBO loan scandal to the attention of the wider council, asked the Deputy Mayor whether he’d reconsider legal action, in light of the recent conviction of Barclays traders for LIBOR rigging. (Many of Newham’s LOBO loans have interest rates which are tied to the famously manipulated index.)
Here’s the video of Councillor Hudson’s response and the subsequent exchange, with a full transcript below.
Once again, Hudson fails to acknowledge the ongoing costs of the LOBO loans to Newham’s Council Tax-payers when talking about the costs of taking legal action (a trick he’s deployed before) and is prepared to dismiss a ‘no win, no fee’ legal action against the banks without even looking at the details. But, perhaps more significantly, he does indicate (twice) that the Council would be open to discussing a class action against the banks if other local authorities were prepared to join in.
While this is clearly kicking the can down the road in terms of dealing with the LOBO loan crisis at Newham it is also, in my mind, a tacit admission that the council did in fact make a huge error by taking out the loans in the first place. At any rate, it’s a far cry from previous statements by the Mayor that you’d have needed the benefit of hindsight to know that these deals would turn sour.
This change in position from the executive is welcome and perhaps represents a minor victory for #NoLOBOs campaigners trying to get the Council to finally confront the banks who’ve been robbing them blind.
Let’s keep up the pressure – and sign the petition!
LOBOs question transcipt
Councillor John Grey (question read by council officer): This week 3 more employees of Barclays Bank were found guilty in Court of criminally conspiring to rig the LIBOR interest rate downwards between 2005 and 2008. This was precisely the same time that Barclays sold £238m of so called “range lobos” loans to Newham Council.
The interest repayment cost of these loans goes up if base interest rates and LIBOR go down. So we had on the one hand, an arm of Barclays making huge amounts of money for themselves and the Bank from driving interest rates down and profiting from these moves, when another part of the bank was earning huge amounts of money from selling us loans that would cost more in interest if rates go down. This cannot be right.
In the light of these and other recent court convictions for conspiracy and fines for interest rate rigging will the Executive member please reconsider his decision not to take legal action against Barclays for fraud and damages and for us to recover the millions of pounds that Barclays and other banks have cheated from Newham residents and stop them cheating them further in the future. Please acknowledge receipt of this question John Gray. Councillor.
Councillor Hudson: I thank Councillor Grey for his question. The first thing we have to consider about LIBOR is a whole series of financial transactions depend on LIBOR. When I worked for a housing association, [inaudible] most of the loans that they actually undertake, there’s a clause to say that interest rates will be determined by LIBOR. In banking you can interest rates and overdrafts, that’s determined by LIBOR. In individual contracts that I’ve often seen the clause about penalty interest includes a clause about LIBOR. So no doubt these individuals have been found guilty, but there’s no doubt that LIBOR affects a whole series of individuals throughout the country, if not internationally. So that’s the first thing we have to say, okay?
The second question is did the action of these individuals lead to a material difference in our interest on LIBOR? I suspect not, because on the individual [inaudible] the move was quite minuscule. But let’s park that to one side. The major point I’ve got is, that I’ve said, LIBOR affects everyone. If you look at the London Borough of Newham, the residents of the London Borough of Newham are among the lowest paid individuals, if you look at the medium income, East Ham and West Ham, parliamentary directory, lowest paid people. These people pay Council Tax. In fact we haven’t increased Council Tax for a number of years; we appreciate that Council Tax is regressive, we’re trying to protect those individual’s interests.
Is it correct, or fair, that the London Borough of Newham, taking Council Tax-payers money, if the cost to do this case – seriously, with Barclays we’re talking about court, court of appeal, supreme court; we’re talking about paying teh best experts to work on this, in the City, from the Big Four accountancy firms. It is going to cost us millions to do this case. So I have to ask the question, is it fair and equitable for the tax payers of the London Borough of Newham to fly a kite, taking on LIBOR, on this case? I just don’t think it’s fair. Why should the Council Tax-payer of Newham do this?
I’m quite willing, if other people want to come in and, you know, have discussions, I think there could be an argument for us participating in a large class action, but for the London Borough of Newham to do it by themselves? John, OPN: Other People’s Money. And we have a duty to make sure that we got value for money for Council Tax-payers in the London Borough of Newham. So the simple answer is no.
Chair: Councillor Grey, do you have a supplementary question [inaudible]?
Councillor Grey: Yes, indeed Chair. I thank Councillor Hudson for his response. In view of his comments about the pitfalls of taking such action, in the past myself and Councillor Fiaz have contacted the Executive Member for Finance and we’ve offered to introduce the Executive Member for Finance and Councillor Hudson to renowned experts on how exactly how it would be possible to prove that we’ve been cheated and robbed by the banks. And would he reconsider his decision to decline the meeting and meet the people – who, I also understand, would be able to produce a ‘no win, no fee’ solution to get our money back?
Councillor Hudson: You asked me a question about ‘no win, no fee’. I’m always deeply suspicious when people offer you a free lunch ‘no win, no fee’ – there is always a cost. As I said John, we have, in other meetings, we have [inaudible] discussions with the LGA about looking into this. I mean, if there was a serious appetite, with other organisations coming in, I think it’s something we would look at. But the London Borough of Newham by itself? Spending millions of pounds? Giving millions of pounds to lawyers and accountants in the City?
Councillor Grey: Meet them.
Councillor Hudson: Come on, John.
Councillor Grey: Meet them…
Councillor Hudson: Come one, John.
Councillor Grey: …for one hour!