Council still in the dark over fate of $7.38m

LISMORE City Council is still waiting for advice on the full impact of the collapse of US investment bank Lehman Brothers, in which the council has 19 investments totalling $7.38 million.

The council's finance manager, Rino Santin, said the uncertainty and volatility in investment markets since July last year, and the filing for bankruptcy by Lehman Brothers, had impacted on the market valuations and interest returns of these investments.

While the council is still waiting for advice from its independent advisor, Grove Research & Advisory in Sydney, and from Lehman's, the final outcome and the impact it will have on council's operations is unknown.

“As a direct result of the Lehman bankruptcy, five investments did not make interest payments totalling about $33,000 that were due to council on September 22,” Mr Santin said.

“The trustee for these investments has advised that there is no reasonable expectation that these payments will be received.”

The rest of the $7.38 million still hangs in balance. Council has adopted a strategy to hold all investments to maturity to minimise the realisation of any market value losses.

Mr Santin said Lehman's bankruptcy may result in some losses being realised earlier than anticipated.

Richmond Valley Council also remains in the dark about its exposure to losses following the Lehman collapse.

“In this global economy the financial markets are constantly changing and since the Lehman Brothers collapse the stock market is hanging in balance,” Richmond Valley Council's financial services manager, James Brickley, said.

“We are now more aware of our exposure to Lehman Brothers.”

Of Richmond Valley Council's four main investments, only one did not get return coupons since the collapse.

“We have one investment with a face value of $1 million when we bought it. It was due to pay a coupon at the end of September, but it didn't pay up,” Mr Brickley said.

“It is worth $500,000 and still is not paid. It hasn't disappeared, but it is not clear yet what happened to it.”

Mr Brickley said it could be two more months before the council knew what had happened to that particular investment.

The investment matures in 2015, so in a worse-case scenario the council would have to hang on to the investment until then, known as 'grandfathering an investment'.

“Our expectation is that we won't lose money,” Mr Brickley said.

The NSW Department of Local Government issued a ministerial investment order in August with investment guidelines for all NSW councils.

The advice was based on the Cole Report, released in April.

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