Bank claims farmer swaps compo call 'too late'
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".
Westpac has said it would "vigorously defend" any legal action and ANZ also said it intended doing the same.
"The process of farmers obtaining any compensation via the commission filing proceedings therefore contains very significant risk. ANZ, as always, is committed to doing the right thing for its rural customer base," it said.
All three banks have said they'll co-operate with the commission which has entered talks with them over potential compensation as an alternative to court action. The ANZ said it was prepared to enter into constructive dialogue before March 2014, rather than "tying the process up in court for many years with the strong possibility of no outcome being reached for relevant farmers."
The three banks have also emphasised the sales the commission has focused on are "historic" and they are now more cautious in the way they sell interest rate swaps.
Farmers claim the swaps were sold to them as "fixed rate loans with benefits" which would protect them against interest rates rising, but when interest rates crashed, they found the interest they were paying on their loans actually rose.
Those rises, it appears, were a result of the banks being able to alter the margins they charged on farmers' loans, including adding something they called the "Global Liquidity Margin" to cover the additional cost of the banks borrowing money overseas, something they would not have been able to do on traditional fixed rate loans.
Some farmers, said Janette Walker, a farm debt mediator who uncovered the swaps sales saga, ended up paying interest of 11 per cent to 15 per cent on their loans when the going rate other farmers without swaps were paying was around 5.5 per cent.
The financial stress, combined with the awful drought in 2008, caused some to lose their farms, and, Walker says has contributed to some farmers taking their lives.
Already, out of the public eye, the banks have been doing deals with some farmers who were sold swaps and whose borrowing rates climbed after the GFC struck.
The deals that have been done with borrowers, including farmers, were in return for waiving legal action over the swaps. Until 2005 interest rate swaps were only being sold to larger, well-advised corporate clients with skilled employees able to understand the risks they were taking.
Borrowers have had to sign confidentiality settlements as part of these deals.
In Britain similar claims of banks mis- selling interest rate swaps to businesses resulted in banks agreeing with the Financial Conduct Authority to a process where cases were individually reviewed and compensation paid.
Throughout the year, Sunday Star- Times has been contacted by farmers and other borrowers who have done deals to alleviate their debt burden.
Commerce Commission spokesman Gordon Irving said it knew of people who had renegotiated their borrowings with the banks, "but that's not necessarily compensation." The door could still be open for them to assist the court action and seek compensation.
And the commission said the confidentiality settlements were not necessarily a hindrance to people passing information to the commission, which had powers to compel people to hand over documentation.
While the commission's focus remains on the more than 140 farmers who had laid complaints, they were not the only targets of the swaps sales push and it is willing to hear complaints from others about mis-selling.
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.
Mark Schiele, chief executive of property syndicator Oyster Group, said: "We did hear about it because it was relatively new. It was one of those products being pushed out there by banks to commercial property owners, relatively uniquely at that point in time. In years gone by it had always been fixed rate loans."
He said property owners who took out swaps believed that if interest rates kept rising, they could have sold their properties and cashed in the swaps without cost. Something they could not have done with a fixed rate loan.
But they seemed "nave" about the risks they were taking with the swap loans, Schiele said.
Oyster Group also used swaps but avoided any deals which gave the banks the ability to move their margins, something that unsophisticated buyers of swaps did not know to insist on.
- Sunday Star Times