Arbitrage follow
Letters to Editor. Photo: Pixabay
On August 14, 2024, the Waipa District Council borrowed $50 million from the Local Government Funding Agency at 4.67 and placed it on Term Deposits with ANZ bank and BNZ bank until April 14, 2025, when it would be used to repay other debt.
The council announced in the Cambridge News that this “arbitrage arrangement” would make a profit of $384,000 by the time it matured.
What the WDC failed to state was that the $50 million was borrowed from the LGFA at 4.67 per cent until April 2029. Any homeowner with a mortgage would know not to borrow long term when interest rates are falling and predicted to fall, as they have.
In reply to my queries WDC state that the “arbitrage suggestion was identified by Bancorp as council’s treasury advisor”, and that Bancorp, a merchant bank, are paid around $30,000 per annum for advice.
Councillors were “pre-notified” by council staff of the intention to do this deal on “Bancorp’s recommendation as treasury advisors”. No councillor raised any objections to or made any comment on this transaction of borrowing and speculation that was highly likely to cost extra money over the four years term it is actually needed for. Incredible.
Why is the council dealing with Bancorp if they provide advice like this? And what is the point of council Risk and Audit staff if they did not flag this transaction? I calculate that the current LGFA lending rate of 4.41 per cent for this arbitrage arrangement will cost the WDC a net loss of $136,000 by April 2029. It could have been worse.
Why can council staff do a $50 million deal like this without seeking formal approval at a meeting of the full council? Because “the Treasury Management Policy enables arbitrage arrangements to be entered into at officer discretion”. $50 million worth? However, “our practice has always been, and was in this case, to pre-notify councillors of the intended transactions before the transactions are locked in place”. Also “…transactions of this nature are only entered on the advice of our Treasury Advisors, Bancorp New Zealand Limited”. It is obvious that policy must be changed so that proposals like this “arbitrage arrangement” are brought up at a council meeting where newspapers can bring it to the notice of ratepayers.
Why did no councillor raise the alarm to put a stop to this speculation that is going to cost ratepayers more than what it would have cost if they had borrowed this month when actually needed?
Peter Clapham
Cambridge
- We put the points raised to Waipā District Council, which responds: Waipā District Council actively manages approximately $300 million of debt within a Treasury Policy framework that complies with legislation and is independently advised by treasury specialists. The transaction in question was not speculative, it formed part of the broader interest rate risk management strategy in place (one that is regularly reviewed) to maintain policy compliance and protect the Council from ongoing interest rate volatility. Expert advice from the Council’s advisors confirmed that the approach taken met overall risk management goals and had the bonus of offering a modest financial benefit compared to other hedging options, while keeping the Council fully compliant with its Treasury Policy. Waipā District Council manages its risk in line with best practice and this is reflected in its external credit rating of AA-.
Science wins
In response to Peter Finch on fluoride misinformation (Letters May 1), a great journalist gives both sides of the argument thereby allowing the reader to make an informed decision. Science is ongoing and never finished because every discovery leads to more questions, new mysteries, and something else that needs explaining. It is a team effort, and scientists share their ideas with peers and submit conclusions to the scrutiny of others. To rely on 70 year old data about fluoride is nothing more than short sighted and ignorant. With respect, Peter from Nelson, open your eyes.
Brenda Malan
Cambridge
Rate take
A double digit Waipā District Council rate hike? Why? There is plenty of evidence to believe the increase is due to irresponsible expenditure, extremely poor project management, with little or no regard to public inconvenience. $40 million dollars in consultancy fees… do we not have qualified experienced staff able to do this work? We have a lean council according to reports in the paper. We have yet to experience increased costs with this Water done Better, (More on this later) with another layer of administration.
Stu Barnett
Cambridge
- In reply – Barbara Linton (Te Awamutu), Angela Hair (Hastings) – points noted.
