It’s generally held that the banks’ withdrawal from the sector has slowed the market in buying and selling pubs and prevented operators from refurbishing and expanding portfolios.
But given the scandal surrounding commercial lending that’s recently come to light, this may have been a blessing in disguise.
As we extensively report in this issue (page six), it appears potentially thousands of SMEs, including pub groups and hoteliers, have been mis-sold financial products that are designed to protect business loans in the event of interest rates rising.
In light of the recent controversy over Libor-rigging, which Barclays admitted to last week (others are also expected to have been involved), nothing surprises the public when it comes to the big banks anymore. Their reputation has sunk to the level of expenses-fiddling politicians and phone-hacking, tabloid journalists.
But some of the stories SLTN has been told concerning the mis-selling of interest rate swaps or hedges arguably take the banks’ lack of ethics to a new low.
To suggest some business owners were bullied or hoodwinked into taking out these complex products, which in many cases even the banks’ relationship managers did not fully understand, would not be stretching the point.
I concede there is a commercial argument for a business to take steps to protect their borrowings from potential interest rate rises (the trend for selling swaps began well before the current recession and the fall of the Bank of England base rate to an historic low).
But, as now appears to be evident, the banks did very little to communicate the downsides of these products to their customers. In this regard, it seems the banks have lined their pockets by once again playing loose with the rules which are supposed to govern their behaviour.
Thankfully, City watchdog the Financial Services Authority has looked into the matter and found that there is more than sufficient cause for redress for thousands of SMEs which may have been caught up in this racket.
It announced earlier this month that it had agreed with four of the banks involved – Barclays, HSBC, Lloyds and RBS – “to provide appropriate redress where mis-selling has occurred”.
Business owners with mis-selling claims will not be celebrating just yet, though.
The watchdog said the assessment process will be monitored by “an independent reviewer at each bank, appointed under the FSA’s powers”.
But there remain questions about how the process will work. Will it effectively be down to the banks to lead the process and ultimately say who has a case for compensation? And will it be accountants in the pay of banks who assess the claims?
In the interest of fairness, and given how much damage this scandal has caused, the FSA must ensure the process is as independent and efficient as possible.