Interest Rate Swap Derivatives

Gerald Howarth Excerpts

Thursday 24th October 2013 Commons Chamber

[Sir Gerald Howarth (Aldershot) (Con)]

I join everyone else in congratulating my hon. Friend the Member for Aberconwy (Guto Bebb)—and also my hon. Friend the Member for Wyre Forest (Mark Garnier), whose banking career was much more distinguished than my own—on initiating this debate. I hope that the message will go out to the British people, and particularly to small businesses, that Parliament understands their grievances and is prepared to be robust in addressing them. We look to the Government to be equally robust in their response to the debate.

I want to raise the specific case of Pacer Marine, a boat business that provides chandlery services and sells day boats, rigid inflatable boats and the like. It is located just 10 minutes from junction 4 of the M3, so if any of my right hon. and hon. Friends would like to take advantage of that business, they should please do so. The principals of the business, Dennis Davis and his son Kevin, are constituents of the Secretary of State for Health, my right hon. Friend the Member for South West Surrey (Mr Hunt), but their business is located in my constituency. My right hon. Friend is as concerned about this matter as I am.

Pacer Marine moved in 2005. Mr Davis and his son had previously been renting premises, but they found a place to buy in Aldershot. They went to their bank for a normal commercial 25-year mortgage, but that was not available. Dennis Davis has described his discussions with NatWest:

“The bank were fairly aggressive from the start. Our 2 corporate managers came along to see us, then told us about the hedging/rate swap, and that they would only give us a ten year fixed mortgage with a further 5 years. We wanted a 20/25 year term. They charged us a greater rate than normal although we challenged them on it. The main reason for the hedge/swap was because, in their words, they said rates never go down. Well, as we all know now, they did. They then at another meeting introduced a third person who did the deed. Because of the position we were in we agreed to it, but we had always felt that we had been mugged.”

I have done an interest rate swap deal, so I know that they are extremely complex. One wonders what on earth the Royal Bank of Scotland was doing trying to present this sort of opportunity to a very small business.

The documentation provided by RBS is interesting. Part of the background it gave included this statement:

“Loan serviceability is tight…so there is a ‘condition of sanction’ that an interest rate management tool be put in place to protect you from variable base rate”.

Protecting interest rate liability is a perfectly sensible issue to discuss, but we should note that this was a condition of sanction. In a market update, the bank interestingly pointed to all the reasons why interest rates were unlikely to go down and more likely to go up, yet the memo acknowledged:

“There were mixed views from you on base: you saw the possibility of cuts of between half to 1%”.

The bank was recognising the concerns of the customer, but actually trying to make the case that the customer was likely to be wrong and that interest rates were more likely to go up so that the hedging proposal could be put to him.

The person involved was an employee of another part of RBS, so his interest was to make the most money for his unit by exploiting the uninitiated customer and flogging him business that he did not understand. I asked Mr Davis, “Why did you go into this? Did you consult a lawyer.” He responded by saying:

“We trusted the bank. Our business is boat chandlery, not financial wizardry. We thought we were getting the best advice from them. We never thought we would have to go to Peckham Market and deal with a bunch of Del Boys.”

That was how the people in the business felt about it.

Both my right hon. Friend the Member for South West Surrey and I raised this issue with Stephen Hester in June 2012. Needless to say, we got some sort of reply from something called “Group Executive Office”, whoever those people are, but the matter remains unresolved to this day, notwithstanding the fact that when I visited my constituent at the end of August or the beginning of September, they were due to have a meeting with RBS to go through the process which, as many right hon. and hon. Members have mentioned, moves at a snail’s pace. Two months on, we are no further forward. This is an absolute disgrace. We have to be clear that although the banking system and the banking business are important to the prosperity of the United Kingdom, the banks have a lot to answer for.

[Bob Stewart (Beckenham) (Con)]

I was really taken by what my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) said: perhaps the FCA should stop all repayments to banks until these problems are sorted out, certainly in specific cases. That might help the constituent of my hon. Friend the Member for Aldershot (Sir Gerald Howarth).

[Sir Gerald Howarth]

Several measures have been suggested during the debate and I hope that the Government will respond to them. I hope, too, that the FCA will respond more robustly than it has up to now.

My hon. Friend the Member for South West Devon (Mr Streeter) mentioned a meeting with Mr Chris Sullivan. Interestingly, he wrote to my right hon. Friend the Member for South West Surrey:

“As a Group, we are committed to the fair and timely treatment of our customers”—

what a fantastic and admirable sentiment!

[Andrew Bridgen (North West Leicestershire) (Con)]

Will my hon. Friend give way?

[Sir Gerald Howarth]

If my hon. Friend will forgive me, I will not, as other hon. Members wish to speak.

We have Mr Chris Sullivan, the chief executive of the corporate banking division—a very big wig in the Royal Bank of Scotland—saying that he is committed to the “fair and timely treatment” of the bank’s customers. I say, “Thank you very much,” to Mr Sullivan, because his letter was dated 3 August 2012 and yet my constituent has still seen no action. It is high time that the banks understood the gravity of the situation and the concern felt by the public. It is high time that they understood the risks they pose to businesses and the fact that they are damaging the United Kingdom by failing to address these concerns. They must do so forthwith, and the Government must give them every help so to do. I hope that eventually—indeed, soon—our constituents who have put their money on the line to try to generate wealth for our country and improve the economy will be given a better deal.