According to research published by DTZ a global property service company, Banks could face an extra hidden cost to property developers from interest rate swaps used by developers on commercial property portfolios around the country.
Thousands of property developers could be entitled to better lending terms and compensation over mis sold interest rate swap products between £5bn and £10bn. An estimated 1 in 5 commercial property developers could be eligible under FCA redress for mis selling of interest rate swap products.
Current “out-of-court” interest rate swap compensation settlements average around £1.5 million.
Banks face hidden bill of up to £10bn to settle property developer claims
Britain’s banks face a hidden bill of up to £10bn to settle claims from property firms put at risk by the interest rate swap scandal, according to new research.
Many of the country’s best-known banks, including Royal Bank of Scotland, Barclays and HSBC, have been hit with more than 30,000 cases from small businesses over the sale of controversial financial packages.
Among those, thousands of property developers could receive compensation and better lending terms worth between £5bn and £10bn if they drop the cases, according to property services specialist DTZ.
In the most detailed analysis of the scandal so far, DTZ estimated that as many as one in five commercial borrowers could have a valid claim over mis-selling.
Lenders have already put aside provisions of nearly £3bn to cover the mis-selling cases.
Those making claims against the banks range from some of Britain’s smallest companies to multi-millionaire businessmen such as Lord Sugar.
Data provided to DTZ of nearly 70 out-of-court settlements worth £104m showed that on average claimants received a package worth £1.5m each.
Hans Vrensen, global head of research at DTZ, said: “What these figures brought out is the quite significant mismatch between the loans taken out by borrowers and the swaps sold to them.”
The Financial Conduct Authority (FCA) last week revealed that only ten of more than 30,000 small business victims have so far officially received redress from banks.
The average payout in those cases was around £50,000 each, according to the regulator’s figures. Royal Bank of Scotland is potentially the most exposed bank, with more cases than Barclays, Lloyds Banking Group and HSBC combined.
The regulator’s compensation scheme has controversially excluded thousands of claims on the basis that certain businesses were sophisticated enough to know the risks.
Interest Rate Swap : News
Mis-sold interest rate swap flowchart
Derivatives may be one of the most complicated financial investments on the market. The Financial Conduct Authority (FCA) has created a chart to help consumers, barristers and bureaucrats understand whether a potentially mis-sold Interest Rate swap Hedging Product (IRHP) can be reviewed.
The Financial Conduct Authority (FCA) Interest Rate Flow Chart uses a flow diagram with “Yes/No” questions to show whether a debtor qualifies for regulatory review.
RBS exposed to new swap mis-selling
Investec reports that RBS is likely to be the next bank exposed to interest rate swap claims from mis-selling and should be putting extra provisions aside for likely calls for swap compesation.
After the FCA set up the interest rate swap rate redress scheme with the banking sector, only 10 claims have been compensated so date.
Mis-Sold Interest Rate Swaps
Overview of the Scandal: Financial regulators, headed by the Financial Services Authority in England ruled, ruled that over 90 percent of interest rate swaps were in breach of their regulations in the June of 2012. This affects more than 40,000 interest rate swaps and other products that have been sold to businesses since 2001. Furthermore, an independent organization has estimated the value of the average claim at about £500,000, with estimates of the full cost of compensation ranging from £1.5 billion to over £10 billion. In total, 12 banks have been implicated in the interest rate swap scandal. And while the banks have set aside more than £3 billion in funds to settle possible claims, the slow rate of payout has become a scandal of its own, being widely criticized within the media and government
Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim
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