Kiki Loizou, Small Business Editor of The Sunday Times, reports on one of our derivatives litigation cases where Barclays Bank plc mis-sold a highly toxic derivative (a 27-year £4.5m Rollercoaster Swap) to an NHS-funded GP practice in London. The Doctors went through the Bank and FCA IRHP Review and were found to have been mis-sold but were remarkably offered no redress. They subsequently sought legal advice.
Outcome in the FCA Interest Rate Hedging Product (IRHP) Review
On 29 June 2012, the FSA announced (having found mis-selling to SMEs in 93% of cases it had sampled), that the major banks would review their own mis-selling of complex IRHP derivatives to SMEs. There was a very obvious self-interest on the part of the major banks to avoid paying out billions in compensation and indeed the banks spent millions on carefully designing the review scheme so that there was the potential to avoid paying billions of pounds of compensation that was rightfully owed to SMEs.
In their own IRHP review, in which the Bank appointed KPMG as a skilled person and Eversheds as solicitors to interview the GPs, Barclays admitted on 27 June 2014 that the Doctors “were not provided with sufficient information to understand the features, benefits and risks of your IRHP or sufficient information to understand the features, benefits and risks of relevant alternative IRHPs” and “were provided with advice to enter into the IRHP in circumstances where no such advice should have been given.”
However Barclays’ IRHP review went on to conclude that in spite of admitting the mis-selling, in particular failing to warn about the multi-million pound break costs risks (it is understood from experts that Barclays calculated Credit Equivalent Exposure of around £1m) “you would have still purchased the IRHP” and so “no redress is due.”
Following the unreasonable outcome of the IRHP Review scheme, the partnership instructed LEXLAW to take legal action against Barclays. The Bank have appointed Matthew, Arnold & Baldwin (now Dentons).
The Sunday Times Article: Barclays sued for £4m by GPs
Three doctors are suing Barclays for £4m, alleging the bank mis-sold them a complex financial product that ended up costing their practice millions of pounds.
The bank sold the interest rate swap to Dr Isobel Bleehen and her two partners in 2007, when the trio obtained a £5.2m loan to expand Pinn Medical Centre in Pinner, northwest London.
The derivative was meant to protect them against a rise in rates. However, when the cost of borrowing was slashed in the aftermath of the 2008 banking crash, the doctors were hit with crippling charges.
They have so far paid almost £2m and would have to fork out more than £2m to break the deal, which they locked into for 27 years.
Through a compensation scheme set up by the Financial Conduct Authority, Barclays admitted mis-selling the swap, saying the doctors “were not provided with sufficient information to understand the features, benefits and risks”. It added that the surgery had been “provided with advice to enter into the deal [swap] in circumstances where no such advice should have been given”.
However, the bank concluded that the doctors would have taken out the product regardless and declined to give them redress.
“If we knew the consequences, we wouldn’t have touched a product like that,” said Bleehen. “They described it to us as being no-cost insurance protection.” The doctors, who are claiming more than £4m in compensation, have been set a court date for July next year.
Barclays said it would be “vigorously defending” the case.