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Commerce Commission to widen probe into marketing of interest rate swaps by banks to farmers from 2005

Posted in Rural News

The Commerce Commission says it will widen its investigation into interest rate swaps sold by banks to farmers and businesses.

Commerce Commission chairman Mark Berry today updated Parliament's Primary Production select committee on the Commission’s progress on the issue.

"In August 2012 the Commission began enquiring into whether interest rate swaps, a financial derivative product, were misleadingly marketed from 2005 onwards. The Commission has received 42 complaints since concerns were raised in the media," said Berry.

“The investigation is at an early stage, but we are giving the issues full consideration. To date we have spent more than 1,000 staff hours on the investigation."

He said the Commission was primarily considering whether the swaps were marketed in ways that may have misled customers as to their true risk, nature and suitability.

"The Commission has already received a large amount of information from complainants and from banks. Shortly the Commission will widen its enquiries by seeking further information from people who have entered into interest rate swaps," Berry added.

Background
Interest rate swaps are a financial derivative product that allows a client to manage their interest rate exposure on their borrowing. They were principally provided to large corporate and institutional customers, but from 2005 were offered to rural and commercial clients throughout New Zealand by various banks.

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Businesses found guilty of breaching the Fair Trading Act may be fined up to $200,000 for each charge. Where more than one charge is laid, the court may impose a fine greater than $200,000. Only the courts can decide if a representation has breached the Fair Trading Act.

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9 Comments

“The investigation is at an

“The investigation is at an early stage, but we are giving the issues full consideration. To date we have spent more than 1,000 staff hours on the investigation."
 
Hmmm- when since 1982 has it not been advantageous to borrow short and lend long? – more so since Greenspan and then Bernanke were installed in the hot seat at the central bank of the reserve currency.  
 
Hence, how long can it take to determine the ethics of selling the concept of locking farming landowners into term fixed payments versus receiving floating payments to offset floating credit risk adjusted short term mortgage borrowings as a means of prudent debt management?

Perhaps about as long as it

Perhaps about as long as it took Phillippa Smith to report on ".. an extraordinary series of highly irregular activities on the part of New Zealand politicians and civil servants, only to conclude that she has no "substantive" issues with the outcome".
 
http://www.stuff.co.nz/the-press/opinion/columnists/chris-trotter/8350614/Corruption-exists-by-the-shovel-load
 
 
 
 

Today attended the briefing

Today attended the briefing of the Commerce Commission to the Primary Production Committee, Com Com stated they expect the investigation to take possibly as long as ING and credit loans investigaton which resulted in settlement. The length of time may be shortened as the Com Com have been investigating for the past 6 months as a result of my complaint to them mid year 2012, not as Bruce Wills is trying to imply in the latest press release that Fed Farm was instrumental in instigating the investigation.
http://www.fedfarm.org.nz/publications/media-releases/article.asp?id=545
"Federated Farmers has asked the Commerce Commission to look into the selling of debt finance instruments known as ‘swaps’. This formal request was made last November."
For the record when I first kicked this of last year, I requested directly to Bruce and also Chair Beef and Lamb for assistance with an 0800 number to set up a register as the numbers of calls were unmanageable. They both declined and Bruce sought to down play the whole problem. At the time I invited Bruce to decide whether he was representing farmers or banks.Don't think I need to say more,
 
 
 
 

"...Bruce sought to down play

"...Bruce sought to down play the whole problem. At the time I invited Bruce to decide whether he was representing farmers or banks..."
Well he'll be a waste of time for farming if he can never leave his banking background behind. Well done Janette.

Having been one of those who

Having been one of those who sold these products to Rural Banking customers, it will interesting to see the approach taken by the ComCom. If the test is 'did the farmers understand the product they were purchasing?' followed by 'they signed a contract so they need to live with that?' then we will have a no result. Should they focus on the practise of my (former) Bank in particular, the repricing of the bill rate loan that sat in conjunction with the swap - thereby increasing the total cost of a product that was allegedly fixed, then we should be onto something that comes back to the banks. The margin was simply assumed to be fixed with the regular by-line 'just like fixed rate loans but with benefits'. On the flip side, if this is about costs to break contracts - then this should be put to bed quickly - just as break costs on fixed rate loans were - as this is a fundemental 180 degree turn by a business owner who suddenly realises they have made a mistake by taking such a long fixed position.
 
This will either be interesting or a rort. Time will tell.

If the test is 'did the

If the test is 'did the farmers understand the product they were purchasing?' followed by 'they signed a contract so they need to live with that?' then we will have a no result.
 
 
I guess the banks being bailed out all over the world for doing something they understood at the time but choose to ignore the possible downside consequences because the prospects looked too good would be in a similar situation were it not for the generosity of the tax payers.
 
And this particular depositor/taxpayer is sick of subsidising cheap mortgages, paying for state sector unfunded pension liabilities with increased government borrowings that act as a tax on my meagre income because the banks misunderstood .
 
 
 

Well NZ Bank's aren't Banks

Well NZ Bank's aren't Banks 'all over the world' are they...
 
Exactly how are you, as a PAYE earner in NZ subsidising cheap mortgages again?

No,  but they borrow from

No,  but they borrow from banking institutions in those countries with damn near zero bound interest rates and swap the proceeds into NZD. 
 
My comment was in two parts: 
 
And this particular depositor/taxpayer is sick of subsidising cheap mortgages, paying for state sector unfunded pension liabilities with increased government borrowings that act as a tax on my meagre income because the banks misunderstood .

The test will be misleading

The test will be misleading and deceptive conduct under the Fair Trade Act Simple