This coming Friday 1st February, 2013, there will be an important meeting in Belfast where it is expected that developers and borrowers generally will congregate to discuss what to do about the mis-selling of interest rate insurance products called swaps. There is a meeting/conference taking place on 1st February 2012 at the Belvoir Golf Club, Belfast (tickets £30). Register at mailto:email@example.com@bully-banks.co.uk. See website bully-banks.co.uk.
On this side of the Border, you might have expected Property Industry Ireland or even the Construction Industry Federation to show some initiative and organize a similar meeting here, but to date, zilch. If developers or borrowers are waiting for the Central Bank of Ireland to do anything, they might be in for a long wait, as the evidence points to the Central Bank being petrified of further losses in any of our banks.
Meanwhile there is now a trickle of court cases where borrowers are taking the initiative themselves and suing the banks directly. Two weeks ago, we learned of 10 individual applicants suing First Active/Ulster Bank. This comes after the out of court settlement last summer when Cortina-averse developer David Agar reportedly won a €30m settlement against Ulster Bank. And remember in the UK, they believe the mis-selling of interest rate swaps may cost the banks north of €2bn.
Today, we learn via the Irish Examiner that Komady Limited, a company controlled by the Flynn family and Michael O’Reilly, together owners of the Belgard Retail Park in Tallaght, west Dublin are suing Ulster Bank over the alleged mis-selling of swaps, reported by the Examiner at €54m. The application makes clear that the Belgard Retail Park continues to be operated successfully and is not affected by the application.
The case was initiated in Dublin’s High Court last November 2012 – reference 2012/11888 P – and both applicants are represented by Downes solicitors, the same solicitors representing the applicants in the previous two swap mis-selling cases. Ulster Bank is represented by Arthur Cox. Yesterday, the redoubtable Mr Justice Peter Kelly agreed to transfer the case to the Commercial Court division of the High Court which should lead to a fast-tracked hearing, with the case next set for motions on 20th May 2013.
At the heart of the case is the very nature of interest rate swaps – swaps are explained in some detail here. It appears that in this new case, Ulster Bank was in 2005 and 2006 selling insurance against interest rates exceeding 5%, and as we know, EuroZone interest rates have reduced sharply to a record low of 0.75% as the EZ combats the financial crisis and recession. So, the borrowers don’t get any benefit from the swap. But because interest rates have plummeted, the borrowers are on the hook for tens of millions of additional interest payments, because the nature of a swap is that it pays out if rates exceed a certain level but requires YOU to pay out if rates dip below a certain level.
According to Ann O’Loughlin in the Examiner, the borrowers are claiming Ulster Bank didn’t comply with its obligations under Ireland’s investment regulatory rules, and that the swaps were not in the best interest of the borrowers or explained sufficiently to them and that the bank induced the borrowers to buy the swaps.
UPDATE: 29th January, 2013. The case is also reported by the Irish Times – and if you’re reading this folks, above is an example of “the story of why” - and Independent - which appears to have pooled its reporting with the Irish Examiner - today. It might be worth noting that with the Agar, the Ryan/Colgan/Monaghan/McDonnell and today’s case relate to nearly €150m of swaps. How long before the Central Ban