Banks that stand accused of mis-selling complex interest rate hedging products are trying to fend off litigation on the part of businesses that have lost money as a result of purchasing the products. These derivatives are ostensibly designed to protect the borrower in the event of an interest rate increase, but they do not adjust accordingly if the rate goes down.
Reportedly, lawyers for Barclays and Lloyds Banking Group are sending letters to businesses that are involved or about to be involved in litigation against the lenders, requesting litigants to suspend their claims until the banks have determined whether those claims are legitimate under the Financial Services Authority’s compensation scheme.
The scheme was brought into being after FSA confirmed that sales of the derivatives had not included accurate and comprehensive information about the products, a lack that constituted “serious failings” in the banks’ dealings with customers. The FSA deal promises restitution for losses resulting from those failings.
In other news, Prime Minister Cameron told The Daily Telegraph that the planned five-year programme of spending cuts is almost certainly going to be extended, possibly well into the future. He noted that Europe and America are in a financial crisis that shows no signs of immediate recovery, and said though he wants to cut taxes, any such cuts would have be paid for by additional spending cuts.
Cameron said, “. . . we have to deal with our deficits and we have to have sustainable debts. . . .” With the Eurozone and the U.S. facing similar problems, government spending on either side of the pond is not likely to loosen up anytime soon.