LEHMAN Brothers is just one of several banks known to have peddled complex financial instruments called collateralised debt obligations (CDOs) in Victoria before the market for them collapsed.
The Lehman Brothers investments indicate Victoria will be hit much harder by the subprime crisis than previously believed. The Metropolitan Ambulance Service is potentially among the biggest losers after Lehman Brothers advised it to buy at least $10 million in CDOs and other risky financial instruments.
An Ambulance Victoria spokesman confirmed it owned CDOs on the advice of Lehman Brothers, but said the amount was significantly less than the $30.5 million recorded in the document leaked to BusinessDay.
"Our financial records have just undergone a full and comprehensive audit by the Victorian Auditor-General's office, and during this process there were no abnormalities detected," he said. "Nor was Ambulance Victoria required to write down the value of any investments."
State Government agency Invest Victoria had $4.5 million with Lehman Brothers through its Central Victoria arm, according to the document.
The BusinessDay revelations come as the State Government yesterday abolished one of Victoria's oldest water authorities - First Mildura Irrigation Trust - for breaching its investment guidelines, with $2 million lost through Lehman Brothers in US bad-debt investments.
Councils in Bendigo, Shepparton, across Gippsland and the City of Maroondah in Melbourne's east also have subprime-exposed funds, but many are yet to establish the scale of their losses or write them down.
While not revealing the councils' latest subprime exposure, the document showed East Gippsland Shire Council had $9 million managed by Lehman Brothers at one stage after the meltdown in banking markets, while Greater Shepparton had $6.5 million.
Maroondah City Council confirmed it had used Grange Securities - the Australian arm of Lehman Brothers - to source investment products, but denied it handed over the $2.5 million reported in the document.
"Council's current investment through these products has recently been independently audited, with no write-down of value," the council's director of corporate services, Marianne Di Giallonardo, said.
A spokesman for Victorian Local Government Minister Richard Wynne said the State Government set strict parameters for council investments but, beyond that, it was up to individual councils to make prudent financial decisions.
