Barclays has had to put money aside for the mis-selling of interest rate hedging products that were sold to SMEs. These products were supposed to protect borrowers from rising interest rates on their loans, but in numerous instances banks made businesses take out the hedging product in order to get their hands on the loan – the FSA is demanding the banks refund the cash.
Furthermore, contractual terms often meant firms could not get out of the deal without paying massive fees to their bank, and some of these deals the hedging arrangement lasted for several years longer than the loan agreements themselves.
So why is Barclays suddenly gearing up for payouts on this one? Well, last week, it was revealed that the FSA had conducted its own review of 173 hedging products sold last year, and found that more than 90% of them broke regulations. They’ve finally caught up with a story that MT first covered nearly a year ago, it seems, and ordered the UK’s biggest banks (Barclays, RBS, Lloyds and HSBC) to review their actions in this area and basically pay back SMEs if they’ve been diddled.
The second issue concerns payment protection insurance. This was designed to help businesses and individuals out if they lost their job and couldn’t service their loans. Barclays has already put aside £2.6bn for this, and banks across the board have already paid out millions in compensation for the mis-selling of these products.
The news of the £1bn extra at Barclays comes just days after Barclays’ finance director Chris Lucas announced he is stepping down from his post as well as the firm’s general counsel Mark Harding.