Newham to save up to £100m as it scraps ‘risky’ Lobo loans

Britain’s most enthusiastic council for taking out Lobo loans, Newham, has ditched the scheme saving up to £100 million.

Newham has agreed with its lender, thought to be Barclays, to overhaul £248.5 million of Lobo loans — an acronym for lender option borrower option — and move to traditional fixed-rate borrowing.

It will save £1.6 million a year over an almost 60-year period, or £94 million in total.

The Labour-led council said the overhaul would safeguard council tax from future increases and protect council services.

Lobo loans included a derivative which allowed banks to re-fix the interest rates at any point.

Evening Standard played a key role in highlighting concerns from local councillors and former derivative traders about the cost of Lobos compared with traditional council loans, with Lobos described as a “one-way” bet in favour of the banks and consultants who sold them.

“The market conditions are now right to strike this deal which will deliver a clear financial benefit to the council,” it said.

Councillor Lester Hudson said: “We took out these types of LOBOs as they represented the best deal for the council at the time and have saved us millions of pounds in interest payments.

"They were part of our balanced and award winning strategy which includes a balanced approach to risk.

“As a council, and in line with good stewardship, we are always working to reduce the cost of our borrowing. We have taken independent legal and financial advice on this agreement and it is now the right time for us to restructure these loans.”

Newham became the UK’s biggest council borrower of the loans after taking out 27 Lobos with a face value of £563 million, half of them with Barclays.

The council said the Lobos helped it to take advantage of lower interest rates, saving money. Barclays overhauled its Lobo policy in June, waiving its right to amend the interest rates.