Small talk: New bank scandal threatens over SME interest-rate swaps


Are interest-rate swaps going to be the next major banking scandal? All the high street banks, already battling claims that their refusal to lend to small and medium enterprises (SMEs) is jeopardising the country's economic recovery, stand accused of mis-selling complex derivative products to firms worried about their borrowing costs.

The products varied from bank to bank and business to business, but are similar in their design. Most swaps were sold between 2006 and 2008 as insurance against the possibility of interest rates rising, with tens of thousands of small businesses signing up.

The flipside is that while SMEs taking out the contracts were protected in the event of an increase in the cost of borrowing above set levels, there were additional costs to pay if interest rates fell too far.

As it turned out, that's what happened. In March 2009, the Bank of England responded to the country's dire economic outlook by cutting base rates to 0.5 per cent, where the cost of borrowing has remained ever since.

As a result, the downside clauses on tens of thousands of interest-rate swap deals signed by SMEs kicked in – many are now paying three times more interest than they otherwise would be on their loans. Some have even gone out of business as a result of the unexpected bills.

The question is whether the products were mis-sold. SMEs may not like the way the contracts have turned out, but if they understood the potential downside of this sort of interest rate insurance before they signed on the dotted line, they can hardly complain.

In fact, there's good reason to think at least some small businesses have a decent case to allege mis-selling. Many claim the risks weren't properly explained at the point of sale and point to what look like sharp practices. The deals invariably lock borrowers in for extended periods, for example. And SMEs were often persuaded to insure their entire overdraft facilities, even if they weren't using them in full.

Moreover, the behaviour of the banks is reminiscent of scandals such as payment protection insurance (PPI) . Small business advisers at the banks appear to have been paid commission to sell the deals, or at least to introduce clients to their investment bank arms, which ultimately arranged the swaps. And where SMEs have brought cases to court, the banks have chosen to settle rather than face precedent-setting judgments.

Here's the problem, however. While the Financial Services Authority (FSA) and the Treasury say they are now having another look at interest-rate swaps, SMEs do not have access to the sort of help to which the banks' retail customers are entitled. In particular, the Financial Ombudsman Service, which would consider identical mis-selling claims in the retail sector, does not accept complaints from businesses with more than 10 employers or a turnover of more than €2m (£1.6m) a year.

That leaves SMEs with little option but to risk taking legal action against the banks – and at the mercy of the sort of ambulance chasers still targeting those sold PPI. Solicitors are already scenting blood – some have experience in this area, but others certainly don't.

In March, Andrew Tyrie, chairman of the Treasury Select Committee, asked the FSA to brief him on its review of sales of interest-rate swaps. SMEs' best hope for a full and public investigation into the affair may be an inquiry by his powerful cross-party committee.

Seven is not so magnificent

Could we be seeing the first inklings of recovery on the Alternative Investment Market, where the London Stock Exchange says there were seven new listings during March, compared to just four in February and three in January?

Well, to put those figures into context, there were 90 new Aim admissions in total during 2011, a poor year, so the first quarter of 2012 has still been disappointing. And note too that delistings are continuing apace – another 11 companies left the market during March, so Aim is continuing to shrink.

In tune InternetQ set to hit the right note with investors

Global marketing budgets may be static, but the way they are divided up certainly isn't, with smartphone channels taking an ever-larger slice of the cake.

Enter Alternative Investment Market-listed InternetQ, which provides the technology for mobile marketing campaigns. It also offers Akazoo, a content technology that entertainment providers can use to deliver music and games.

InternetQ's 2011 results, published a fortnight ago, were promising, and a trading update, due out this week, also looks encouraging. It will include details of new deals with mobile phone network operators in countries as far-flung as Laos and Zambia, as well as tie-ups with a string of countries to provide smartphone voting to viewers of May's Eurovision Song Contest, where the UK is represented by veteran crooner Engelbert Humperdinck, pictured.

House broker RBC Capital Markets expects investors to warm to InternetQ's tune. Its target for the stock, currently trading at 251.5p, is 325p. Analysts at First Columbus Investments are in the same ballpark – their target is 306p.

Small business man of the week

Boxing clever with healthy snacks at a price to tempt: Ben Jones, co-founder,

I launched the business in 2008 with six friends from school and university – we were all fed up with eating unhealthy snacks at work and we wanted to see if there was a way to get good-tasting healthy snacks instead. We have more than 250 employees and we import more dried mango than Tesco. We deliver food boxes with the customer's personalised choice of 100 different snacks – there are a possible 4.9 million combinations, so no one box is ever the same – for £3.79.

We started at £3.49 but food-price inflation was wild in 2010 and we were forced to increase our prices. We're very keen to stick at this point now, because pricing is crucial and we're aware that household finances are tight.

One thing that we think makes our business really exciting is that we control the whole value chain, from procurement to manufacturing, packaging, distribution and retail. It's crucial for us to retain that control – and we invest heavily in new technology to do so – because with a single price point, the margin is different on every box.

Start your day with The Independent, sign up for daily news emails
Legendary blues and rock singer Joe Cocker has died of lung cancer, his management team as confirmed. He was 70
people70-year-old was most famous for 'You are So Beautiful'
Life and Style
fashionOne man takes the hipster trend to the next level
John Rees-Evans is standing for Ukip in Cardiff South and Penarth
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
newsIt was due to be auctioned off for charity
Life and Style
A still from a scene cut from The Interview showing North Korean leader Kim Jong-un's death.
Sir David Attenborough
environment... as well as a plant and a spider
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Arts and Entertainment
Bianca Miller and Katie Bulmer-Cooke are scrutinised by Lord Sugar's aide Nick Hewer on The Apprentice final
tvBut Bianca Miller has taken on board his comments over pricing
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'