General manager Paul Anderson yesterday confirmed council had realised a loss of about $460,000 in respect of an investment called Rembrandt, which was supplied to it through Local Government Financial Services (LGFS), a company set up by local government and subsequently acquired by the Local Government Superannuation Scheme.

Notification was received yesterday that the investment was lost over the weekend as a result of the financial markets going into free fall again late last week.

Council had previously indicated that it expected to lose this investment.

Council’s finance manager Miles Craighead said the Rembrandt investment was originally AAA-rated and well above the minimum rating permitted for NSW council investments.

“Council became concerned and had resolved to restructure this investment but was prevented from doing so by the State Government following on from the Cole report on Local Government investing,” Mr Craighead said.

“Council made representations in writing to be permitted more flexibility to self-manage the situation but was unsuccessful. It would appear the restructures of this product that did take place remain viable and are not currently facing capital losses.”

This brings the council’s total realised losses from the global credit crisis to about $960,000 following on from the expectation of a zero recovery from Palladin after AAA-rated Sigma Finance, which holds the investment collateral, suddenly became insolvent.

Mr Anderson also confirmed council has sought legal advice in respect of about $4.5 million of collateralised debt obligations (CDOs) which remain intertwined with the Lehman’s bankruptcy,

"A number of issues are being worked through to protect council’s interests in these CDOs and more information will be provided as soon as possible”, he said.

Overall council has written off $3.5 million in its draft unaudited financial statements for the year ended June 30, 2008, Mr Anderson said.

“Council’s auditor has advised that councils throughout NSW with CDO investments will receive qualified audit statements due to the difficulty in getting reliable valuations.

“Council may need to reprioritise its expenditure program based on this and any other changes to its financial circumstances. The reduction in annual investment income available for council’s programs through the realised loss of capital to date ($960,000) is estimated at about $57,600 based on the current BBS.”