Council faces probe into ‘time-bomb’ LOBO loans from City.
Newham Council was one of the biggest borrowers of the controversial bank loans known as LOBO loans. Many councils bought these loans to protect themselves from rising interest rates during the mid 2000s when it was extremely attractive to risk adverse councils to protect themselves from higher rates. Unfortunately, as interest rates fell sharply after the financial crisis brought on by the banks during 2008, the councils still had to pay the higher rates. To make matters worse, to exit these loans, the councils would have to pay exorbitant exit fees to break out of these highly complex Derivative contracts. This mis-selling scandal was first raised by Abhishek during his Channel 4 Dispatches interview in July 2015.
Derivatives expert Abhishek comments, “They are incredibly complex, but the upshot is it’s like you’ve been given an umbrella to carry around by the bank and when it starts to rain the bank takes the umbrella away from you”.