Royal Bank of Scotland (RBS) has paid more than €30m (£25m) to a businessman who claimed the bank mis-sold him an interest rate swap.
RBS pays £ 25m for swap mis-selling to Business
This case could open the doors to hundreds of cases against banks for mis selling interest rate swap.
Telegraph article :
The settlement follows a Dublin high court battle between Mr Agar and RBS-owned Ulster Bank, in which he claimed the lender had mis-sold him €87m of interest rate hedging products linked to a €47m property loan. Though the case was fought in Ireland, the swaps were sold by the bank’s London-based investment banking arm and the size of the settlement is likely to encourage more businesses to pursue legal claims against lenders.
Barclays, HSBC and Lloyds Banking Group have already settled mis-selling cases. However, Mr Agar’s settlement is the largest yet.
Last week, Barclays made a provision of £450m against swap mis-selling compensation costs, becoming the first bank to put an estimate on the cost on the scandal. The provision came a month after the Financial Services Authority established a compensation scheme following an investigation by The Sunday Telegraph and The Daily Telegraph that uncovered allegations of mis-selling by all the country’s major banks, as well as many smaller lenders.
The compensation scheme has proved controversial, with many victims angered by the appointment of KPMG as an independent assessor of their claims, saying the accountancy firm is too close to the banks to provide oversight.
The Barclays disclosure came in its financial results for the first half of the year.
RBS will report its half-year results on Friday.
The bank is not thought to be planning to give any guidance on the likely cost of swap mis-selling. A derivatives experts told The Sunday Telegraph that the bank was likely to face a bill in excess of Barclays’ and could end up paying at least £500m.
Former Barclays chief executive Bob Diamond had said as late as April that the swap claims only related to “a very small number of transactions” and that the bank did not expect to have to pay out a large amount to settle claims. However, senior banking executives now believe the costs of swap claims could extend into billions of pounds.
One bank executive, speaking on condition of anonymity, said he expected both Barclays and RBS to have to pay out more than £1bn in total. Lloyds has played down its potential costs and last week Antonio Horta-Osorio, its chief executive, said the claims would be “immaterial” as he explained the bank’s decision not to give any estimate.
The FSA estimates that at least 28,000 small and medium-sized businesses have been sold interest rate swaps since 2001. RBS is also expected to announce provisions – reported to be £100m – to cover the cost of mis-selling payment protection insurance (PPI).
Guest post by : +Tim Capper