Information posted on an internet website shows Scottish Borders Council arranged a series of loans with overseas financial institutions more than a decade ago, including two separate advances amounting to £8 million from Dresdner, the bank of choice for the infamous Nazi commander Heinrich Himmler.
Details of SBC's eleven so-called LOBO (Lender Option Borrower Option) transactions are contained in a Freedom of Information response from SBC to Jamie Griffiths, who has lodged similar requests with local authorities throughout the United Kingdom. A number of councils have told him they have considerably more tied up in LOBOs than the £43 million in the Borders portfolio.
According to a number of financial experts and pundits LOBOs have the potential to become highly controversial, following in the footsteps of PPP and PFI, the financial set-up which saw hundreds of schools, hospitals and other public buildings constructed with large interest payments due for up to 40 years. Under the LOBO loan system lenders can increase the interest rate charged while the borrower can pay off the loans earlier than scheduled if he does not like the proposed interest rate changes.
It is said LOBOs were frequently arranged by specialist brokers who were able to command lucrative fees. This method of securing finance for local authorities appears to have been popular in the early years of this century, and the loans were used in a bid to reduce interest payments by switching debt from the Public Works Loans Board (PWLB), the normal source of loans for council finance officials.
Mr Griffiths' response from SBC has been published on the Whatdotheyknow website. The information is not yet available on the council's own Freedom of Information web pages which have not been updated since January.
The post reveals the council concluded six separate loans with the Franco-Belgian bank Dexia between 2004 and 2006 for sums ranging from £3 million to £5 million and adding up to £24 million in total.
It is also a matter of record from other FOIs that between 2006 and 2008 SBC treasury policy resulted in short-term deposits amounting to more than £7 million being lodged with Dexia, at a time when the council was also placing millions of pounds in risky Icelandic banks.
In 2008 Dexia received taxpayer bailouts of six billion Euros and later became the first major casualty of the 2011 European sovereign debt crisis. Part of the bank was bought by the Belgian Government and now exists under a new name - Belfius.
Two separate loans of £4 million each with the German bank Dresdner were set up in early 2004. The history books show the bank, founded in the 1870s, took part in the Third Reich's policy of confiscating Jewish wealth as well as financing concentration camps, including Auschwitz.
Dresdner was bought by rival institution Commerzbank for almost ten billion Euros in 2008.
Two more LOBOs for £2 million and £3 million respectively were arranged with the European Central Bank and Dusseldorf-based EAA with the remaining loan for £6 million provided by Barclays.
Mr Griffiths asked SBC who recommended each LOBO to them. But the council replied "Not Known" in each of the eleven cases. The requester also asked for copies of the original, signed LOBO agreements, but was told he was only entitled to information about the transactions under the Freedom of Information legislation, and not documentation.
However, Mr Griffiths has been supplied with full copies of LOBO agreements by other councils and has asked SBC to review their decision to withhold the information.
In eight of the eleven LOBOs listed by the council the interest rate has increased since the arrangements were made.
There are very few references to LOBOs in the council's online documents. But in the local authority's annual audit report for 2005/6 under the heading Debt Restructuring it states: "The Council carried out two debt restructuring exercises
during the period to 31 March 2006. In each of the transactions a number of
fixed rate, (PWLB) loans were redeemed and replaced by
a single Lender Option Borrower Option (LOBO) loan agreement. In total a
premium of £2.8 million was paid to the PWLB in order to complete the loan
redemptions. This restructuring was undertaken to minimise interest costs."
The annual interest payments on all council loans, including those with the PWLB and with other parties was £7.246 million (net) in 2007/8. But in 2013/14 the net charge had risen to £11.426 million.
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