Abhishek Sachdev of Vedanta Hedging has been interviewed in the Daily Mail / Thisismoney.co.uk website regarding swap mis-selling.
This is in relation to extensive work Vedanta has been doing with the FSA, the Government and of course clients about the Tailored Business Loans sold by Yorkshire / Clydesdale.
There has recently been an acceptance by the Bank that some of their TBL products should fall within the the FSA Review scheme, although a key number of these (Fixed Rate Loans) are not yet covered.
The article can be found here: http://www.thisismoney.co.uk/money/cardsloans/article-2229018/SPECIAL-INVESTIGATION-Forced-rails-banks-gravy-train.html or here: Daily Mail article with Abhishek Sachdev
SPECIAL INVESTIGATION: Small businesses forced off the rails by banks’ ‘gravy train’
By James Salmon
PUBLISHED: 00:37, 7 November 2012 | UPDATED: 13:34, 7 November 2012
Bankers and middlemen have been pocketing giant commission payments and profits to sell toxic loans to small businesses, saddling them with crippling fees and forcing many to the brink.
John Glare, 49, is one of tens of thousands of businessmen who believe they are victims of yet another banking scandal driven by greed.
His case reveals the gravy train behind the sale of complex business loans, which has sparked an outcry among politicians and an investigation by the City watchdog into the country’s biggest lenders.
February 14, 2008: Guys. Please could you quote me a fixed rate TBL (Tailored Business Loan) for a Clydesdale customer?
* PVO1 relates to the profit taken by the bank for the difference between the rate Mr Glare pays on his loan and the rate the bank pays to borrow the money. The bank earns £4,499 for each hundredth of a percentage point Mr Glare pays over the rate the bank pays.
These were meant to protect them against rising interest rates. But when interest rates fell to record lows during the financial crisis, many small and medium-sized businesses were saddled with expensive loans and hit with huge ‘break’ fees if they wanted to switch to a better deal.
While this has been disastrous for small businesses, it has been hugely lucrative for the banks. Emails from sales staff at Clydesdale Bank reveal how the lender earned £220,000 from selling a ‘tailored business loan’ to Mr Glare in February 2008.
The loan also came with a £39,500 arrangement fee which was added to the loan. Mortgage broker Savills was also part of the gravy train. It pocketed £39,500 in commission simply for introducing Mr Glare to Clydesdale – which is part of the same group as Yorkshire Bank. Clydesdale and Yorkshire Banks are owned by National Australia Bank.
Half of this fee was paid by Mr Glare while the other half was paid in commission from Clydesdale to Savills as a reward for generating the business. But while the companies involved raked in huge profits and fees for arranging the loan, it had devastating consequences for Mr Glare.
He was saddled with a £780,000 ‘breakage’ fee when he was forced to terminate the contract. His nightmare began in January 2008 when he wanted to refinance his wedding venue and conference business in Dorset. He paid a visit to his mortgage broker at Savills Private Finance, who set up a meeting with Clydesdale.
The ‘relationship manager’ at Clydesdale visited his business and sold him a 25-year fixed rate loan for £3.95m. Mr Glare, of Brighton, was sold a fixed-rate deal as he wanted certainty over his repayments. He assumed that he was getting a straightforward deal which he could easily switch out of if needs be, incurring a small charge of between 2pc and 4pc.
However, soon afterwards the Clydesdale said he was required by the bank to take out a ‘hedging facility’. These are generally provided through ‘interest rate swaps’ – complex financial instruments which provide insurance against interest rates going up.
This hedging facility was part of the loan, rather than sold separately. Crucially, this meant that Mr Glare would not receive the protection of the City watchdog, as the sale of business loans are not regulated.
Mr Glare signed various forms – which included a vague small print warning that there could be ‘break costs’ if he terminated the contract. But the businessman said he was never told just how much these could be. He found out very quickly.
Like many businesses, he ran into financial difficulties and bookings dropped. Mr Glare was no longer able to keep up with the loan repayments. As interest rates had crashed to record lows during the credit crunch he was also paying over the odds – his rate was fixed at 7.8pc, three times more than the bank’s variable rate loan.
In September 2009, the fixed rate deal was terminated and Mr Glare was put on to a variable rate of 2.5pc. It was then that he was hit with a ‘breakage penalty’ of £780,000.
Mr Glare said: ‘They mentioned the breakage fee but glossed over it. They certainly did not make it clear that it could be more than a fifth of the value of my loan.’
He was forced to sell his business and declared bankrupt. Mr Glare believes the loan he was sold was completely unsuitable and contributed to his downfall. But his complaints – both to Clydesdale and the Financial Ombudsman – have been rejected.
The bank insists it did everything by the book and has washed its hands of the case. It said it made it clear that it did not provide any advice and told Mr Glare to speak to a financial adviser. The Ombudsman agreed. Mr Glare had given up until it emerged the banks had been misselling interest rate swaps alongside loans to small businesses.
Like other banks, Clydesdale is investigating past sales, but it insisted it sold Mr Glare a ‘simple’ fixed rate deal which falls outside the scope of its inquiry. Clydesale claims it did not use an interest swap to provide the hedging facility in Mr Glare’s contract.
But this claim was yesterday rejected by a leading expert who provided evidence for MPs from the Treasury Select Committee in September.
Abhishek Sachdev, managing director of Vedanta Hedging – which advises firms on hedging arrangements with banks, said: ‘I would be more than happy to stand up in court and say Mr Glare’s loan did come with an interest rate swap.
‘These types of fixed rate loans can be even more dangerous to small businesses because the break costs can be exactly the same but there is no protection from the FSA.’
‘Some banks, such as Lloyds and Yorkshire and Clydesdale, provided fixed rate loans with embedded derivatives – attaching an interest rate swap without the customer knowing. If it was a straightforward fixed rate loan, the cost to cancel would be very small – like with a fixed rate mortgage.’
Justin Welby, the Bishop of Durham, who also sits on the Parliamentary Commission on Banking Standards, added: ‘It is important that banks warn people about all the cost implications before they entered into these contracts’.
Mr Glare is leading a group of 18 businessmen who believe they were misled by Clydesdale and Yorkshire.
He said: ‘This has had a devastating effect on me. ‘My business was destroyed by the unmanageable interest rate and an exit penalty which was so enormous that it prevented me from transferring my loan to a new bank or selling the property.’
A Clydesdale spokesman said: ‘Our fixed rate tailored business loans do not contain a “swap”, which is a derivative. ‘All of the evidence shows the bank acted properly in providing this fixed rate loan, as two reviews by FOS support. Mr Glare “broke” the fix when he failed to make his monthly repayments, and the break fee reflects that extremely early breach within a £3.9m, 25- year fixed rate loan.’
A spokesman for Savills said: ‘We did not provide any advice in relation to the interest rate product. We received 1pc of the loan amount for arranging and advising the mortgage, which is the industry standard. This fee was paid equally between the lender and Mr Glare.’
Mr Glare has set up a website for businesses which believe they were sold unsuitable loans by Clydesdale and Yorkshire Banks – www.nabcustomersupportgroup.com.