Member Article

Care home wins settlement worth £40m over bank mis-selling

The first major case due before the UK courts about the mis-selling of interest rate protection products businesses has been settled.

Guardian Care Homes had alleged that Barclays Bank had mis-sold it two interest rate swaps worth £70m that were linked to Libor, the benchmark interest rate used to price financial products.

The high profile case was due to go to trial at the end of the month but it’s emerged that a settlement has been reached worth around £40m, which will see Barclays restructure facilities for Guardian, which is owned by Graiseley Properties, based in Stone, Staffordshire.

The case has been watched closely by the banking industry and by over 60,000 businesses which the Financial Conduct Authority (FCA) says were mis-sold interest rate swap products.

In a statement Barclays said: “In order to support the ongoing viability of Graiseley’s care home business, the parties have signed a restructuring of Graiseley’s debt. This reflects the impact of changes in conditions to the sector over the past few years. Graiseley has withdrawn the litigation.”

The UK financial regulator set up a compensation scheme for businesses affected by the scandal, which emerged in 2012.

At least 60,000 firms are eligible to claim. However, the compensation scheme was restricted to businesses that did not cross a threshold of financial sophistication. Anyone outside of the scheme has to resort to the courts to seek redress.

Daniel Fallows, a director at Seneca Banking Consultants, an expert advisory firm which is handling some of the UK’s biggest mis-selling claims said: “Guardian Care Homes was very much a test case and its outcome shows that firms which thought they were too ‘sophisticated’ to successfully claim should seek advice in relation to their hedging arrangements.

“In the world of interest rate swap mis-selling, the banks have been able to avoid litigation on the basis that a business was ‘sophisticated’ enough to know better.

“That defence – which was at best highly subjective – has been shown to be flimsy. Just because the bank classes you as ‘sophisticated’ doesn’t mean you do not have a case.”

This was posted in Bdaily's Members' News section by Simon Malia .