New Zealand farmers left high and dry
At the height of the global economic boom foreign-owned banks exploited their close relationships with rural New Zealanders, to sell billions in loan products that have brought hundreds of farmers to their knees.
Called interest rate swaps the complicated derivative products were aggressively marketed to farmers from around 2005 to 2008, as similar to fixed-rate loans but with "benefits".
Heralded as an answer to soaring interest rates, thousands of farmers took up the loans despite many having little understanding of what they were getting into.
That ignorance soon took its toll. When the the global economy collapsed in 2008 and the cost of borrowing skyrocketed, banks hiked up charges on the loans and enacted break fee clauses of millions of dollars, trapping farmers into paying interest as high as 14 per cent, even when rates sank to less than six.
Labour's spokesman for Primary Industries, Damien O'Connor, believes swaps have the potential to be New Zealand's biggest banking scandal, involving thousands of farmers and as much as $8 billion in loans.
The bulk of these were believed to have been made by the National Bank, which has now merged with ANZ. ASB, BNZ and Westpac are also understood to have sold swap loans in the past and continue to do so to select customers.
On Wednesday a spokesperson for the ANZ said interest rate swaps were one of a number of products it offered to farming businesses to manage their interest rate risk.
All customers were advised to seek independent advice before entering into a swap to ensure they fully understood the product, the bank said.
Unfortunately, advisers to farmers often didn't understand the swaps. One former banker told the Taranaki Daily News young bankers didn't understand the product either. However, this didn't stop them collecting annual bonuses of as much as $50,000 and more for getting farmers into swaps and other profitable loans.
When things started to go wrong the local bank employees who sold the product, and may have felt an obligation to make things right with the customers who trusted them, were replaced by a banker from outside of Taranaki.
Just how many farmers have been caught out by the swaps is impossible to know, although the Daily News understands as many as 200 farmers may be affected in Taranaki.
Some have already done deals with banks that have gagged them from speaking out, while others fear going public because of veiled threats it would wreck their own chances of reprieve. Still more are understood to have been forced to sell up before receivers were appointed.
"It was a wonder product they said. They said it would fix everything and when it didn't they just wouldn't budge," says Awakino's Angela Potroz.
In November Mrs Potroz, 63, and her husband John, 69, paid the ultimate price for taking on a National Bank swap in 2007. Last year they say they were forced to sell four sheep and beef farms with a 2010 valuation of $18.85m for $12.08m, when the bank demanded their $11m swap be repaid in full.
The couple say for four of the five years they held a swap they were caught in a living hell of increasing repayments and dwindling income. With repayments, fees and other charges sometimes getting close to $100,000 a month, they barely had enough to run their farms - let alone pay the break fee of $3 million to get out of the swap.
Throughout their slow ruin the couple say the bank refused to refinance the swap. By their own estimates the loan cost them up to $4m more than they had budgeted for when they took it up in 2007.
"We have been totally robbed. We have been robbed and treated badly by the people who should have helped us," Mrs Potroz says.
They were not alone. The Commerce Commission is investigating swaps, following allegations from around 60 farmers that they were mis-sold the product and it was promoted in a misleading way.
"This is a very complex investigation and we are at an early stage. We have not yet formed a view as to whether the Fair Trading Act has been breached. However we do have sufficient concerns that we wish to probe further," Commerce Commission chairman Mark Berry said on Wednesday.
For farm debt mediator Janette Walker the outcome of the investigation should be a foregone conclusion. Banks were wrong and farmers should be compensated, just as has happened in Germany and is happening in Britain.
Farmers were not told what they were getting into, she claims, and were manipulated by people they trusted.
"The whole thing was based around relationships. Farmers have banked with these banks for 30-40 years. So they never expected to be done over by their bank.
"I talked with one farmer who took swaps and has had to sell almost everything.
He used to go hunting with his manager. He used to go fishing with him.
He trusted what he was being
told by him and he did not expect to be shafted."
And far from farmers approaching the banks for the money, it was the banks that solicited farmers - offering the swaps as the only sensible option in a booming economy to protect against interest rates rising.
If the way banks sold swaps wasn't illegal it was unethical, says Mr O'Connor.
"It's not the financing so much, it's the overcharging, the break fees and the additional profit they made over and above what they would have on the traditional finance products they sold to farmers.
"I think the banks need to come clean and build a new and fresh relationship."
Quite how many farmers banks need to make peace with will get harder and harder to know.
Mr O'Connor says banks are offering some farmers refinancing, with the caveat they sign confidentiality agreements.
"Absolutely this is evidence banks recognise they have made a mistake," he says.
It could be more than that. It could be the biggest scandal to ever hit New Zealand banks, he says. "From my calculations this is probably the case, but until we investigate more fully we are only guessing."
GET IN TOUCH
The Commerce Commission is currently seeking more information from farmers and others who entered into a financial derivative product known as interest rate swaps. A questionnaire is available to download at www.comcom.govt.nz. Farm debt mediator Janette Walker can be contacted on 027 859 0281 or (06) 323 2575.
Taranaki Daily News