Commerce Commission moves on 3 big banks [Interest Rate Swaps]

### stuff.co.nz Last updated 17:17 17/12/2013
Banks taken to court over farm deals
By Rob Stock and Matt Rilkoff
In a war that has cost her a lifetime of work, former north Taranaki farmer Angela Potroz says she has finally won a battle.
The Commerce Commission announced today it intended to take ANZ, ASB and Westpac banks to court for “misrepresenting” sales of interest rate swap loans to rural customers.
Potroz and her husband John were some of the hundreds of farmers persuaded by The National Bank (now branded ANZ) to take the financial product in 2007 as a way to “beat” rising interest rates.
Nearly inexplicable to all but financial experts, the products were often sold to farmers as being fixed rate loans “with benefits”.
But when the global economy fell apart, interest rates on the swaps soared and fine print penalty clauses kicked in.
With the bank refusing to offer the Potrozes any relief and refinancing costs in the millions, the couple said they were doomed to fail.
In November 2012 they sold four sheep and beef farms valued at $18.85 million in 2010 for just $12.08m after the bank demanded their $11m swap be repaid in full.
Read more

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Media Release: Commerce Commission proposes to issue proceedings on interest rate swaps

17 December 2013

The Commerce Commission confirms that it has advised three major New Zealand banks, ANZ, ASB and Westpac, that it intends to issue legal proceedings over their sales of interest rate swap contracts to rural customers.
The Commission has advised the banks that in its view there is sufficient evidence that they may have breached sections 9, 11 and/ or 13 of the Fair Trading Act, and that it wishes to place the matter before the Court for its decision.
Commerce Commission Chairman Dr Mark Berry says the Commission aims to file proceedings in March 2014.
“This has been a very extensive and complex investigation, but that phase of it is almost at an end. We have advised the banks of our views that swaps were misrepresented to rural customers. I expect to have more talks with the banks about these views, and about the different facts that might apply to each of them, over the coming months,” said Dr Berry.
“Because court proceedings are in prospect, the Commission will not be commenting further at this time.”
The Commission is also considering the conduct of other institutions that have sold interest rate swaps.
The Commission encourages affected swap customers to contact the Commission on 0800 943 600.

Background
Interest rate swaps are a financial derivative product that allows a borrower to manage the interest rate exposure on their borrowing.
Interest rate swaps were typically provided to large corporate and institutional customers, but from 2005 were offered by various banks to rural customers throughout New Zealand.
In August 2012 the Commission began enquiring into whether interest rate swaps were misleadingly marketed from 2005.
This matter relates to ANZ Bank New Zealand Limited (ANZ), ASB Bank Limited (ASB), and Westpac Banking Corporation and Westpac New Zealand Limited (together, Westpac).

[Relates to: Fair Trading]
ComCom Link

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Interest Rate Swaps
17 December 2013: Proposed Legal Proceedings – Questions and Answers*

*Click on Question links for Answers

1. Which banks does the Commission intend to take court action against over the marketing and sale of interest rate swaps to rural customers (farmers)?
2. Background to investigation and decision to take court action
3. What does the Commission intend to do?
4. When is the Commission filing proceedings against the banks?
5. How much have farmers lost as a result of the alleged conduct?
6. My farming business purchased interest rate swaps. Do I need to do anything?
7. My farming business bought an interest rate swap or swaps from one of the named banks. Am I going to get compensation?
8. How long will it take for an outcome on the case?
9. My farming business purchased a swap from one of the banks identified by the Commission. I am in financial difficulty with the bank. How will these proceedings affect me and what should I do?
10. I have settled a complaint with one of the banks named over the sale of interest rate swaps? Can I still assist the Commission?
11. I am worried that if I help the Commission in its proceedings there may be repercussions against me or my business by the bank I deal with?
12. What about swaps sold by other banks?
13. My business purchased swaps but it is not involved in farming. Do you want to hear from me?

Documents
Interest Rate Swaps Investigation – Proposed Legal Proceedings Questions and Answers 17 December 2013 (PDF, 50 KB) Published on 17 December 2013
Notes for meeting with Damien O’Connor MP on Interest Rate Swaps Investigation 9 May 2013 (PDF, 41 KB) Published on 10 May 2013
Interest Rate Swaps Investigation Questions and Answers March 2013 (PDF, 88 KB) Published on 27 March 2013
Interest Rate Swaps Investigation Questionnaire March 2013 (PDF, 47 KB) Published on 10 May 2013

ComCom Link

Posted by Elizabeth Kerr

8 Comments

Filed under Business, Economics, Geography, Media, New Zealand, People, What stadium

8 responses to “Commerce Commission moves on 3 big banks [Interest Rate Swaps]

  1. One other bank, which is yet to be named by the commission, is also under investigation and could be joined to any court action if it goes ahead. Its investigation is limited to farmers at this stage but it has also asked for complaints about the mis-selling of swaps from any other businesses.

    ### stuff.co.nz Last updated 07:47 23/12/2013
    Business: Farming
    Sorry tale of swaps no one understood
    By Fiona Rotheram
    OPINION: It has been a victory – of sorts – for farmers with the Commerce Commission last week saying it intended filing court action next March against the ANZ, ASB and Westpac banks for “misrepresenting” the sale of interest rate swap loans to rural customers. I say a victory of sorts because there’s a lot of water under the bridge yet to get compensation for farmers, some of whom ended up more heavily indebted and losing their land.
    Sold between 2005 and 2008, interest rate swaps were marketed to farmers as a way to beat rising interest rates. When the global financial crisis hit in 2008 farmers with swaps saw the interest they were paying rise when rates were falling rapidly elsewhere. The banks charged huge break fees for those wanting to exit the swaps.
    While you could argue the farmers should have got independent legal advice, most trusted their bank advisor to have been acting in their best interests. As it turned out, in my view, they were acting in theirs.
    The three banks have said they’re co-operating with the commission, with Westpac and ANZ saying they would defend the mis-selling allegations. But the ANZ has said there are “historical issues”, with the three-year limitation period under the Act to obtain compensation for farmers having already passed. The commission said it had taken all factors into consideration before threatening legal action.
    Read more

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    A property investor, who asked not to be named, said there was a push by at least one bank involved in the commission’s alleged Fair trading Act breaches to get swaps into the commercial property lending market. Some signed up to them.

    ### stuff.co.nz Last updated 12:21 22/12/2013
    Business: Farming
    Bank claims farmer swaps compo call ‘too late’
    By Rob Stock – Sunday Star-Times
    ANZ says the three-year limitation period has passed under the Fair Trading Act for the Commerce Commission to obtain compensation for farmers who were mis-sold interest rate swaps. That, the bank warned, meant the commission “will now have to attempt a novel and uncharted method to obtain compensation if it takes the court route.”
    The bank’s written statement comes in the wake of the news last week that the commission would launch legal action next March under the Act against ANZ, Westpac and ASB for the sale of the swaps between 2005 and 2008. It is also investigating another bank, not yet named, that also sold swaps and may be joined to the action.
    The commission’s response to ANZ’s claim is that it is inappropriate to comment because court proceedings are in prospect but it had “taken into account all relevant matters in making its decision”.
    Read more

  2. Didn’t DCC (spit here) do something similar with the lemon?

  3. Elizabeth

    ‘TOUGH GOING’: “Organisations you thought would be supporting farmers, didn’t,” –Janette Walker, farm debt mediator

    ### stuff.co.nz Last updated 17:44, December 3 2014
    ANZ may face lawsuit, $19m disappoints
    By Richard Meadows
    ANZ could face a class action lawsuit on top of its $19 million payout, after admitting to misleading behaviour in the sale of interest rate swaps to farmers. The country’s largest bank has settled with both the Financial Markets Authority and the Commerce Commission, which were investigating the sale of the complex derivatives.
    As many as 178 rural bank customers who complained to the commission could be eligible to share in the $18.5m of settlement cash, with $500,000 going towards the commission’s costs. However, the average of about $100,000 each falls well short of the losses some farmers have incurred.
    The farm debt mediator who uncovered the swaps sales saga, Janette Walker, said the battle was not over. “I am disappointed in the $19m, but it’s a start,” she said. Walker said many farmers had not come forward as they were scared of reprisals from lenders, which had the power to call in loans and kick them off their land. Others have reached private agreements in return for their silence.
    Read more

  4. Russell Garbutt

    Interest rate swap derivatives

    Interest rate – a percentage of the amount borrowed
    swap – to exchange, barter or trade
    derivatives – a financial contract whose value derives from the value of underlying stocks, bonds, currencies, commodities, etc.

    But to get the real guts of things look here
    http://en.wikipedia.org/wiki/Interest_rate_swap

    Incredibly complex and highly tuned to the lender.

    Next question. Is the DCC in any form using these type of financial instruments either in DCTL or in any DCC company?

    • Russell, when the ‘merde’ hits the fan for the DCC, you might be staggered at the financial hazards they have in the cupboard. Rob Hamlin has expressed concerns on these matters on this site more than once about the DCC’s possible precarious positions.

  5. Hype O'Thermia

    Is this a case of “a fool and Other People’s Money are soon parted”?

  6. Elizabeth

    Or was it the case of all the greedy bastards that moved to start-ups and expansion for intensive dairying by taking a major financial risk and knowing nothing [cf Queen Street Farmers, Oicks and Lowly Ilks]
    Easy come, easy go — and don’t cry over spilt milk.

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