Audit, Inspection and Safety

08.05.19

Newham Council to save £143m after terminating risky LOBO loans with NatWest

Newham Council has reached a deal with NatWest to terminate a number of controversial LOBO bank-loans which will see the authority save up to £143m.

The termination agreement will allow the council to pay off the lender-option, borrower-option (LOBO) loans at a considerably lower rate of interest in order to save the equivalent of £3.5m per year over the loans’ remaining 41 years.

Previously labelled the ‘debt capital’ of the UK, Newham Council took out around £578m in LOBO loans between 2003 and 2010, but the loans, which at the time were popular amongst local authorities, give the lender the option to increase the interest rates at points in the loan term.

In February, the east London authority filed a High Court claim against RBS over the terms and interest of £150m worth of the bank-loans, which followed legal action from seven other councils taken against Barclays over £500m of LOBO loans.

Analysis from Research for Action showed that 240 councils have been involved in LOBO loans, and that councils are set to lose £16bn over the lifetime of the loans if they aren’t refinanced.

Now, following lengthy negotiations with NatWest, Newham has entered into agreement with the government’s Public Works Loan Board (PWLB) to pay off the loans at lower rates of interest.

The council took out six LOBO loans with the bank, each worth £25m, in 2009, and Newham said terminating them will “remove significant risk” and improve the council’s financial standing at a time of austerity.

Newham’s mayor, Rokhsana Fiaz, said: “I made a promise to Newham residents in my election manifesto last year that I would clean up the council’s budget. A key element of that was to address the scourge of risky LOBO loans taken out under the previous administration.

“After just a year in office I have made an important step towards achieving this and it will save us significant amounts of money every year.

“Over the past 10 years that the loans have been in place, it’s cost us an extra £31m in interest payments compared to borrowing from the PWLB. That’s money that should have been spent on Newham residents.”

She added that the deal “we’ve successfully nailed down today” is a successful resolution of this litigation and will save up to £143m for Newham residents.

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