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Councils got cash with Lobo loans.

Byline: Martin Shipton Chief Reporter

MORE than half of Wales' unitary councils have borrowed money from banks using controversial Lobo loans that are under investigation by a parliamentary committee, it has emerged.

Lobo stands for Lender Option Borrower Option and unlike a fixed-rate mortgage they have three key twists: the loan contract runs for between 40 and 70 years, councils have to pay huge exit fees if they want to move to a better deal and banks have the option of raising the rates at regular intervals.

Last month the Channel 4 Dispatches programme revealed about 240 local authorities across the UK had taken out about PS15bn of Lobo loans. Most of the loans were taken out between 2003-2011 when council officials believed interest rates would stay high.

In Wales, data released under the Freedom of Information Act shows that Cardiff council has eight Lobo loans totalling PS69m, with current interest rates between 3.81% and 4.35%.

Bridgend council holds three Lobo loans totalling PS19.25m. Originally the interest rates were 2.1%, 1.3% and 2.7%, but they are all now 4.65%. All three loans are due to mature in 2054.

Caerphilly council has four Lobo loans, each of PS10m with current interest rates of 4.45%.

Labour MP Clive Betts, who chairs the Local Government and Communities Committee at Westminster, told Dispatches that he wants his committee to investigate Lobo loans and that he would like to explore whether there are grounds to unravel these deals.

He has also called for the Financial Conduct Authority to investigate the behaviour of City firms that offer local authorities specialist financial advice. Evidence has emerged that as well as being paid by councils some of these firms earned commission from City brokers if a council took out a Lobo.

A spokesman for Barclays, one of the banks involved, said: "These loans have helped councils build new schools, roads and parks. They are straightforward, fair and easily explained. The average interest rate was about 4.5%, typically cheaper than the public sector loans available. It is untrue Lobo loans work against the best interest of the local authority."

A spokesman for the Welsh Local Government Association said: "Several authorities in Wales have Lobo loans which, in simple terms, are very longterm bank loans where a council initially pays a lower interest rate than on a traditional fixed rate loan. The bank has the option to increase the interest rate on pre-set dates in the future. If the bank exercises its option, councils have the option to repay the loan without penalty."

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Publication:South Wales Echo (Cardiff, Wales)
Date:Aug 6, 2015
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