By Gareth Vaughan
Westpac New Zealand CEO Peter Clare says he'd be "mortified" if it turned out that interest rate swap agreements the banks sold as part of loans to farmers between 2007-09 turned out to have been mis-sold.
The Commerce Commission said 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, raise issues under the Fair Trading Act.
Clare, who took the helm at Westpac NZ after shifting across from the bank's Australian parent as recently as April this year, told interest.co.nz all the major banks "broadly" sold a range of products now being "assessed" by the Commerce Commission.
"Certainly in particular for organisations and people who were involved in exporting, it made sense to look at those products," Clare said. "I'm confident that Westpac always appropriately sold those products, and certainly would be mortified if that was not the case."
He said as far as he was aware the Commerce Commission hadn't formally requested anything from Westpac as part of its "assessment".
In early October a Commerce Commission spokeswoman told interest.co.nz the assessment was being made after the consumer watchdog 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.
The Commerce Commission's move comes after a series of articles in both the Sunday Star-Times and Straight Furrow about interest rate swap agreements banks entered into with farmers between 2007 and 2009, a period in which interest rates were mostly much higher than today. The reports said the swaps were sold by banks including ANZ National, Westpac and ASB to farmers as insurance against interest rates rising.
Then when interest rates actually fell, farmers were left locked in to high interest rates they couldn't escape from, unless they paid pricey break fees. The SST said the deals had helped send some farmers to the wall and left some with the choice of coughing up something in the vicinity of NZ$1 million in break fees, or of paying interest of around 10%, significantly higher than the about 6% for a standard floating rate mortgage.
According to the SST, a major gripe some farmers have is they didn't realise the swap agreements had provisions allowing the banks to increase their margins.
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5 Comments
Westpac New Zealand CEO Peter Clare says he'd be "mortified" if it turned out that interest rate swap agreements the banks sold as part of loans to farmers between 2007-09 turned out to have been mis-sold.
Irrespective of Mr Clare's mood in respect of Interest rate swaps executed between his bank and others, he might like to explain to those more than confused at the necessity, other than outsized profit expectations, for banks worldwide to enter into such contracts to the tune of +USD.400 trillion. See stats here as part of a wider semi-annual study here.
I doubt he has to Stephen - on this side of the world the banks pretty much just do standard vanilla business mostly with customers - interest rate swaps either hedging fixed rate term loans or retail fixed mortgages, or swaps directly with their customers to hedge floating loans. Your question relates to the US and European banks who have indulged in massive speculative derivatives business to try to sustain profits.
No Siree!
There is an off balance sheet derivatives book that is not transparent to the RBNZ or to the unsecured depositors that are at risk with OBR.
My view is that the RBNZ is not up to managing the regulatory impositions necessary to stop our banks going broke, due to the politics of capture, so the depositors get a loss mechanism imposed upon them they hardly understand to allow the government a backdoor responsibility escape mechanism - you were warned - but where I might ask? - here or in the ballot box.
Meanwhile the 'covered bond gangsters' are preparing for armageddon at the citizen's expense.
All this finance is derivative based - primarily cross currency basis swaps in the case of foreign sourced finance.
Give all of us a break Grant A - if you are a troll for the banks just say so - but stop the innocence bullshit - for f&*k sake I have been doing this real time all my life.- give me reason to change my mind?
too funny
mor·ti·fy (môrt-f)
v. mor·ti·fied, mor·ti·fy·ing, mor·ti·fies v.tr. 1. To cause to experience shame, humiliation, or wounded pride; humiliate. 2. To discipline (one's body and physical appetites) by self-denial or self-inflicted privation. v.intr. 1. To practice ascetic discipline or self-denial of the body and its appetites. 2. Pathology To undergo mortification; become gangrenous or necrosed.
Westpac New Zealand CEO Peter Clare says he'd be "mortified" if it turned out that interest rate swap agreements the banks sold as part of loans to farmers between 2007-09 turned out to have been mis-sold.
Swaps were missold and the result has been for farmers that were profitable are no longer profitable Swaps for farmers, and local councils Auckland City, Tararua, Dunedin and no doubt others, were and are a total" hospital pass" to quote a banker.
many of the local regional bankers admit to their clients that they didn't understand the product and as overseas experience shows following inquiries in the UK and Court cases in Auistralia, Swaps were sold to unsophisticated clients.
Some farmers were told that if they didn't take up Swaps the bank/s would have to revaluate the business relationship.Swaps were also marketed as the best way to" insure" your business and described as a "Fixed rate with benefits. "Not to mention the incentives to sell the product.
the impact of Swaps on the rural sector s appalling, no wonder banks are posting huge profits, talked to a farmer tonight and he is being charged 22% for OD!
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