By Gareth Vaughan
Farmers who signed up to interest rate swap agreements with banks now being "assessed' by the Commerce Commission for potential breaches of the Fair Trading Act, need to take responsibility for their own actions, says Federated Farmers president Bruce Wills.
Wills, a Hawke’s Bay sheep and beef farmer and a former Rabobank banker, told interest.co.nz that such agreements were a contractual arrangement between a customer and a bank, and ultimately there ought to be an element of buyer beware and personal responsibility.
Meanwhile, Banking Ombudsman Deborah Battell, whose office has completed five dispute investigations involving the interest rate swap deals, said the reason her office has received so few complaints may be because heavily indebted farmers are too scared or embarrassed to "make waves" with their banks.
The Commerce Commission confirmed last month it was "conducting an assessment" of whether some bank interest rate swap agreements with farmers, and ANZ National Bank's Rural Growth Fund, raised issues under the Fair Trading Act. The Commission's comments come after a series of articles about interest rate swap agreements banks entered with farmers between 2007 and 2009, a period where interest rates were mostly much higher than today, in both the Sunday Star-Times and Straight Furrow. The reports said the swaps were sold by banks including ANZ National, Westpac and ASB to farmers as insurance against interest rates rising when ultimately they fell.
Wills said he had heard from about a dozen concerned farmers over the issue, but also from others who were "entirely happy" with how the agreements had panned out. Federated Farmers' view was "well less than 5%" of farmers had been caught up in swap rate arrangements they weren't comfortable with.
"The whole swap stuff was a bit of a punt. If interest rates went up they (the borrowing farmers) were going to win, if they went down, they were going to lose, in broad figures," said Wills.
He acknowledged they were a "complicated instrument" that required a fair degree of expertise to sign up to, but said: "At the end of the day I'm a great believer in buyer beware and personal responsibility."
"The vast majority of farmers I speak to are entirely happy with their relationship with their banks," Wills added. "There is a small group, and I understand they've got some concerns, but they took on a complex product that had some risk. And, just because it goes the wrong way, I get a bit concerned they're looking for someone to blame rather than themselves."
'Heavily indebted farmers don't want to make waves with their banks'
Meanwhile, Battell said based on the number and nature of complaints and disputes her office received and looked into, she hasn't been alerted to a wider, more systemic issue.
"You have to ask the reasons for that and why we might have received relatively few complaints. It does come back to a number of things with the most important being I think the relationship between the borrower and the bank," said Battell.
"A number of people, particularly farmers, were heavily indebted to the banks and were in a precarious position and it would appear that some of them felt reluctant to make waves with their banks. And that, combined with the usual embarrassment, pride, wanting to be able to succeed on their terms and resilience, I think ended up in relatively few complaints," Battell added.
"And I think it's really interesting that since the Sunday Star-Times put out its article we've only received another couple of complaints or enquiries and so it's still difficult for us to know how widespread the issue was and whether there really was mis-selling."
She said some farmers hadn't understood the differences between an interest rate swap agreement and a normal loan, and in particular didn't understand the down side and what might happen if interest rates actually dropped quite dramatically.
The Commerce Commission says its "assessment" comes after it received complaints. Under the Fair Trading Act, if a court decides a company or individual has broken the law, it can fine a company up to NZ$200,000 and an individual up to NZ$60,000 per breach. Courts may also award compensation to those affected by any breach of the Act.
News of the Commerce Commission's "assessment" comes with agriculture sector debt having recently topped NZ$49 billion for the first time, according to Reserve Bank figures, and as the country's biggest rural lender, ANZ New Zealand, prepares to issue a report it says outlines the potential to double the value of annual agricultural exports by 2050 by feeding Asia's burgeoning urban and middle class populations.
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18 Comments
Who is this Bruce Wills does he represent the banks or the farmers. These Banks sold complicated instruments to people they knew didn't really understand them. Those farmers trusted the bank to do the "right thing" as is stated in the ANZ National Banks "Core Values".If you can't depend on the core values of an organisation then that organisation is in trouble.
For goodness sake Mr Wills who do you represent? Got a few too many buddies in the banking industry you have to soothe to sleep at night methinks. Apparently these people came INTO these farmers homes, many of these farmers were in their sixties. If this isnt pressure selling I dont know what is. If this only happened to a small number of farmers(and it was probably a lot more than you say) it is still wrong wrong wrong. And there are laws against door to door salesmen, for good reasons.
Perhaps you are in the wrong job Bruce. You should find some sympathy for men of the land being sideswiped by men of the fast buck and shonky suit. The fallacy that your banker is also your advisor is surely forever put to rest now. Your banker is not your friend, just like the car salesmen, or the assistent at Noel Leemings, or the Combined Insurance dude. Just a salesman. Never let the bastard in your home.
How early in the eighties - my employer, Chemical Bank, London, had an OTC swap book of three trillion dollars when I retired in 1998 and it was hardly anything 6 years before - I remember reviewing some of the first programs when Microsoft Excel became available. Prior to that progress was limited by IBM's Lotus 1-2-3 offering.
I still have one of the original live fed bond/swap .xls prgrams that was employed daily in a professional proprietary dealing room capacity in the 90's - offers? - lol - antiques roadshow of finance.
Yep wtf I read a book about that. The BNZ were making up their interest rates as they saw fit. I never knew it at the time, but later realised thats what they were doing to us. They sold up a dude who owned fishing boats, farms etc. He worked out all the interest he should have been paying and the BNZ were WAY out. He went to the Ombudsman and proved it. But all too late they had taken his farms and boats. He wrote the book, Colin admitted the same had happened to him. Thankfully for us, we extracted ourselves from the BNZ. It all happened in the mid 90s.
Dear old BNZ. They have the most chequered history of all the banks here. Was set up by the very aggressive and ambitious Thomas Russell, of Russel McVeagh fame in 1861, rescued by the govt in 1894, sounded like Mr Fay wanted to run it as his own private piggy bank for a few years in the late 1980's and was heavily involved in the Winebox transactions; it had to be recapitalised by the govt several times in 1990.
http://www.nzherald.co.nz/sharemarket/news/article.cfm?c_id=316&objectid=12689
Nice extract from Ian Wishart on the BNZ's history before he went off the deep end
Ironic quote from the 1861 BNZ prospectus, appealing to early kiwi nationalism against foreign owned banks.
“It is manifest to those who have directed attention to the subject, that the Banking establishments in New Zealand have derived immense profits which are payable entirely to a foreign proprietary, from a trade carried on with the funds of the colonists"
"Held accountabie" mist ? Am I to assume that you are presuming that they didn't act appropriately. What I find interesting is that their specialists did all the product training for farmers and others, and Im sure they would have had a standard way of explaing them, yet it is only a very small minority that have suggested that they did not understand them - clearly the vast majority did because even although some might have been shy to raise it with their bankers, I'd be sure there would have been a wave of them complaining if the majority didn't understand.
Frankly I think it's just a case where a few clearly didn't understand it correctly, and the banks didn't picked up the fact that that was the case. I understand the accompanying documentation was clear. I tend to agree with the writer that they can't expect to be mind readers, and that if someone doesn't understand, they seek clarification, or independent advice from someone who does, basically personal accountability does apply here.
A family member got stung with these swaps through the BNZ ... he paid over $1m to break two years ago. Caveat emptor is all very well but I agree with others that these risk margins that caused these products to become very expensive was poorly understood - not only by the farmers but also the bank's relationship managers and other rural advisors. I remember my accountant saying to me that if they weren't pushing the product because if they didn't understand them they wouldn't recommend these type of swaps to clients. As for my brother - he has moved on and is probably too proud to admit that this was a very expensive gamble that didn't pay off.
Yes $1m was the break fee ... but the way these swaps were sold was to protect farmers against rising interest rates (which at the time were rising) so farmers took them out to give themselves some certainty about payments. The thing that caught a lot of farmers out was a huge increase in the risk margin which came about due to the global financial crisis ... this wasn't flagged as a probable risk when originally the contract was made.
Regarding SWAP experience in the latest UK material can be found on the FSA website, updated on 3 September, which has a number of documents to navigate through: http://www.fsa.gov.uk/library/other_publications/interest-rate-swaps
"Farmers who signed up to interest rate swap agreements with banks now being "assessed' by the Commerce Commission for potential breaches of the Fair Trading Act, need to take responsibility for their own actions, says Federated Farmers president Bruce Wills"
What about the banks taking responsibility for their actions Mr Wills, are you so conceited to think that just because only a handful have rung you that there isn't a problem? I have fielded a very large number of calls and emails from farmers since the articles.Perhaps the lack of response to Mr Wills, ex banker is the lack of empathy and understanding farmers know they will get from FED FARM.
As for Bank Ombuds lack of calls most of the farmers don't fit her mandate to investigate A damning recent ruling re the selling of swaps to Shires and Councils in Aus two weeks ago..http://www.governmentnews.com.au/2012/09/25/article/Lehman-Brothers-Grange-liable-for-council-sub-prime-losses/TXGFEZDOCY.html
http://www.ibtimes.co.uk/articles/393235/20121011/mis-selling-derivatives-caroline-lucas-chris-leslie.htm the latest fallout in the UK
Swaps were mis- sold and misrepresented to farmers and as I negotiate with banks on a daily basis for farmers I think I have more of an understanding than most apart from the banks themselves of what a cock up SWAPS were for farmers and banks. Maybe Bruce you need to stop having corporate bank lunches and communicate with the people at the coal face.You might find membership falling for fed Farm as you appear to a lot of farmers, as having little or no integrity and certainl;y not the go to person.
mist, I could not agree more. We have ex-nurses etc and every type of good intentioned person employed to undertake tasks well beyond their ability and training. The result?
When are interest rates formally forecast to rise? Last time I checked, the Fed as far out as 2014-15, RBNZ late 2013? Any excuses proffered by employees and their advisors are indefensible. Losses by omission are no different to losses caused by ill-informed risk aversion strategies. Penalties accrue for both as far as ratepayers are concerned.
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