The below is an article from the Sunday Times 1st July 2012, which features our Client Castlewood Hotels, that we are advising on potential interest rate swap mis-selling
“BEFORE the dust had time to settle on the Libor-fixing controversy, Britain’s banks were thrust into a new scandal. On Friday, the Financial Services Authority announced it had found serious failings in the sale of interest-rate swaps to small businesses, writes Catherine Wheatley.
The products were sold as a type of insurance against rises in interest rates. Thanks to the credit crunch, however, rates fell rather than rose.
Barclays, HSBC, Lloyds and RBS face a compensation bill of up to £6 billion for the mis-selling. Martin Wheatley of the FSA said: “For many small businesses this has been a difficult and distressing experience.”
Daniel Sangiuseppe agreed to take out two interest-rate swap agreements in 2007 and 2008 while negotiating with Barclays to refinance loans on his family’s hotels in Kent and Sussex. Each was designed to protect £2m of borrowing over 20 years by paying out if interest rates rose.
What the family failed to grasp was that if the rate fell, the company would have to pay Barclays the difference. Nor did they realise that it would cost up to £1m to cancel the agreements. Months later, rates plummeted to an all-time low. The firm had to find payments totalling £48,000 a quarter. Barclays pulled out of the refinancing deal the swap agreements were supposed to protect.
The extra outgoings put the company, Castlewood Hotels, in breach of the covenant on one of its original loans, also with Barclays — which has since put the business under review. “We are furious,” said Sangiuseppe. “We have had to sell family property and make staff redundant. No other bank will look at us.”
Barclays said: “We are satisfied we provided sufficient information.”