The news that Moody’s have downgraded more banks, notably RBS and Lloyds in the UK should come as no surprise. The stress tests were too easy. The banks are experts at manipulating data to cast themselves in the best light (there’s got to be something useful to do with all those MBAs), but when the tide goes out you …View full post
It’s that time of year when we like to say thank you to those that have helped us out. IFAs may be among those you want to reward. You may have noticed that your IFA is keen to get to sign up to some new business before Christmas. There are several reasons for this: He …View full post
HSBC record fine: how to claim compensation This is a shocking failure by HSBC and they have got away lightly. Why were they able to charge so much? Did they make the full costs clear upfront? Did the advisers put commission or the customer first? What do you think! For the Honestly Banking guide to …View full post
New company to ‘return £1.6bn in commission’ to savers At face value this looks welcome. But with holding 20% is still a nice earner, plus you will have paid a huge sum when you first signed up. IFAs etc are rushing to get as many products sold/switched etc before the 2013 deadline as they will …View full post
Banker Pay – the mathematical truth behind the ‘pay for performance’ rip-off In this excellent and amusing article by the folks at Ripped-Off Britons (from the Guardian) they explore the mathematics behind bankers pay and performance. In truth bankers pay themselves so well because they can. The arguments about talent are weak. Senior bankers spend …View full post
Interest Rate Swaps: how the FCA allowed accused banks to be judge and jury for their own dodgy deals
The banks’ Interest Rate Swaps scam ruined businesses across the UK. Having explained how ‘interest rate swaps’ work and why they were sold in previous posts, we asked the undercover banker Honestly Banking to tell how the banks have managed to get themselves made judge and jury in the processing of compensation claims.
Fantastic, amazing, a triumph! That’s really the only way you can describe the FCA review of Interest Rate Swap mis-selling. The wonderful thing about it is that the banks that did the mis-selling have got to design, run and review the scheme. Yes that’s right, the very banks that did the mis-selling are conducting their own ‘independent’ review. What’s even better is that the ‘independent’ oversight is by litigation lawyers who are in the pay of the banksand will use the review process to gather evidence that can be used in litigation against the very people the banks originally mis-sold to.
Admit it, you’ve got to admire us clever bankers. We’ve even persuaded the FCA to state publicly that those businesses who have been devastated by the mis-selling of swaps don’t need to take any legal advice!
“The IRHP review has been set up to deliver fair and reasonable redress to customers where appropriate without them needing to hire lawyers or claims management companies”
The mis-sale of the Swap went so well first time, why not remove legal representation from the clients as well? What’s better is the banks got a top-secret agreement with the FCA, so there’s no oversight of the cosy arrangement we’ve got!
Banks decide who is eligible for redress:
Let’s look at how this shrewd scheme works. Firstly the bank decides whether you’re eligible or not to use the scheme. Sneakily the banks use different criteria than normal to exclude those that might cost us a lot of money and the FCA accepted it - result! We decide that you’re ‘sophisticated’ so you’re stuffed – get out and take your swap with you (and don’t dare cancel that direct debit!). Good that gets rid of some of the problem. What’s even funnier is we’ve got the FCA to state that these clients can use the FOS (ombudsman) for redress – but actually if they have more than 10 employees (which is probably why they were deemed ‘sophisticated’ in the first place) they are not eligible to use this either - a stroke of genius!
“Independent” case reviews:
Then we get our ‘independent reviewers’, giant law firms, to deploy their experienced litigators to cross-examine the clients, sorry, not supposed to do that, ‘interview’ for several hours. We don’t give them any of the bank’s side of the story, but we get them to spill the beans and get them to admit that they really wanted the Swap and to incriminate themselves so that we can use the recordings in litigation if needs be. Our clever PR people have decided to call this an ‘open transparent’ process and not to bother to explain the legal ramifications to the mis-sold customers, who have been told not to bother with lawyers after we suggested it to the FCA.
Once the reviewers have got what the evidence need, we then use our army of ‘independent’ assessors to review the cases and decide if and what redress is due. We’ve hired in these ex-bankers, many of whom have been made redundant on day rates of £1000+ a day, so they had better reach the right conclusion or we will kick them out. Cleverly our HR people have made these assessors set up Ltd companies, so we can limit our liabilities if they are found to have been unprofessional or incompetent.
Redress and Compensation:
We are really pleased with the redress we are giving out. We’ve taken a leaf out of the best high street retailers book and try and give them a replacement product - what’s even funnier is that it’s often as bad or worse than the original swap! And it has maybe double the profit in it for us! Also the client who we sold the wrong product to has to accept our advice again – it went so well first time! We cooked up a wheeze whereby we can ensure these still have a load of break costs and might not be needed anyway. We’ve also conveniently neglected to build in an appeals process, so the client has to accept our findings. Aren’t we smart?!
Delaying claims beyond the limitation date:
Another tactic that’s been working well is delaying the claims of customers so they pass the limitation datewhere they can take legal action against us. It’s been a real winner here; especially since the FCA have supported us by telling clients they don’t need lawyers. Thousands have fallen for this trick! Of course some will want to go to court, we’re not stupid, so we will settle the strong cases on the court steps (there goes another gagging order!), but we will let the weak ones go to trial, using the ‘evidence’ we squeezed out of them during the ‘review’ process and then we’ll get our legal chaps to make mincemeat of them and get a precedent in our favour. The other good thing is those dear folks at the Financial Ombudsmen really haven’t got a clue about all of this, so they are using their default client letter that find in our favour.
As you would expect it’s not all been easy. We’ve had to pay out a few times, but we’ve used gagging orders specially made by our legal friends. The FCA doesn’t allow us to do this as part of the redress scheme, so to get round this we just take this client out of the scheme. We think so little of the clients anyway, we don’t mind chucking a bit of extra money to shut them up. We’ve planned for this already, but we are a bit worried that the stockmarket will be spooked if they know the real size of our provisions.
Consequential loss compensation:
Actually we are pretty worried about the consequential loss claims – i.e. compensating clients for anything from loss of profits to the total collapse of their businesses. But the FCA is being very helpful, doing their best to discourage consequential loss claims citing time delays, complexity and emphasising the general futility. The FCA has also given us a get-out-of-jail card saying we don’t have to compensate investors and guarantors – so your friends and family who put money into your business can get stuffed. It’s times like this you know who your friends are. Our mates at the FCA are trying to keep compensation down to us returning interest payments (minus interest payments that would have been paid had we sold the client a less dodgy loan at the time). If we were selling dodgy brake pads that made clients’ cars crash, the FCA would tell the client to forget their wrecked car and injuries and just accept a new set of brake pads from us as compensation.
If there’s a business that’s causing us lots of trouble, or they have some lovely assets we fancy, we have a terrific plan. Firstly we make the business breach some of their lending covenants by using hidden calculations (often in their Swaps) and then put the distressed business into what’s known as ‘business support’ or ‘global restructuring’ and then we use team of specially trained ‘vampire’ bankers to suck out all of the value. Once we’ve extracted as much money as we can, we get our tame valuers to down value the business – we then dispose of it at a profit!
Those pesky people at Bully Banks are a pain. They keep on pointing out our dirty tricks and talking to the press and politicians. Looks like they rumbled us on embedded ‘hidden swaps at Clydesdale’, but hopefully we can pull a few strings to keep the lid on that. We also got some flak as we’ve only settled 10 cases after 14 months of ‘redress’. The FCA stupidly said it would take 12 months, but since we decided when the clock started we should be ok. We’ve also been hiring people who are causing us trouble – the FCA has proved a good hunting ground, our mate Hector Sants has their mobile numbers and if we offer them enough they will move and keep stum.
Bonuses all round!
All in all, the swaps thing has worked well. We’ve made loads of money out of it. Some bad publicity, but what do you expect? The FCA have been naive and compliant and none of us are in jail. We’re still the masters of the universe! – Bonuses all round!