Council sticks to its guns on hedge policy
Auckland Council has reaffirmed its controversial hedging policy with mayor Phil Goff saying “we should not be knee-jerk reacting to sensational headlines”.
The council hedges most of its $10 billion debt portfolio with interest rate swaps, effectively fixing rates for up to 10 years. Recent interest rate falls have seen $2.74b in accounting losses booked after interest rate falls saw ratepayers locked into significantly higher interest rates than those now available on market.
Yesterday the council’s finance and performance committee met to conduct its three-yearly review of its treasury policy, on the heels of two weeks of Herald reporting of the swaps losses.
Goff dismissed coverage of the issue and referred to David Cunliffe, his one-time finance spokesman when Goff was leader of the oppo
This is not a disaster, this is not unorthodox.
Auckland Mayor Phil Goff
sition, as a “retired politician”. Cunliffe this week described the swap losses as the single biggest loss to public finance since the government guarantee for finance company investors during the Global Financial Crisis.
Council treasurer John Bishop said it was only accounting policies that required swaps — as opposed to traditional fixed-interest loans — to be revalued each year that led to the liability on their books and the losses would not be realised if interest repayment terms were met.
Bishop said the hedging policy provided certainty for financial planning and insured the council against interest rate rises.
Goff praised PWC partner Alex Wondergem, invited to speak by council treasury staff, and drew attention to the fact his consulting firm “employs quarter of a million people”.
“This is not a disaster, this is not unorthodox, this is a third-party expert view and I’ve got great confidence in my treasury team,” Goff said.
Wondergem earlier told the committee Auckland Council’s position was that of a risk-averse borrower, and its use of financial derivatives was considered common practice by large corporates and other councils.
The committee unanimously — bar councillor Efeso Collins, who voiced concern at being hamstrung by a debt cap — approved the treasury management policy with minimal changes.