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Commerce Commission seeks more farmers for swaps case

The Commerce Commission says farmers concerned about the way their interest rate swaps were sold to them have until the end of the month to contact the regulator otherwise they may miss out on future compensation claims.

The antitrust regulator is investigating the alleged mis-selling of interest rate swaps in the rural sector by the New Zealand branches of the Australian-owned ASB, ANZ and Westpac banks between 2005 and 2009, citing possible breaches of the Fair Trading Act, and said it was also looking at other institutions which sold the swaps.

"We want to ensure that we have received information from all potentially affected customers before we take next steps in this investigation," said commission chair Mark Berry. "We cannot be confident that any compensation sought in court or that may otherwise be available will be obtainable for customers who have not made contact with us."

In April the Financial Markets Authority, the securities markets watchdog, joined the probe, expanding the investigation to see if laws including the Securities Act 1978 and the Securities Markets Act 1988 had been breached.

Interest rate swaps are intended to allow clients to manage the interest rate exposure on their borrowing and are typically marketed to large corporations and institutions. From 2005, banks began marketing them to their rural and commercial clients and the Commerce Commission has received more than 140 complaints about the way the financial derivatives were sold.

Rural customers concerned about their interest rate swaps need to contact the commission before May 30 to be included in the investigation.


Comments and questions

Can the ComCom get information from banks that shows who actually bought swaps or is that beyond their remit or ability via Privacy rules? I have a feeling some borrowers might have been silenced by settlement and while it is a good thing that some might have remedy it might expose the quantum of swap transactions to farming.

Don, didn't hear the farmers complaining when the swaps were working in thier favour. About time farmers took responsibility for their actions instead of complaining.

James, we got a bank presentation on these things to try and convince us to push them to our clients. I can tell you they were not very forth coming about the risks and basically sold them as a lower risk alternative to fixed interest loans (all the positives but none of the negatives). A few probing questions had them scurrying out the door but it is very easy to see how they could con your average farmer, the downsides were very well concealed.

Probably about time these farmers took some responsibilty for their own actions... like the finance company fallout in this country, if a farmer is running a million dollar operation and cant deal with the bank offering a product then you have to say that they deserve all they got. Funny how these swaps were great when they were working in their favour, id suggest if you dont understand the product you are being offered from the bankers then I would expect these farmers would pay for some financial advice to understand what they are signing up for.

However I do understand that personal responsibilty is lacking in NZ and its easier to blame someone else for your actions.

You are right of course James about the lack of personal responsibility in this country.

However that does not mean that banks who made misleading statements to induce farmers to enter contracts should be let off the hook. After all, the very point of having Fair Trading legislation is so that consumers can rely on the statements of merchants.

Sounds like you are one of the bent bankers James.

If you searched globally you would find that bankers globally tried it on with all sorts of borrowers - not just farmers

The difference in other countries is that the authorities acted years ago and the banks paid out billions for their sins.

NZ are reacting 5 to ten years after the event - but will probably not even punish the banks

James I absolutely concur about taking personal responsibilty-thats why I am in the ACT party. But I am concerned about any mis-selling of a banking product and the human tragedy is can leave behind. Mystifying too is that no farm borrower would have signed a loan document without a legal eye being cast over them. So even the borrowers extra set of eyes failed to read the small print about margin change. Culpabilty lies where is advice has been sought and paid for but was deficient? ACT will not be supporting any special farm debt mediation Bill likely to be promoted by the lefties. As you suggest James farm debt is not special, but mis-sold debt is.

I clearly remember the day we were offered swaps.
Our Agribusiness bank manager arrived at short notice with three 'Suits" from Wellington.
Touring the district on a selling drive.
Glossy brochure in hand with examples of graphs and projections.
Our Agri manager was trying to hide his discomfort.
First words: 'Confidentiality Essential', not allowed to discuss with anyone else!
Only for 'special' clients, (along with other flattery)
Usually only used by big corporations (yes, with selected staff employed to manage swaps).
Their eyes glistened with $$ signs,-in for the kill.
Then came the questions, some they could explain. Many more that they couldn't. Pure Bluster.
And so how does a farmer out working the land each day manage the swaps? They don't.
Thank goodness we saw through them and I still have the brochure to remind us.
We smelt a rat.
We've never trusted them since.
And our trusted Agri manager left the bank not long afterwards.

In 2005, the world economy was booming and Central Banks were raising interest rates, so buying interest rate swaps made good business sense as it enabled farmers to lock in a fixed interest rate that presumably they could budget for. Nobody then foresaw the Global Financial Crisis that erupted in 2008 resulting in a dramatic fall in interest rates. If not for the GFC, interest rates would have kept rising and farmers who bought the swaps would have been very happy indeed!

Swaps are a form of insurance, so perhaps people whose houses don't burn down or destroyed by an earthquake should complain to ComCom that insurance companies overcharged them for their premiums!

Swaps have been widely used in NZ since the 80's and are still widely used by thousands of borrowers - and well understood by plenty of farmers who continue to use them and indeed profited from them with smart hedging. Perhaps a bank didn't explain them as well as they could, I wouldn't tar all bank or individuals the same, but what is it after all, its just hedging a damn loan. it nothing special or complication in my experience. I think there is a fair bit of hindsight and having a go going on here with farmers without question.

I know of one farmer in Taranaki who signed papers for such loans around the kitchen table with only the bank present and without any professional advisers knowing he was doing it. The bank sold the product so well. He lost his $ 8 million farm and the bank bankrupted him to make a point. This needs to be investigated.