1. August 2012 14:48
The recently declared bankruptcy of South London Healthcare NHS Trust has been linked to Barclays Bank’s manipulation of the interbank lending rate (Libor).
Health finance experts have called for a public investigation into the impact of the Libor fraud on hospital PFI debts.
Writing in the British Medical Journal, Allyson M. Pollock and David Price said the conflict between the trust’s falling income and its escalating PFI debts was partly due to the dependence of PFI repayment rates on financial derivatives.
Barclays Capital has been convicted of fraudulently inflating the value of derivatives in order to distort the cost of bank borrowing.
Derivatives play a key role in PFI projects: investment banks such as Barclays Capital use them to secure loans against a hospital’s future revenues.
The PFI scheme for the Princess Royal University Hospital PFI in Bromley, a major factor in the South London Healthcare NHS Trust debt, relied on interest rate ‘swaps’ that created an artificially high interest rate for the deal.
Profits from derivatives are tied to Libor, and so manipulating Libor enabled Barclays Capital to defraud the trust by indirect means, the authors claim.
They argue that “a major public inquiry” is needed “to determine the full extent to which the high interest rates, swap mechanisms and swap margins fuelling the latest round of hospital and service closures are products of Libor manipulation and fraud.”