An incredible story in The Sunday
Times today! As stated by the newspaper, a major high street bank “is killing
off small businesses to seize assets for its own property empire, according to
evidence referred to financial watchdogs by Vince Cable, the business secretary”.
Not only is this the sort of story that newspapers should be publishing, it
contains a warning to the whole business community.
On first read, the stories are
truly shocking. They appear to relate to the difficult period 2007 through 2010
and most of the stories relate to falling property valuations, where the
property was used as security for a substantial loan. Nothing surprising there,
you might think!
The surprise is in the suggested
collusion between the bank’s “special measures” team and the banks own property
division. The paper suggests that in at least one example, the property
division identified a development for which it had an “appetite” and two days
later, the developer’s loan facility was withdrawn. In another example, there
are allegations that the property division where given access to “sealed bids”,
so that it could purchase properties out of administration at the lowest price.
Other allegations relate to interest rate swaps and inferences about changed
property valuations.
Although the allegations of mal
practise are shocking, the underlying stories are not. Banks are businesses
that owe a greater duty of care to their shareholders than any duty they might
owe to their clients. Even though your bank manager might well be your friend,
the bank never is. It’s relationships with its clients are covered by the contractual
terms of the agreements that the bank and the client “agreed”. Yet how many small businesses actually read
those “agreements”, let alone understand the terms. If they understood the
terms, why did so many businesses agree to interest rate swaps and if the banks
truly felt a duty of care to their customers, why did they introduce such
complex products for the SME market?
In employment law, the law
recognises that the relationship between employer and employee is unequal and
that the level of inequality can allow even reputable employers to take
advantage of the relationship. Best practise therefore has always been for the
employer to ensure that the employee takes independent legal advice before
entering into an agreement where the employee forgoes rights, even when the
agreement is clearly to the employee’s advantage.
But for some strange reason,
the same logic doesn’t seem to apply to the unequal relationship between a bank
and its SME client. Banks are businesses, nothing more, and nobody should enter
into complex business contracts without fully understanding the implications of
that agreement, and if the client doesn’t have the expertise, they should take
advice from an appropriate person, who might well be their part time consulting
finance director!
This was written by Bob Drew, a Commercial FD with over 30 years’ experience in business. Bob has always enjoyed close relationships with the relationship teams at "his bank" but has never forgotten the difference between the bank and the bank manager!
(Also published at blog.d5management.com)
This was written by Bob Drew, a Commercial FD with over 30 years’ experience in business. Bob has always enjoyed close relationships with the relationship teams at "his bank" but has never forgotten the difference between the bank and the bank manager!
(Also published at blog.d5management.com)
