Vedanta Hedging have been investigating and analysing LOBO loans sold to Councils for nearly four years. Abhishek Sachdev (CEO of Vedanta Hedging) helped to first expose this issue on Channel 4 in July 2015.
During the early to mid 2000’s, these highly complex derivative based loans were sold as instruments that would protect Councils from rising rates. This protection seemed extremely attractive to risk-averse councils at a time of volatile interest rates.
However, as a result of the financial crisis of 2008, interest rates were slashed to record lows. The structure of these loans meant that Councils still had to pay the higher rate. The problem is, the loan itself is very complex and hugely weighted in the favour of the banks.
Now, the BBC has reported that seven Councils are proceeding with legal action against Barclays Bank for a total claim of c£500m based upon these loans being mis-sold to them.
Abhishek Sachdev is quoted in this BBC news article:
Financial expert Abhishek Sachdev said lobos “contained huge quantifiable risk at the outset”.
Mr Sachdev, who gave evidence about lobos to the Communities & Local Government Select Committee in 2015, said: “There is a reason why none of our large PLC corporate clients would ever enter into such a loan.”
The full article can be seen here