Issue - meetings

Mike Jensen, Director of Investment, Financial Services presented a report detailing a review of treasury management activity for 2019/20 and an update of 2020/21 activity up to August 2020, including a financial outlook.

The following points were highlighted from the report:

Review of 2019/20 activity

·  Treasury management activity had taken advantage of high levels of volatility in the financial markets, leading to an underspend against budget of £22.9 million by the end of 2019/20. This had been achieved whilst retaining a low risk profile.

·  The structured re-financing of the authorities debt portfolio had been undertaken and in March 2020 the council issued a £350 million five year bond, launched via the UK Municipal Bond Agency to secure short term funding.  The bond received multiple bids from a wide range of investors and was significantly oversubscribed and resulted in a substantial saving compared to the Public Works Loan Board alternative rates. This refinancing would enable shorter term debt to be reduced by March 2022. 

Review of 2020/21 activity

·  Market volatility continued in response to the Covid-19 pandemic and the negotiations for withdrawal from the European Union. This gave an opportunity to improve returns, however also meant a potential for an increase in risk levels. 

·  There was a £19.9 million underspend against budget reported to Cabinet in September due to transactions in the gilt market and short term investments market. 

·  More information would be known following the upcoming Bank of England's Monetary Policy Committee meeting regarding a potential further increase in quantative easing and any formalisation of negative interest rates.

·  In August 2020 a £250 million 40 year bond was launched, which allowed substantial savings compared to offers by the Public Works Loan Board. The bond was again significantly oversubscribed by market investors. The third bond could be launched in 2021 and a favourable reception by market traders was anticipated.

·  The council had borrowed in advance of paying the short term debt portfolio, which had meant a large increase in the borrowing position. However this would continue to decrease significantly as debts were paid off and the council's portfolio would return to a more balanced position early in the 2021/22 financial year. 

Thanks were expressed to the Chief Executive for presenting Lancashire as a well-managed and sustainable authority to the investors.

In response to questions the following information was clarified:

·  As the bond issue was so significantly oversubscribed, restricting which sectors could invest would not have impacted interest. Pension funds and insurance companies were given preference over sovereign wealth funds.

·  The market had not fully factored in a no deal exit from the European Union. If an exit deal wasn't agreed, the UK's credit rating could be cut further and there was the potential for the liquidity of markets to be affected in early 2020.

Resolved: That the review of treasury management activities for 2019/20 and 2020/21, as presented, be noted.