A high profile court case has been pending for a while, regarding Barclays and Guardian Care Homes. Guardian alleged that the bank mis-sold it two interest rate swaps that were worth £70 million. These were linked to Libor, the interest rate benchmark for pricing financial products.

The case was going to trial at the end of the month, which would have resulted in Bob Diamond and several other senior members from testifying in the court. This will not be the case as a settlement has been reached, worth an estimated £40 million. Barclays will be restructuring facilities for Guardian Care Homes, owned by Staffordshire company Graiseley Properties.

Interest Rate Swap Claim Case

The entire banking industry has been watching this case closely, as have over 60,000 businesses where the Financial Conduct Authority says they were sold interest rate swap products improperly. This case would determine how many other banks would have to proceed with similar litigation and what other businesses would be able to get if they decided to actively pursue litigation against a bank.

A spokesperson from Graiseley Properties has agreed upon a debt restructure for the ongoing viability of the business. They have withdrawn the litigation against Barclays based on the “impact of changes in conditions” that has been seen in the financial industry over the past several years. Barclays made a very similar statement.

The reason that Guardian Care Homes turned to litigation in the first place was because they had crossed a level of financial sophistication based upon how much the swaps were worth. The UK Financial Regulator had created a compensation scheme for businesses that were affected by the scandal, which was established in 2012. Around 60,000 businesses would be able to claim compensation, though it was restricted to those who could not cross the threshold.

The businesses that were outside of the scheme established by the Financial Regulator, such as Guardian Care Homes, would have to go to the courts for any kind of redress. Essentially, Guardian Care Homes was the first to go up against the bank to see if they would be able to get some kind of compensation, even though they were not part of the compensation scheme.

The rest of the banking industry has been following closely and the businesses that thought they were too sophisticated have now been given hope because the misselling of interest rate swaps can apply to them as well. The other businesses may be able to come forward with some assistance to their hedging arrangements.

The term “sophisticated” was used to say that a business should have known better as to whether they were buying an ill-equipped swap. However, there is now proof that the defence is subjective because just because a business is sophisticated doesn’t mean that it’s not entitled to a case and potentially compensation at the same time. No one expects to be taken advantage of, sophisticated or not.

Barclays has been in the news for the past several years as a result of mis-selling interest rate swaps. The former boss of the bank, Bob Diamond, left in July of 2012, just shortly after being fined more than £250 million for rigging Libor. Diamond is now building a business in the banking industry of Africa. The penalties for manipulating the interest rates was a serious implication, though some of the rival banks of Barclays have been accused of similar things since then.

There were other co-heads of the investment bank, including Jerry del Missier and Rich Ricci that were going to be called as witnesses in the high court at the end of the month. They will no longer be required to appear since the case has ended in a settlement. A loan is going to be restructured, which is worth an estimated £40 million.

Prior to this month, Barclays had commented that the litigation pursued by Guardian Care Homes was without any merit and that the company owed the investment bank £70 million. After the bank was fined for the benchmark rate being rigged, the Ligor aspect was added and the bank had failed to have this aspect taken out of the proceedings.

The proceedings had been in and out of court for over a year. There were more than 100 employees, current and former, of Barclays that wished to remain anonymous. At one point, the court ordered that those identities be revealed. Once revealed, it showed that Chris Lucas, the former finance director as well as John Varley, the predecessor of Bob Diamond, were all involved.

Once Barclays was fined, it wasn’t too long before many other banks were being fined for rigging Libor as well. This included the Royal Bank of Scotland, the Dutch bank Rabobank, Icap and others. All of these banks have now set aside a total of more than £3 billion in order to deal with all future cases of interest swap mis-selling. The Financial Conduct Authority also reviewed all of the selling practices to ensure that they were following regulations.

Barclay settled with Guardian Care Homes, likely after realizing that they had no other choice. The bank has had a significant amount of bad press recently, not even including the Libor rigging and the Guardian Care Homes litigation. They are now rebuilding as well as restructuring in order to show that they are a good investment company.

Meanwhile, there are over 60,000 businesses that are coming forward to seek their claims for all of the mis-selling that they have received regarding not only the investment swaps but also PPI claims.

The banking industry is not a stable one right now because many people are unsure about who they can trust. Regardless of whether a business is “sophisticated” or not, there are investment banks that have been fined because of not conducting themselves in a trustworthy manner. Many businesses are getting savvy and seeking legal assistance so that they can test the waters and use litigation as a way of getting their case in front of a court so that they can obtain the compensation that they need.

Interest Rate Swap : News

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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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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.