The banks are in the news – this time with revelations about HSBC. Here’s my personal story of how the banks, the financial regulators and government losing their moral compass affected one individual.
Last week Mary Creagh MP formally opened a new co-working centre, IndyCube Wakefield, in the Wakefield Media and Creativity Centre.
It hopefully marks the start of a new area creating work and career opportunities and promoting a new style of working for small businesses, freelancers, and remote workers who prefer not to work alone.
It’s a story of hope and honest endeavour, in marked contrast with the news.
It has emerged that US officials refused to prosecute HSBC for money laundering in 2012 because of concerns that it would cause a “global financial disaster”.
The US Congressional report revealed UK officials, including Chancellor George Osborne, added to pressure by warning the US it could lead to market turmoil, reporting the UK “hampered” the probe and “influenced” the outcome.
The report also accuses HSBC of letting drug cartels use US banks to launder funds.
The bank, which has its headquarters in London, paid a $1.92bn (£1.48bn) settlement but did not face criminal charges. Nor have any top officials at HSBC faced any charges.
It reminds me of how HSBC tried to ruin me.
My business, the Wakefield Media and Creativity Centre Ltd was a victim of bank mis-selling.
We were one of at least 100,00 small businesses across the UK which had been sold a highly sophisticated interest rate product, designed for mega-big business as a gambling protection product. The likes of big hedge funds would have a raft of complementary counter swaps to mitigate against major movements in the marketplace.
We originally had a HSBC mortgage when we started the Media centre business in 2003. It came about through a relationship with a local manager, who had local decision-making power – and whom we trusted.
Six years later, the bank by now having dispensed with its local manger, approached us to update our financial borrowings. It offered an overdraft facility along with something called an interest rate swap, designed to protect us against likely interest rate rises, which was a condition of the borrowing for the mortgage.
We asked our accountants about the SWAP and it was something they had never heard of. Reassured by the bank, with no evidence of any downside, we signed.
What followed was a financial nightmare.
Interest rates didn’t go up. They plummeted, triggering the interest rate swap, resulting in hefty extra payments to the bank.
Our Media Centre business was a simple one. We owned a three storey building and aimed to secure rent of £1,000 per month for each floor to pay off our £2,000 month mortgage.
Fully let, we’re making a profit as well as paying off the capital which was to fund my pension. Half let and we break even.
As my successful PR business was the anchor tenant it provided further security, as well as good office premises for our firm.
When the SWAP payments kicked in we not only had £2,000 a month to pay but also an extra £1,200 a month for the SWAP.
The Media Centre business became uneconomic, unviable, and unsustainable.
Stubbornly, we held on. The PR business started to bail the Media centre business out.
We appealed to the Financial Ombudsman, claiming that the bank had misled us, not explained any potential risks and that the product was too complex to be selling to small business.
The response was staggering. The Ombudsman sided with the bank stating that ‘because the product was complex it would have been unreasonable to expect them to explain.’
Catch-22 is one of my all-time favourite books and here I was in my own financial Catch 22.
We tried again. A good legal friend had suggested asking for transcripts of the conversations the bank held, and had used extracts from in their defence.
When we received the HSBCTranscript of a phone conversation between the bank and our book-keeper, which the bank had claimed was the time they explained the risks to us, it was mind-boggling, absolutely damning of their failure to explain the risk.
Even more mind boggling was the response from the Financial Ombudsman to the second submission of our complaint – with the new evidence supplied.
Parrot-like they responded ‘because the product was complex it would have been unreasonable to expect them to explain.’
A third attempt was made with the Ombudsman, after receiving advice to ask for the Bank to supply the whole file on our case. We hoped this could have demonstrated a calculation on their part to assess the risk, which they seemingly failed to pass on to us.
We were astonished when we saw the contents of the file it consisted of half a page of hand-written notes. My teenage daughters at the time would have had a more proficient shopping list than what we witnessed. The bank was either grossly inefficient, or taking the Michael out of the Ombudsman.
Again, the response of the Ombudsman to this third effort at submitting a complaint was a familiar one: ‘because the product was complex it would have been unreasonable to expect them to explain.’
Luckily, in 2012 I happened to have been on a bargain hotel weekend away in Newquay, where I chanced upon a copy of the ‘Sunday Telegraph’.
It carried a feature about claims of bank mis-selling of interest rate swaps.
I read the article. So had a health spa owner in Devon, a caravan park owner in Cornwall, a golf club owner in Colchester, an electrical shop owner in Norfolk, a care home owner in Essex, and a businessman in Lincoln.
Within two weeks were had our first conference call and a campaign group, Bully-Banks rose up to fight for justice for small business mis-selling businesses.
Being an unpaid PR director of the Bully-Banks campaign is one of the proudest achievements of my life. (We subsequently won various industry PR awards.)
We found we weren’t alone.
We rewrote the script that the banks and the media subsequently broadcasting of ‘unsuccessful business people blaming the banks for their plight’ to one of ‘a major miscarriage of justice needs to be righted’.
Recalling the first Parliamentary debate on interest rate swap bank mis-selling, where MP after MP spoke out against how the banks had lost their moral compass and were guilty of mis-selling, was a revelation.
We also believed that the mis-selling wasn’t just bad for the businesses affected but for the wider economy as well. Mine was one of the smallest mis-selling cases and I knew definitely it cost at least one job.
A survey of our members revealed an average of 10 jobs per business lost. This, at the height of the recession would have amounted to anything between 500,000 – 1 million jobs lost.
Had it been a steel works there would have been an outcry. Because the scale an impact was diffused over 100,000 plus businesses the effect on jobs was under the radar.
Surely, nothing could stop us now.
And soon the Financial Services Agency (subsequently becoming the Financial Conduct Authority (FCA)) investigated and confirmed that mis-selling had taken place.
Ominously, the banks quickly agreed that mis-selling had taken place. The FCA struck a Faustian deal. In return for agreeing to the mis-sale the banks would be in charge of the review process.
Imagine, it’s like the woodcutter in Little Red Riding Hood capturing the big bad wolf but then putting him in charge of dealing with Little Red Riding Hood’s complaint.
The Review had an ‘independent’ assessor – usually some from the Big Four accountancy forms that are intimately linked to the banks.
The Wakefield Media and Creativity Centre Ltd. was deemed to be ‘unsophisticated’ (a ruse eliminating many from the Review process) and we were recognised by both the Financial Ombudsman and the FCA Review policy to have been the victim of mis-selling.
In settlement, we never did get an apology but we received Restitution – the money we paid out plus interest and our case for Consequential Loss – the impact and cost of the mis-sale – was considered.
The Review had a restricted regime. You couldn’t claim for the rows with your family at Christmas over money, nor on your health and well-being, and many other consequences. I felt we should have been entitled to at least £200,000 compensation.
Under the Review we could only submit a claim for £110,000.
Non-negotiable, no recourse for appeal.
There’s a scene in a Clint Eastwood film where the Native American tells the cowboy to ‘Stop pissing down my back and telling me it’s raining.”
I know how he felt.
So, life goes on.
The Bully-Banks campaign, which I had to stand down from because of work pressures, still goes on. Occasionally, I give Jeremy the chairman a call with an idea, suggestion, or offer of help.
There may be some form of class action or individual legal action still open to us.
My public relations firm started in 1993 formally ceased trading last year. A victim of having to carry its sister firm.
Do please see the film the ‘Big Short’. Its message, ‘The banks have got away with it’.
During one of the Bully-Banks conferences, a wife of one of our members turned out to be a cabaret singer. One thing led to another, resulting in her singing a variation of Elton John’s song ‘I’m still standing’ with adapted lyrics penned by yours truly.
It was an amazing sight of a conference room of sober, upright small business owners singing along, swaying and clapping to ‘I’m still standing’. Marvellous testimony to their indomitable spirit and refusal to be bullied, lie down or be defeated.
Seven years of living through a financial nightmare, I’m still standing, with a clear conscience, a good heart, and working to create a better future.
I wonder if the bank executives, the financial regulators and the politicians with dirty hands could say the same?