Golf club owners bemoan below par derivative swap performance

[AtW]

In which case, what is he bitching about.

The allegation is that he would not have had the loan if the bank did not insist on taking out another product supposedly for his own good but somehow this products made shredload of money for bank.

If bank did not make a LOT more money on that separate product then why would not it offer plain 8% loan then? Banks should be giving loans at price that makes them profitable rather than engage in complex schemes that screw over customers.

[centurian]

I haven't read this in detail, but isn't this just a fancy way of saying it's a fixed rate loan

After all a fixed rate mortgage is basically an SVR mortgage with an interest rate swap for the period of the fix - that's what the mortgage provider does in the background - it's just presented to you as a single product.

This chaps "problem" is that the two products are presented separately, so he gets a separate bill for the swap - so he sees it as a direct "cost". But if the bank had given him an 8% fixed rate loan, the end result would have been the same.

In which case, what is he bitching about. He took out a fixed rate loan and interest rates went the wrong way

We were just given no choice

Of course he had a choice - don't take the tulip loan. The fact that the only product they offered him was a fixed rate loan doesn't mean he had to take it.

An offer you can't refuse is when someone holds a gun to your head and assures you that either your brains or your signature would be on the contract.

[doodab]

Surely as a contractor you've got access to lots of cash?!!!!!

WTF had that got to do with it? I'm not asking for a loan, they are trying to persuade me to borrow money I don't need to borrow at a more expensive rate than I would have to pay if I just used my credit card.

You can have -10 points for missing the point completely.

[MayContainNuts]

I've had that too. My bank have repeatedly tried to get me to move a 0% balance transfer from my credit card to a loan with an equal or higher interest rate than the card will have when the balance transfer expires. I'm tempted to report them to the FSA cos if that's "treating customers fairly" I'm santa claus.

The people who bemoan banker bashing need to remember that most people thought bankers were ***** before the financial crisis, and it's not because they receive large bonuses, because most of them don't. The simple fact is people think bankers are ***** because the banks and other financial services firms have a long history of behaving like ***** whenever and wherever they can get away with it.

Surely as a contractor you've got access to lots of cash?!!!!!

[SimonMac]

Perhaps better to read the original post before replying (I know it#'s hard with AtW's copy-paste threads)

Why agree to the covenant in the first place then?

[d000hg]

they did the swap because they thought they would be making money out of it

Perhaps better to read the original post before replying (I know it#'s hard with AtW's copy-paste threads)

[SimonMac]

The owners of Ufford Park in Suffolk face working for the next three years for nothing to service an interest rate swap sold to them to protect the business.

Colin Aldous, who runs the 90-bedroom hotel, spa and golf course, said the £5m turnover business which supports 200 jobs, should be focused on celebrating 20 years of trading next month. Instead it is trapped by a product it did not request.

The business doubled in size in 2006 after securing a £5m loan but profits came in under a banking covenant in 2007 and the bank insisted that Mr Aldous buy an interest rate swap. "It's the worst business decision I have made in my life," he said. "I have just had to condition myself that the business should make a return of 8pc and we will not take anything out at all. We are just working to pay off the swap. But I am really aggrieved."

He added: "We are the genuine, long-term entrepreneurs. We have committed everything we have ever made to our business. We take our responsibilities seriously and have always paid our dues."

The bank, which Mr Aldous declined to name as he still relies on its goodwill, has said the swap will cost £450,000 to redeem early.

The product capped Ufford's interest rate at 7pc and ensured it paid the bank's standard variable rate between 4.36pc and the cap. However, since Bank base rates fell to 0.5pc, the business has paid the difference between base rates and the floor of the swap as well as its bank's profit margin.

"We are paying 8pc for a loan we would have expected to pay two to three per cent," said Mr Aldous. "Who could have foreseen that interest rates would have dropped to 0.5pc in 2007. Hindsight is a lovely thing. But I was adamantly against taking it in the first place. We were just given no choice."

A second golf course owner based in Wales – who asked to remain anonymous – faces a fee of £252,000 to exit its swap. "I phoned them on Monday and it had gone up another £2,000," he said.

Source: Golf club owners bemoan below par derivative swap performance - Telegraph

Those owners were of course forced to take this tulip as condition of their normal credit line. I saw it first hand - asked for overdraft for SKA Inc in 2009 just in case we have slow paying clients which could have resulted in cashflow, and instead of £10k overdraft bank offered £8k + £2k on credit card. Not tulipy swaps but you get the idea - if you don't take higher margin product for bank they would not offer normal loan/overdraft.

And I am sure if rates went through the roof they would complain that they are only paying 7% instead of 10-15%, life tell's us you can't con an honest man, they did the swap because they thought they would be making money out of it and it back fired, pure and simple.

[DodgyAgent]

I've had that too. My bank have repeatedly tried to get me to move a 0% balance transfer from my credit card to a loan with an equal or higher interest rate than the card will have when the balance transfer expires. I'm tempted to report them to the FSA cos if that's "treating customers fairly" I'm santa claus.

The people who bemoan banker bashing need to remember that most people thought bankers were ***** before the financial crisis, and it's not because they receive large bonuses, because most of them don't. The simple fact is people think bankers are ***** because the banks and other financial services firms have a long history of behaving like ***** whenever and wherever they can get away with it.

Part of the problem is that there is not enough competition,

[doodab]

I've had that too. My bank have repeatedly tried to get me to move a 0% balance transfer from my credit card to a loan with an equal or higher interest rate than the card will have when the balance transfer expires. I'm tempted to report them to the FSA cos if that's "treating customers fairly" I'm santa claus.

The people who bemoan banker bashing need to remember that most people thought bankers were ***** before the financial crisis, and it's not because they receive large bonuses, because most of them don't. The simple fact is people think bankers are ***** because the banks and other financial services firms have a long history of behaving like ***** whenever and wherever they can get away with it.

[AtW]

The owners of Ufford Park in Suffolk face working for the next three years for nothing to service an interest rate swap sold to them to protect the business.

Colin Aldous, who runs the 90-bedroom hotel, spa and golf course, said the £5m turnover business which supports 200 jobs, should be focused on celebrating 20 years of trading next month. Instead it is trapped by a product it did not request.

The business doubled in size in 2006 after securing a £5m loan but profits came in under a banking covenant in 2007 and the bank insisted that Mr Aldous buy an interest rate swap. "It's the worst business decision I have made in my life," he said. "I have just had to condition myself that the business should make a return of 8pc and we will not take anything out at all. We are just working to pay off the swap. But I am really aggrieved."

He added: "We are the genuine, long-term entrepreneurs. We have committed everything we have ever made to our business. We take our responsibilities seriously and have always paid our dues."

The bank, which Mr Aldous declined to name as he still relies on its goodwill, has said the swap will cost £450,000 to redeem early.

The product capped Ufford's interest rate at 7pc and ensured it paid the bank's standard variable rate between 4.36pc and the cap. However, since Bank base rates fell to 0.5pc, the business has paid the difference between base rates and the floor of the swap as well as its bank's profit margin.

"We are paying 8pc for a loan we would have expected to pay two to three per cent," said Mr Aldous. "Who could have foreseen that interest rates would have dropped to 0.5pc in 2007. Hindsight is a lovely thing. But I was adamantly against taking it in the first place. We were just given no choice."

A second golf course owner based in Wales – who asked to remain anonymous – faces a fee of £252,000 to exit its swap. "I phoned them on Monday and it had gone up another £2,000," he said.

Source: Golf club owners bemoan below par derivative swap performance - Telegraph

Those owners were of course forced to take this tulip as condition of their normal credit line. I saw it first hand - asked for overdraft for SKA Inc in 2009 just in case we have slow paying clients which could have resulted in cashflow, and instead of £10k overdraft bank offered £8k + £2k on credit card. Not tulipy swaps but you get the idea - if you don't take higher margin product for bank they would not offer normal loan/overdraft.