THE fall-out from one of the boom era’s many scandals – the mis-selling of “interest rate swaps” – repeats a familiar pattern: a bank refusing to face the full consequences of its actions, and a supposedly independent Big 4 accountancy firm stepping in to protect the bank rather than the small business that has been shafted.
Back in 2006 Rochester-based Port Medway Marina was a successful and expanding boat mooring and repair business with a three-stage development plan that by the following year was on track, with planning permissions obtained, and clear demand from a thriving boating trade, for its improved facilities.
As the credit crunch bit, however, the company’s bank, Barclays, refused to extend credit and Port Medway had to find alternative lenders. The snag was that in 2006 the company had signed an “interest rate swap” as a condition of its financing from Barclays, locking the company into high, long-term interest rates and costing it more than £2,000 a month. Buying itself out of this deal would have cost a prohibitive £200,000, so the company struggled on, feeding its bankers and reining in its business plan.
When, following exposure of widespread interest rate swap mis-selling in 2012, Port Medway complained about its treatment, Barclays initially denied any wrongdoing. But following the start of legal proceedings and in the wake of wider concerns about the swaps (which regulators say were mis-sold in 90 percent of cases and for which Britain’s banks have set aside £3bn in compensation, of which Barclays accounts for around £850m), the bank agreed to a full “tear-up” of the mis-sold product.
By this stage Port Medway Marina boss David Taylor and his advisers had taken a hard look at the consequences of the rip-off. Without the excessive monthly payments, or if alternative finance had been available by cancelling them, they concluded, the expansion plan would have been completed and the value of his business would have soared. In such circumstances, the Financial Conduct Authority’s (FCA) guidance on dealing with cases of mis-sold rate swaps provides for compensation for “consequential losses” to be negotiated between the bank and the customer.
Yet Mr Taylor’s claim, for around £700,000, has been rejected by the bank out of hand. It refuses to consider a mountain of legal and forensic accountancy analysis showing the reasonableness of the claim based on the work that had been done and the clear effect of the loss of cash flow because of the swap. In one recorded discussion, a Barclays “customer review director” told Taylor the claim was “hypothetical” and “largely subjective” – which is the nature of consequential loss claims.
The usual banking strong-arm tactics are evident, too. Even though it accepts its role in mis-selling interest rate swaps, Barclays says that if Port Medway rejects its offer simply to refund the payments and pursues a consequential loss claim, it will charge the swap payments that have been suspended since 2012. In other words, it will reinstate the costs of a mis-sold product!
Port Medway should have been able to turn to the “independent reviewer” of swap cases, appointed by the FCA. But this is none other than accountancy firm KPMG, which earns millions of pounds from Barclays as one of its preferred administrators when a borrower gets into trouble. KPMG, again without considering the evidence provided by Port Medway, has agreed that Barclays’ offer complies with what the FCA expects. Another win for the great carve-up of British business by bankers and beancounters!