Ratepayers' Millions In Sunken Ship
Newcastle Herald
Wednesday September 17, 2008
HUNTER Region ratepayers could lose millions after the collapse of Lehman Brothers, with $500,000 of Newcastle ratepayers' money already disappearing into the black hole created by the downfall of the US investment bank.
Newcastle City Council had $540,000 directly invested with Lehman, and will become a creditor of the now-bankrupt bank.The council confirmed the investment would be affected yesterday, and said there was "great concern" for another Lehman security it bought in 2007, known as Federation.Earlier this year, the market value for Federation was only 15 per cent of the $2.5 million the council invested in May 2007.Newcastle is also one of several Lower Hunter councils that have more than $10 million in combined investments brokered but not financially backed by Lehman.Those investments are heavily dominated by complex financial instruments called collateralised debt obligations (CDOs).Lehman was one of several banks hawking CDOs to local councils before the market for them collapsed after the US subprime crisis and an independent report recommended changes to councils' investment guidelines.CDOs are not directly at risk, but many carry Lehman's name and economists say their value could decrease significantly.The full impact of the collapse will not be known for months.Lake Macquarie City Council's manager of finance and administration Ross Gilshenan said the council expected its investment portfolio to suffer."[The council] has no direct exposure to Lehman Brothers securities, however it is anticipated that this event may have a flow-on effect to other securities in the market," Mr Gilshenan said.Port Stephens Council owns about $7.9 million in Lehman-brokered investments, and Cessnock Council about $1 million.Newcastle City Council said yesterday its $140 million investment portfolio had exceeded expectations by $4.6 million in the past five years.
© 2008 Newcastle Herald
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