Barclays Bank have today announced their results for 2012 [Barclays Bank Results 2012].
Barclays’ Announcement on Swaps Mis-selling (IRHPs or IRSAs)
These deal with swaps mis-selling on page 91. Barclays indicate that they have around 4000 customers who were sold interest rate hedging products in the relevant timeframe, of which they say approximately 3000 are likely to be categorised as non-sophisticated. Barclays have made an additional provision of £400m in respect of this liability, bringing their total provision to £850m. If there are 3000 people entitled to redress under the FSA scheme, this would amount to an average of £280,000 provisioned per customer.
Accuracy of the Derivatives Mis-selling Provisions
The FSA have estimated that the total number of swaps sold to non-sophisticated customers was around 40,000, so if Barclays’ estimate of their own sales is accurate and is not understated, it would appear likely that other big banks must have sold a higher number and will therefore have an even higher liability.
In particular, the £50m provision so far made by the Royal Bank of Scotland in its Q2 2012 results is clearly, and always has been, woefully inadequate especially bearing in mind it came at the same time as Ulster Bank (part of the RBS Group) had settled a Euro 35 million claim in Ireland against David Agar, a property developer who had been mis-sold swaps. RBS have already admitted that they will need to make further provision in due course, but so far we have seen no indication of what this might be. We anticipate that RBS’ total liability will be considerably in excess of £1 billion.
LEXLAW’s estimate of the financial impact on Major Banks
As a leading City of London law firm representing claimants in derivatives mis-selling financial services litigation we have a large client base which reveals which banks were selling derivatives in greater numbers and reveals that, amongst our clients, the value of claims on average is far in excess of the average that Barclays have determined.
In terms of customer numbers, we consider that Barclays and RBS are the biggest two sellers of swaps to SMEs followed at a distance by HSBC and Lloyds. We anticipate that the quantum of overall liability for the banks involved in the mis-selling swaps to smaller SME businesses is likely to be in the range of a few to several billion pounds.
M Ali Akram, Principal