Parish hit by loan scandal hopes for bank settlement

Monday 24 July 2023

A parish believes it is owed more than £2m after being unwittingly swept up in a bank mis-selling scandal.

In 2011, St. Peter took out a £3.5m loan from a major UK high-street bank to build its Clos Le Ruez sheltered homes.

Back then, many banks sold ‘interest rate hedging products’ to supposedly protect customers against rising interest rates and provide greater certainty on loan repayments.

Businesses and authorities seeking loans were not given a choice by their lenders: they had to purchase a ‘swap’ in order to receive the loan. St. Peter fixed its swap rate at 7.27% over 25 years for 100% of the loan’s value.

A bad 'swap'

But interest rates did not rise, they remained low for more than a decade, and those loaned money discovered that the ‘swap’ had, in fact, cost them a huge amount of extra interest.

St. Peter believes it was mis-sold the swap because the costs were not explained by the bank at the time, and the product was manifestly unsuitable because cheaper and more appropriate alternatives were available. 

Pictured: The Constable of St. Peter, Richard Vibert: "A leading bank gave the parish advice, which was accepted in good faith".

They should have been offered a product called a ‘cap’ which would have cost a nominal amount and the parish would have then benefited from 15 years of historically low interest rates.  

The issue has come to a head after the bank approached the parish about the ending of the current arrangement, because it was linked to the London Interbank Offered Rate, or LIBOR. This benchmark interest rate is being phased out after leading financial institutions were found to be colluding with each other to manipulate it. 

Tens of thousands set aside for advice

The parish has concerns about signing a new deal with the bank and has sought independent legal advice. If it does not pursue a claim or reach a mediated settlement, it says it will have no choice but to refinance with the bank to pay off the facility on current terms.

At an Assembly last January, parishioners voted to allow up to £10,000 to be spent on this, and another £30,000 was allocated at an Assembly in May 2022 for more legal and professional advice.

This money is coming out of reserves.

Another parish hit

St. Peter is not the only parish to have been adversely affected after buying an interest-rate swap.

St. Brelade was sold one in 2011 when it took a loan to expand and refurbish its Maison St. Brelade care home.

However, the parish is not taking action because its repayments have evened out after rates started rising at the end of 2021.

"This has impacted heavily on my health"

A Jersey business which has suffered greatly after being sold a swap is one of Jersey’s best-known antiques and home-interior stores, David Hick Interiors at Carrefour Selous.

Pictured: David Hick put his business up for sale after being caught up in the mis-selling. 

So affected by the scandal was owner David Hick that he decided to put his firm up for sale last year. He said it had "impacted heavily" on his health and wellbeing.

Mr Hick and his lender, HSBC, are currently engaged in litigation, although the two sides are due to start formal mediation in an attempt to resolve their differences.

Hopes for mediation

It is something the Parish of St. Peter would like to explore.

Constable Richard Vibert said: “My predecessor and his Procurers were told to take an interest-rate swap in order to get the loan and no alternative was offered. I don’t blame them at all – a leading bank gave the parish advice, which was accepted in good faith.

“We have paid hundreds of thousands of pounds of additional interest, which could have been used for parishioners.

“We will welcome entering into mediation with the bank to avoid paying substantial legal fees, which would not be beneficial to either side.”