Interest Rate Swap Claims – Ask Me Anything

Dan,

Do you see the banks non-disclosure of the IRHP's liabilities, both MTM (market break cost)and Contingency (Additional credit underwriting) as the main breach of COBS under the FCA review scheme ?

If so, how would you best illustrate this in the FCA Review and/or Litigation ?

Hi Daniel

Earlier this year we published an article written by a property developer called Jon Wellesby who had been mis-sold an IRSA and subsequently went bankrupt as a result. See >>> http://www.property118.com/irhp-interest-rate-hedging-protection-mis-selling-advice/37408/

Jon also contributed this article which talks about Bully Banks - a group set up to fight the banks >>> http://www.property118.com/the-mis-selling-of-irhp-interest-rate-hedging-products/37442/

I have invited Jon and the members of Bully banks to take a look at this thread.

As I understand it, whilst the FSA have ruled that many of these products were indeed mis-sold, I also understand that no cases have been brought to court for compensation claims yet.

Therefore, my initial questions are as follows:_

1) Is Seneca Banking Consultants underwriting the cases you take on?

2) Would I be right in thinking that private landlords are more likely to have been affected if they had very large debt exposures to mainstream lenders and if so what is typical?

3) How might a claim impact upon an ongoing banking relationship?

4) Would people know whether they had an IRSA or IRHP?

5) How might these products have affected a business?

6) What are the likely time and cost implications of initiating a claim?

7) How will you arrive at Quantum? In Jon's case he lost a thriving businesses, the spin of personal implications of that are also huge!

@Jon

Whilst the non-disclosure of the interest rate hedging product liabilities, including mark to market break costs, contingent liabilities and day one profit are often clear breaches of the COB and COBS regulations they are often not the only breaches. It is important to consider the whole of the pre-execution correspondence and information on a case by case basis to identify the full range and impact of any COB and COBS breaches. For all of our clients we undertake a thorough review of all of the available documents and where there has been a breach to document this with documentary evidence, or at times the lack of such evidence

do you have any other comments?

I understand what you say and other COBS are breached, it is good that you cover them all, but the fact that the bank knew the MTM would fluctuate based on the initial contracts BPV or PVO1 value should have been clearly disclosed. It would not have been hard to do and most people would have understood.

Example - if your £4m IRHP was based on rates of 0.5% BoE then it would cost £1m to redeem early if it still had ten years to run = easy

I bet they would not have sold many !

So when rates went down the liability became significant to the bank customer, yet if they never disclosed it then the very contract is questionable. The company, its auditors and/or their advisers should have been told. It is simply is wrong.

Under BASEL III the banks can account for the likely hood of default as Statistical Provision in their P&L and can also off-set some Holding Costs in their balance sheet yet they omit to tell their customers that they hold the liability - a toxic product

Should it have been accounted for or notes made in Customer Accounts ?

Company creditors, inc other lenders, would say they should have been. They would want to know. Yet the companies (bank customers) were never told so could not have accounted for it - how wrong is that ?

This is not a breach of COBS just at point of sale, it is a breach of COBS, Trust and Code of Conduct throughout the lifetime of the IRHP contract in some cases

For a trading company, this will include most property companies who buy and sell, and all development companies, it was essential that lending was made available and remained available within pre-agreed parameters or told that it had been withdrawn because of an IRHP

Borrowing and security communicated clearly ?

I think the breach of COBS was not just at point of sale but throughout the IRHP relationship in most of the cases I have witnessed

Hi Daniel

How do you see the FCA redress scheme working? it's a year since the scheme was announced in June 2012 but yet I'm not aware that anyone has seen redress from the scheme.

The results of the pilot scheme that were announced at the end of January 2013 said that 90% of the IRSA's examined were non compliant. Do you know whether any of the pilot cases have been offered redress?

@Mark sorry for the late reply see comments below

1) Is Seneca Banking Consultants underwriting the cases you take on?

Seneca Banking Consultants are a Ministry of Justice regulated claims Management Company. We have the expertise both financially and legally to manage and provide advice to our clients from identification of their claim through to calculating and reclaiming their losses. Within the team at SBC we have senior bankers, financial experts, lawyer and accountants.

2) Would I be right in thinking that private landlords are more likely to have been affected if they had very large debt exposures to mainstream lenders and if so what is typical?

Private landlords may have been sold a number of interest rate hedging products from collars to swaps to caps. Generally speaking the larger the underlying debt exposure the more likely it is that an interest rate hedging product was entered into. We are finding that swaps, collars and caps have been mis-sold to individuals on loans and mortgages as low as £100,000

3) How might a claim impact upon an ongoing banking relationship?

The FCA (previously the FSA) has requested that any claim against the Banks not impact the ongoing client relationship but there will always be some risk that it may impact the client – Bank relationship and that is something that the client will need to consider. As many clients retain ongoing facilities with the Bank it is crucial that the claim is handled diligently by experts who are experienced in dealing with the Banks.

4) Would people know whether they had an IRSA or IRHP?

The majority of interest rate hedging products (IRHP’s) or interest rate swaps agreements (IRSA’s), whether caps, collars or swaps, were sold as separate agreements and so would have been entered into alongside the underlying loan. However, in some cases the clients do not know that they were entered into a hedging product. If you took out a loan between 2001 and 2012 it is likely that you were also sold an interest rate hedging product. We would be happy to advise if people are however unsure.

5) How might these products have affected a business?

Entry into an interest rate hedging product can affect a business in many ways. From being over charged an initial premium, to paying for an interest rate in excess of current interest rates for an unreasonable length of time. Many of our clients have been sold interest rate hedging products for amounts and periods that do not match the underlying loan. A number of businesses were simply unable to keep up repayments, some times for loans they had repaid but were tied into the interest rate hedging product, and so have been forced to sell assets or enter in administration/liquidation.

6) What are the likely time and cost implications of initiating a claim?

For our clients, where a claim falls within the Review we charge a small review or commitment fee which is only payable at the point of sending off the claim, together with a detailed financial report, to the Bank. We also charge a contingency fee payable upon the client receiving redress or compensation from the Bank. Our fees are dependent upon the success of the clients claim. Where the client wishes to litigation (bring a claim through the courts) then we have a nominated solicitors we refer claims to who charge a reduced, preferential rate.

7) How will you arrive at Quantum?

In Jon’s case he lost a thriving businesses, the spin of personal implications of that are also huge! Quantum is calculation of both direct and indirect (consequential) losses. Direct losses will include payments made to the Bank above those that would have been paid with a more suitable alternative product. It may also include break costs (calculated at market rates) and sometimes first day profits. Consequential losses, where they can be evidenced can be loss of business opportunities, loss of profits, additional lending and banking charges. Consequential losses can be complicated and so we look at all losses before claiming them from the Bank.

Hi Simon

There have been some reported offers of redress under the initial review carried out by the FCA however the numbers are at present modest. The Banks appear to be moving slowly on reviewing files and subsequently their offers of redress, due in part to a lack of guidance and pressure from the FCA but also there is an ongoing judicial review as to the scope of the review.

Whilst the Banks may be moving slowly at the present they are contacting a number of their clients for fact find meetings and will then make ‘fair and reasonable’ offers of redress. It is unclear whether their offers will include all of the clients direct losses or any of their consequential losses. We ensure that our clients’ claim is fully documented and evidences so when an offer of redress is made our clients are able to consider its true value.

does that help?

@Daniel - thank you for the comprehensive response. I have to admit that the exchange between you and Jon went straight over my head due to the complex legal terminology so the more down to earth responses to my questions gave me a far better insight into what you do. I've spoken to a few commercial landlords over the years who have been very unhappy with interest rate hedging arrangements they've entered into so I suspect you may be very busy as a result of starting this thread.

I am also looking forward to reading more Q&A's and your response to the question raised by Simon Bruce which I think you have already answered, at least in part, in your response to my questions.

Thanks and good luck! 🙂

@Daniel - you must have been typing your response to Simon as I was typing my response to you LOL

@Mark

Yes it did get a bit technical but I am happy to answer any questions from experts in the subject or anyone who has been affected, no comment or question is too small just ask away. Have a nice day Mark