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grange1971

Barclays Capital - Rate swaps.

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Just a quick note to see if anyone else is in same boat as we are.

 

This doesnt concern bank charges, our problem revolves around a 'Rate Swap' sold to us by Barclays Capital.

 

If anyone else has taken up complaints about these Derivative based products I would be intersted to hear how you are getting on.

 

Cheers

 

Pete

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Hi Pete, we also have a problem with a rate swap sold to us by Barclays Capital. I cannot believe that we are the only two with a problem relating to this product. Not sure what we are going to do about it yet. Just in the process of getting some legal advice.

 

Mark

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Hi Grange and Woodman and welcome to CAG.

 

I haven't a clue about this but hope your thread generates interest from others who do !!

 

:)


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Mark,

 

Check your personal messages.

 

Pete

 

Ps Thanks slick.

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Hi Grange - You're welcome :)

 

Please keep stuff posted on open threads so:-

 

1. We can all benefit from learning more about cases.

 

2. Any errors made by posters can hopefully be spotted and corrected (assuming we understand the subject;)).

 

Thanks


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http://www.moneysavingexpert.com/forums

I would ask on there because they will answer. I don't really know about swap rates.


.

FSA Waiver on Bank Charges:http://www.fsa.gov.uk/pages/Doing/Regulated/Notify/Waiver/pdf/dir_quart_0709.pdf

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What exactly are the problems you have encountered with the rate swap?

A few more details please.


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Thanks, I will take a look at the other forum.

 

I have a reasonable idea about the swaps, our main idea is to see if there are othe rpeople iin the same boat. Part of the problem is that these are sold to small businesses, so there is just not the publicity about them.

 

I will keep any progress public, although some stuff may have to be pm'd.

 

frakyleaky - sorry, our posts must have crossed!

 

Our main issue is regarding pre-payment of the main loan to which the swap relates. Our Confirmation says the swap will be reduced in line with pre-payments, the bank say it may be reduced.

 

The biggest thing for us isnt the argument with the bank, its the fact that they are saying there have been no other complaints, and their approach is that we're just trying to wriggle out of our obligation - but finding other people in the same boat is difficult, hence my first post.

 

Are you familiar with rate swaps (ISDA Master Agreement based)?

 

Regards

 

Pete

Edited by grange1971

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Pete, just to confirm that we entered rate swap to hedge our interest on business loans. No problem with that and no problem that due to drop in interest rates that we are now paying out on this basis. However it was never explained that this created a potential liability i.e £800k? based over the life of the swap. The bank encouraged it as a move that was prudent,and reduced our interest rate on overdraft facility as a REWARD for being prudent. Bank manager and local director were made redundant on same day and now surprise, surprise we have a problem as this has created an issue with bank over "loan to value" to the business. Just for the record we have banked with Barclays for twenty years, we are solvent and still looking to expand even given the current difficult market. Surely we cannot be the only business that has experienced a problem as a result of being encouraged to be prudent by BARCLAYS CAPITAL!

 

Again i would confirm to all members that the issue is not that the interest rates have dropped, and that this requires the business to pay out. It is the clear fact that until our meeting this week with the bank no one and i mean no one ever explained the full extent of the liability that the interest rate swap created such a liability. I am certain that they did not fully understand what it was they encouraged us to commit to, the paper work on file makes no reference to the creation of any long term liability.

 

Can you confirm? (ISDA Master Agreement Based)....not familiar with this.

 

Thanks Mark

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Mark,

 

Barclays Rate Swap agreements are subject to an ISDA Master Agreement, plus you should also have either a Schedule or a Confirmation.

 

These are necessary for Barclays, as without them they have no way of valuing the Rate Swap for pre-payments, or default.

 

I cannot quite see how the liability has arisen? If you wish to break the agreement then they will work out a figure that you need to pay, based on the length of time to run and what they think will happen in the interest market. Is this how your manager is applying the swap - as a debt against the business? Surely this only arises if you wish to break out of the agreement.

 

Maybe you could be a bit more specific - £800,000, jeez!

 

Our problem relates to this breakage cost - when we paid down our loan, our Rate Swap agreement stipulates the sum 'swapped' reduces in line with the actual loan. The problem is getting Barclays to follow the contract! They just refuse, quoting various sections which dont actually apply to our agreement.

 

A solicitor has checked our agreement, and agrees with our opinion, and we are now putting the paperwork together for the Ombudsman - this is where I am out of my comfort zone, and am hoping to find someone else who has got to this point.

 

I think you need a thorough review of all the paperwork you have been given - look for anything that mentions ISDA agreements, if not look for how they value the agreement in case of default etc.

 

How did you confirm the deal - on the phone, in writing, by e.mail?

 

Thats the effective date of the swap.

 

Following that a confirmation should have arrived - thats the bit of paperwork that you need.

 

Let me know what you find, and if you could explain the £800,00 it will help me understand your position.

 

Regards

 

Pete

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interest rate swap Definition | Business Dictionaries from AllBusiness.com

 

I had to look it up! :-D

 

interest rate swap

contract in which two counter-parties agree to exchange interest payments of differing character based on an underlying notional principal amount that is never exchanged. There are three types of interest swaps: coupon swaps or exchange of fixed rate for floating rate instruments in the same currency; basis swaps or the exchange of floating rate for floating rate instruments in the same currency; and cross currency interest rate swaps involving the exchange of fixed rate instruments in one currency for floating rate in another.

Typically, a swap contract exchanges fixed rate obligations for a floating rate instrument in the same currency. In its simplest form, the two parties to an interest rate swap exchange their interest payment obligations (no principal changes hands) on two different kinds of debt instruments, one being a fixed interest rate, the other being a floating rate.

For example, the Student Loan Marketing Association (Sallie Mae) may want to swap rates with a mutual savings bank-a mutually beneficial transaction, as Sallie Mae, a highly rated institution because of its status as a federal agency, prefers floating rate to match short-term loans in its student loan portfolio. Sallie Mae can sell fixed rate debt at a relatively low cost, whereas the mutual savings bank prefers to match its long-term fixed rate mortgages with fixed rate funds.


 

 

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HSBcrusher,

 

Even when you read it, its still a mystery!

 

Some years back, Barclays realised there was an extra sales opportunity to be had with Rate Swaps.

 

If a business wished to borrow money on a fixed rate loan, Barclays Commercial would involve Barclays Capital, and sell the customer a Rate Swap packaged as a fixed rate loan.

 

The rate swap term can be anything from 1year to 25years.

 

They fix a rate, and then gamble that base rate stays below that figure, thus making a profit. If the base rate goes above the fixed rate, then they have to pay the difference - this is the clever bit though, they dont pay you, they pay Barclays...........so they dont actually lose!

 

This is fine if you keep your loan for the period agreed, but if you pay it off the Rate Swap is a completely free-standing arrangement, so you are stuck with it. In our case we have a clause in our contract stating that if we pay off any of our loan, the Rate Swap value (what they call the 'nominal amount') will drop accordingly, and at that point we would have to pay them a 'breakage fee' based on the difference in fixed & base rates and length of time to run.

 

In principle there is nothing wrong with a rate swap if the full term is to be stuck to - but they are not suitable for situations where the loan is to be repaid, as in our case. I think Barclays are aware of this (I told them we would be paying off the loan) but have gone ahead and sold them anyway.

 

As Woodman has found, they also create a debt - in a 'normal' fixed rate deal you pay to end early, but the payment does not fluctuate with base rates, whereas with a Rate Swap Barclays assess the fee based on how much you have to pay them over the term of the agreement & charge you that!

 

There is a culture in small businesses of financial secrecy, because of this I think there will be hundreds of small businesses mis-sold or mis-advised on these products, but unlike 'normal' bank-charge complaints there is little info. on what to do, there certainly isnt a consumer website championing our cause - hence my post here.

 

I have for a long time felt like a very small voice in a very large empty room, I think if just a few of us get together it will be of immense benefit, just the support alone is worth more than money.

 

Thanks to everyone who's posted support - and also to everyone who's read this and thought 'poor sod, dont fancy being in his shoes'.

 

Regards

 

Pete.

Edited by grange1971

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Ps.

 

Yourbank - thanks for the link to moneysavingexpert - I'm not going to post there at the moment, but have found some useful money-saving codes!!

 

Pete.

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Edited as info out of date.

Edited by grange1971

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Pete, thanks for the update, fully agree with your posting with particular reference to Barclays paperwork. What paperwork? We cannot find any!

 

Also very interested in your comment that "interest rate swaps" are only suitable to sell to investment professionals. I would agree, we have been seeking verbal confirmation of our position and each request is met with the i'm not sure i'll have to get back to you routine. Hardly the what you would expect given the complicated nature of this product.

 

What is apparent is that we were sold this product by individuals employed by a bank that we trusted who obviously did not fully understand the product that they were selling and the full implications of the product and how it would alter their security.

 

Can you please advise where i can find more information regarding the Financial Service Marketing Act with specific reference to the sale of this product?

 

I am absolutely convinced that we will hear from other individuals/companies that have also been sold this product, it having not been fully explained to them.

 

Mark

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Mark,

 

Interest rate swaps are regulated by the Financial Services and Markets Act 2000 (Financial Promotion Order) 2001.

 

Their are very strict guidelines on who these products can be sold to, basically Investment Professionals. You will find this at:

 

The Financial Services and Markets Act 2000 (Financial Promotion) Order 2001

 

The important bit is Article 19, Section 4 (b) - it reads that the advice given by Barclays should be accompanied by a rider that you should not rely on it - in practice this is normally in the Disclaimer, saying something like you should consult your own adviser etc.

 

The response I have had from posting about this topic has been quite interesting, the main issue seems to be that small businesses dont like to admit that they are out of their depth - Barclays really hold the upper hand as they are well versed in sales techniques and have their own lawyers ready for problems.

 

There is also the feeling that the banks cant be wrong, everythings tied up tightly in their favour - yet I've been able to pick out 2 flaws in my agreement and I'm no legal boffin.

 

Regards

 

Pete

Edited by grange1971

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Edited as info out of date.

Edited by grange1971

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Hi Grange,

 

I hope you can move this forward with the info you are able to share.

 

It would be useful if you can keep this post updated to assist others who have similar problems.

 

Few will benefit if it's all done off-thread. ;)


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Hi,

 

Fully intend to keep the thread updated, some of the stuff just cant be posted but general progress will be reported back - once we've got a handle on which direction we're going I will let you know.

 

In the meantime, anyone is welcome to make contact.

 

Cheers

 

Pete.

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grange1971 / woodman etc

i've got problems with barclays capital and the hedging they put in place - which they managed to do without telling anything useful -hiding it all in jargon and now that i understand what i've let myself in for, i'm furious

they didn't tell me i couldn't cancel

they didn't tell me it has nothing to do with current borrowings from the bank so even if i pay off the bank in full - they still want their money !!!

 

i'm waiting for them to get back to me with a final stance, afterwhich i am seeking legal advice

anyone taken legal advice so far ?

rgds

steve

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Edited as info out of date.

Edited by grange1971

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Edited as info out of date.

Edited by grange1971

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Edited as info out of date.

Edited by grange1971

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Hi Grange,

 

You should write to B's and ask them to confirm that their letter of xxdate is their Final Response in the matter, for the purpose of referral to the FOS.


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I have a similar problem with HSBC and would appreciate knowing where things are currently re potential mis selling of Interest Swap agreements???

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