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News At 10 - Interest Rate Swaps For Small Biz


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#1 spyguy

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Posted 04 April 2012 - 06:35 AM

Much handwringing, banks mis-selling etc.


http://www.bbc.co.uk...Ten_03_04_2012/

16 minutes in.

In short, Barclays have been selling an interest rate swap to a small businesses.
Example story in Norfolk is

http://www.adcocks.co.uk/

100 year old family business, etc etc. Laying off staff is laying off family etc etc

Apparently he's paying a crippling rate of 9% now that the base rates have fallen.

Now admits he did not understand what he was buying.

My comments:

1) 9% is not far off a bank will charge for a commercial loan. 9% is not crippling. 20% is.

2) Banks should not be selling these to small business. They were being greedy.

3) Small business' should not buy these products. He was gambling, being greedy. The bet went wrong.

4) Now here's the killer - the loan was for 900K!!!!!!!
What in FFS! did he need or use 900K for?
The website shows a small, single shop in Norfolk. Buying the shop and putting stock - must of which would be on credit from the disti would not need 900K.
This business has been going for 100 years apparently. Surely someone in 100 years would have bought the shop.

I smell BTL, debt, gross stupidity - mainly by the borrower.

Anyone got any inside info?

#2 spyguy

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Posted 04 April 2012 - 06:36 AM

I should add the shop sells video and electricals. i.e small town Currys.

Stinks twice over - my business is failing coz the internet ischeaper. Its the banks problem for loaning me 900K and selling me a swap.

#3 57percent

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Posted 04 April 2012 - 06:58 AM

I'm off to Ladbrokes to claim back all my losing bets back because I didn't understand the horse racing form.

#4 hotairmail

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Posted 04 April 2012 - 07:01 AM

I'm off to Ladbrokes to claim back all my losing bets back because I didn't understand the horse racing form.


Think I'll do the same with Equitable Death.

Of course all my winning investments were just down to my superior skill and savviness.

"The chicken is radiating disorder out into the wider universe."


#5 okaycuckoo

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Posted 04 April 2012 - 07:13 AM

Banks have been settling these cases already, and including confidentiality clauses and conditions that the claimants not raise the issue with the FSA - they've apologised for the latter bit.

The reason the loans are so big is that it's very expensive to run and expand a bricks & mortar business in the UK.

My guess is this will match PPI misselling in terms of money the banks have to set aside.

#6 Harry Monk

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Posted 04 April 2012 - 07:16 AM

Apparently the issue is that the banks advised these businesses that interest rates were about to rise sharply, and if they had then these deals would have been to their customers' advantage. The suspicion is that the banks were privy to the information that rates were about to be cut sharply.
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#7 Saving For a Space Ship

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Posted 04 April 2012 - 07:21 AM

The BBC were talking this back in Nov. with HSBC

http://www.housepric...howtopic=172116

#8 aSecureTenant

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Posted 04 April 2012 - 07:25 AM

I get 2 to 3 PPI miss selling scam calls a day. I look forward to these in due course. Posted Image

"Capitalism has defeated communism. It is now well on its way to defeating democracy" ~ David Korten

“To think output and income can be raised by increasing the quantity of money, is like trying to get fat by buying a larger belt” ~ John Maynard Keynes 

 

Ignoring ALL UKIP and 'Election' threads on HPC until further notice


#9 Venger

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Posted 04 April 2012 - 07:52 AM

4) Now here's the killer - the loan was for 900K!!!!!!!
What in FFS! did he need or use 900K for?
The website shows a small, single shop in Norfolk. Buying the shop and putting stock - must of which would be on credit from the disti would not need 900K.
This business has been going for 100 years apparently. Surely someone in 100 years would have bought the shop.

I smell BTL, debt, gross stupidity - mainly by the borrower.

Anyone got any inside info?


It's always someone else's fault. 900K debt, on some 100 year old small retail business. Over expansion, or paying themselves too much over the years I suspect, when they could have fully secured their position with little debt.

Also here.

http://www.bbc.co.uk...siness-17587580

In the comments someone said their bank told his company they couldn't take a new big loan unless taking this swap. Their finance director used to work for a bank and told the bank he didn't have any confidence in the product, they didn't wan't it, just give us the loan. And the bank just gave them the loan.

Can't get a loan without a bolt on protection policy incurring great risks? Well don't take the loan. You're not forced to. If you have to take a loan under such circumstances, then you're already in trouble.

Commercial borrowers are expected to be more commercially aware, taking advice when necessary, if they don't understand something. Not just give let me sign the forms to get a 900,000 loan and this interest rate protection, and I'll worry about it later.

#10 RufflesTheGuineaPig

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Posted 04 April 2012 - 08:19 AM

Apparently the issue is that the banks advised these businesses that interest rates were about to rise sharply, and if they had then these deals would have been to their customers' advantage. The suspicion is that the banks were privy to the information that rates were about to be cut sharply.


Correct - they were selling these while lobbying the government for a cut.
It's time to pay the piper. There is no magician who will magic away the debt. Someone is going to have to pay it. Bend over and prepare to make payment.

In this glorious nation of ours, if you work hard and keep your head down for 25 years then you too can aspire to own one-eighth of a one bedroom flat in Manchester.


My mum and day always tell me how important it is to save to buy a house. They should know, it took them nearly 6 months to save for theirs. As teenagers, they bought a 3 bed semi.

#11 libspero

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Posted 04 April 2012 - 08:53 AM

I remember speculation even on especially on this forum in around 2007 that it was inflation and interest rate increases which were going to push indebted home "owners" under.

It doesn't surprise me greatly if banks were only offering to lend to risky companies if they had safe guards in place in case interest rates rose further.

It seems the actual instruments they sold were far more complicated than was perhaps necessary, and I've no idea how much extra premium they are now paying because interest rates fell to near zero.. but in fairness, who would have guessed that would happen back in those days?

I don't remember any of us predicting it..

Businesses borrowing money should be careful. Banks should answer some questions about why they chose such complex products. If there is a good reason then I don't see they should be castigated for this. If there isn't and it was just about maximising profit then perhaps they should be "lent on" to help resolve some of these cases (or at least charge them interest at whatever an interest rate fix would have cost back in the day).

My only concern is that if banks are forced to pick up the tab for more feckless borrowers, it will be savers and new borrowers who will suffer from the larger spreads the banks will require to stay in the black. Bit of a familiar theme.. <_<

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Just as you cannot spend your way out of recession, you cannot, in a global economy, simply spend your way through recovery either.

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So, housing affordability is better than it has ever been, but no-one can take advantage of this because they can't afford the houses. I see.
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#12 Brave New World

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Posted 04 April 2012 - 09:25 AM

As is the way with these examples of modern finance the banks playing a morally questionable role with the recipient of loan also being questionable use/flagrant past spending.

In this example it is a retail model that is fooked even for the big players. For a local firm it is doubly impossible, for a local firm that has borrowed nearly a million pounds GAME OVER and rightfully so. This cash should/could have been used for a more commercially viable business/start up and therein lies the problem. The muppets borrowing the cash are an issue but the greater problem is the fools lending the cash they have no commercial acumen at all and lend on the folly of the business owner not the viability of the business.

#13 57percent

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Posted 04 April 2012 - 09:35 AM

Where is this going to end?
Can people on fixed rate mortgages sue their bank?

#14 Georgia O'Keeffe

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Posted 04 April 2012 - 09:42 AM

Apparently the issue is that the banks advised these businesses that interest rates were about to rise sharply, and if they had then these deals would have been to their customers' advantage. The suspicion is that the banks were privy to the information that rates were about to be cut sharply.

which is clearly mince given that the number of these sold are monumentally dwarfed by the number of lifetime BOE trackers +/- fck all that were aslo sold at the time

Edited by Georgia O'Keeffe, 04 April 2012 - 09:42 AM.


#15 sun n sea

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Posted 04 April 2012 - 10:09 AM

Where is this going to end?
Can people on fixed rate mortgages sue their bank?


Listening to Peston carefully it was clear that the interest on this business loan INCREASED as the BoE rate fell.

Having paid for "protection" against higher interest rates the business owner is on a penalty rate because baserates have fallen. As far as I can see the loan is a basic SVR deal designed back to front... a proper fixed rate sees you pay the SAME interest for the lifetime of the loan... the product we are talking about certainly does NOT fit this criteria.

As far as rates on business borrowings are concerned...4.5% over base for SVR products is about average. For fixed for life dealls commercial mortgages at a fixed rate of 3.8% are available right now. Set in this context 9% is daylight robbery, especially when you consider the intial setup cost of the "protection vehicle" in question.

Sadly the chances of finding a refinancing deal are practically nought.... according to my business bank manager anything connected to consumer spend is lending territory which is strictly off limits.




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