Why did the bank unilaterally waive LOBO provisions in loans last year, losing as much as £1 billion in the process?
Continue reading..Why did the bank unilaterally waive LOBO provisions in loans last year, losing as much as £1 billion in the process?
Continue reading..Between July 2007 and November 2008, Newham council entered into 10 range LOBO loans with Barclays worth a total of £238.5 million. New information on the council’s controversial loan portfolio shows the impact of its relationship with Barclays, raising questions about risk management decisions.
Continue reading..A few weeks ago, I was with Channel 4 Dispatches reporter Antony Barnett speaking to Sheffield Labour MP Clive Betts. We were on a park bench in some gardens next to the Houses of Parliament and we briefed Betts about our findings on Lender Option Borrower Option (LOBO) loans to UK councils – findings that were seen by a Channel 4 audience of over 1 million last Monday.
Continue reading..In my research for Channel 4 Dispatches, I broke through Newham council’s wall of secrecy and learned that the council had at least £150 million of inverse floater LOBOs (believed to be with Royal Bank of Scotland), along with other councils such as Cornwall, Edinburgh and Newcastle that disclosed these RBS products in response to Freedom of Information requests. As discussed on the programme, these loans involve councils paying a variable coupon which goes up when market rates go down – coupons that recently have gone above 7 per cent. To understand these products, I priced a £25m Newham deal on a Bloomberg terminal, which allows the underlying cash flows to be modelled – from today until 50 years in the future. This is important because the concept of fair value involves combining all of a loan’s future cash flows into a single number.
Continue reading..When I was in my twenties, I worked on a film being shot on location in the London borough of Newham. The film itself, which starred Jude Law and Sadie Frost, was forgettable, but one memory that stayed with me was the all-pervading smell of refined sugar from the nearby Tate & Lyle factory by…
Continue reading..For as long as most people can remember, UK municipal finance has been safe and boring. In the wild days of the 1980s, Hammersmith & Fulham council almost went bust speculating in derivatives, and was saved by a landmark House of Lords ruling. Since then, UK council borrowing has been tightly constrained by central government while derivative use has been banned.
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