The loans are channelled through the Labour Party accounts into LPPL, a subsidiary company. It owns 20 buildings across Britain, including the Morley property, which is valued at £80,000 and carries a 2007 Co-op charge.
A commercial mortgage broker who inspected the accounts said: “This is a ratbag collection of second and third-rate properties, and any of my clients would not get money at that rate of interest out of any bank on the face of the planet.
“They are paying half the rate of interest that the rest of us would pay. This is not a genuine arm’s-length transaction – it’s far too cosy. Poor little Co-op bondholders who are taking a haircut should be asking why they are doing it.”
It does seem to be a pretty cosy relationship. And it is also true that those who are losing out are those bondholders….it’s not the only reason they’re losing money and it’s not even an important reason why they are but still….
Isn’t that, you know, corruption? If I offer a politician a low interest rate loan, how does that differ from a bribe?
Surely we have laws that cover this?
Hmm, not sure. Doesn’t seem to fit s1(2) of the Bribery Act, but might fit s1(3). Except that it is all done in the open. And, you could probably make the point that supporting the Labour Party they founded is one of the traditional activities for the Co-op movement.
However, I’m sure if the same sort of deal was done by Barclays for the Tories, or Yorkshire* for UKIP, then the usual Labour weasels would be screaming about it to the rafters.
* Yes, I know, National Australia Group.
Surely the Labour Party is about as safe a risk as one could imagine, from a lender’s point of view? Bugger the collateral, they’re not going to be allowed to go bankrupt. If necessary they’ll find donors to cover any shortfall.
I really don’t see that lending a major political party money is significantly more risky than buying government debt in that country. The rate is broadly in line with that risk assessment.
Would I, as a banker, negotiate as hard as I might with a major political party, or would I view not pushing too hard as a lobbying cost? Probably the latter. But for the thing to work, it has to be at least close to a commercially decided rate.
Isn’t this a way of getting around the law about giving donations to political parties?
It was a scandal in 2006 http://news.bbc.co.uk/1/hi/5365394.stm?lsm but no-one was convicted
“The Telegraph has previously revealed how LPPL has paid no tax since 2003 despite collecting millions of pounds in revenues, after declaring successive losses. Labour denies doing anything to intentionally lower its tax bill”
Does this demonstrate the skill of the Murphmeister?
Loan interest is a valid business cost. If the loan interest was higher the losses would be higher.
There’s no suggestion that the Co-op has actually lost money on the loan, is there? Except in the sense that it would have made more at a higher interest rate.
@ PaulB
(i) No-one will know until the Labour Party repays it, or fails to, as the case may be.
(ii) A subsidy is a subsidy but deliberately managing a bank (or any other business) to the detriment of its legitimate creditors is a crime. Any donation or hidden subsidy to the Labour Party since the directors of the Co-op Bank were made aware that the bank had a deficit that could only be met by giving bondholders a “haircut” should be the subject of an investigation by the local constabulary.
The Telegraph story is mostly innuendo, but one detail it does mention is a charge dating back to 2007. Is there any reason to think that the terms weren’t fixed back then, at what was at that time a reasonable spread?
@ PaulB
The claim is that the spread was *never* reasonable. Admittedly it is an article in The Telegraph which is more than half as biased as The Guardian, so one talks it with a pinch of salt, but even so
I don’t see where the article says that.
Much more than half. The Telegraph has backed the Tories in every election in my lifetime, whereas the Guardian occasionally goes for the centre party, including in the most recent general election.
@ PaulB
Interest rate half that payable by property investors. If the rates were set in 2007 when Base Rate was over 5% and the interest rate (*not* spread) is still half or less than half that payable by others when Base Rate is 0.5%, then the rate has never been reasonable unless the appropriate spread has widened from 1% to 12%. But if the appropriate spread is 12%, no bank is going to lend at all, so mortgage broker is not going to say half the rate but that his clients would not be able to get a loan. So going rate not 12.5% and rates set in 2007 before the crash not an excuse. Hence rates not reasonable.
QED
.
The terms of the mortgage are not specified by the article. Perhaps it’s linked to the base rate, at a spread of 2.38%.
Oh ffs. “Hardworking depositors”? What about the ones who aren’t working? You know, all those grannies living on savings? Oh wait, they’re bondholders, aren’t they…..
@ PaulB
OK, that would be a fair “perhaps” although IMHO 2.38% was never a reasonable spread for a “ratbag of properties”. 2.38% would be a rate for prime for a small company or near-prime for a sound big one.
Do you remember what commercial mortgage base-rate spreads were in 2007? I don’t: probably I never knew. But I do recall that residential mortgage spreads were insanely low – a few basis points.
This story is something like the tax stories this blog likes to mock. There’s no evidence presented of any impropriety, just hot air about things which would be improper if they’d happened.
@ PaulB
I don’t have to remember – I can look up some examples quite easily. Quoted property company, with over £1bn of assets, investing in high quality properties outside fashionable areas (almost all with long leases guaranteed by government or blue-chip companies), was paying 6.65% on sterling borrowing (but only 4.9% on its Euro debt funding continental property), so 1% over LIBOR.
On the other hand property developers borrowing from a secondary bank were paying 18%.
Labour Party Properties comes somewhere in-between, but probably nearer small property company with ragbag of properties paying 9.25% for short-term loans (all repayable within one year).