Council loses $2.3M on investment
Gosford Council has announced it has sold one of its Lehman Brothers investments at 21.75 per cent of its face value for a loss of $2.3 million.
The result has been described as "dismal" by the Peninsula Chamber of Commerce.
The council's director of corporate services Mr Nic Pasternatsky described the sale as "a beneficial outcome" and one that would have no detrimental impact on the council's capital works program and no effect on ratepayers.
He said council had identified a benefit in selling the property note rather than continuing on with the Lehman Brothers bankruptcy process in the USA.
"Despite incurring a loss of $2.3 million from the sale of the property note, the return since 2002 is still over $6 million more than the leading index over the same period."
However, Peninsula Chamber of Commerce president Mr Matthew Wales said it was "a dismal result".
"It doesn't matter how you dress this up, the council only received 21 cents in the $1 on its investment.
"The fact is, if the money had been invested in secure products, we would have a lot more funds to spend of community works than we do now."
Mr Wales said: "The business community fails to see how losing almost 80 per cent of your investment, even after adding back the interest earned, is a beneficial outcome.
Mr Wales said that the chamber was still unsure if the Section 94 and Water and Sewerage trust funds had been reimbursed to the trust accounts that had previously been diverted to the offshore and CDO investments.
"Council claims to have made $54.4 million net profit on its investments since 2002," Mr Wales said.
"The business community would like to know where those funds have gone.
"The chamber is seeking an assurance that all these funds have been returned and that the Section 94 works schedule will be completed within the time periods promised.
"Let's not forget that these trust funds were paid by developers and property owners for the construction of infrastructure works such as roads, drainage footpaths and community facilities."
Mr Wales said: "This is the first of 33 products with a face value of $55 million that will mature over the next five years.
"This first loss is consistent with council's previous estimates that Gosford ratepayers could be out of pocket by up to $40 million."
Mr Pasternatsky said: "The money returned to council will be utilised for local community works, such as roads and footpaths.
"This offers a beneficial outcome, rather than entering the drawn out bankruptcy process and associated legal expense in the USA with funds being locked up for possibly more than five years.
"Council commenced on its investments in Collateralised Debt Obligations in 2002 and to date has secured a net profit of $54.4 million.
"The investment returns are utilised in the provision of works and services to the local community."
Press release, 23 Nov 2009
Nic Pasternatsky, Gosford Council
Press release, 23 Nov 2009
Matthew Wales, Peninsula Chamber of Commerce