By Kalvin P Chapman
On 7 October 2008 a telephone call took place that will most certainly feature in economics and politics books for decades to come. The Chairman of RBS had called the Chancellor, Alastair Darling, to tell him the bank was insolvent, could not close its books and wanted to know what the Government intended to do about it. I have asked for notes of that call, but the Government alleges no notes were taken. Odd, given that it has cost the UK Government well over £70 billion.
There was a lot of things that happened between the Summer of 2007 and the winter as 2009 started. Banks became insolvent, companies went to the Bankruptcy Courts in huge numbers. Substantial and well known names were lost from the High Street. SMEs folded in unpresented numbers.
We know that the things done by the Banks between 2004/05 and 2010 were illegal and unethical. The Banks year on year announced ever increasing net profits. The numbers were eye watering. Deals were being done in situations that a 1980s City Trader would have walked away from as being too risky. HBOS was the worst, RBS shortly behind it. Financial products were being sold that would shortly lead the collapse of the western economies. Iceland jailed a few of its bankers, but the rest of the world saw an unusual sight. Bankers were let off, almost entirely without punishment. The likes of Fred Goodwin kept his £750,000 a year pension, but lost the right to use the title “Sir”. In the UK one banker was prosecuted by the FCA – he was fined £500,000 and banned from working in finance for life. That was it. A banker was jailed for LIBOR manipulation, but the rest were not.
The EU and UK (the UK being the banker Centre of the world) brought in vast changes to banking, to try and stop 2008 ever happening again. Banks had to keep securities and cash sufficient to save the bank should the bank become insolvent. Never again would there be a headline saying that a bank was too big to face bankruptcy.
Why did the UK Government say Lloyds, HBOS and RBS were too big to fail? RBS on the day of its call to Alastair Darling had three quarters of a trillion pounds of assets on its books. RBS and HBOS slightly less. Had HBOS and RBS closed – and we came within two hours of that happening – the property markets in the UK would have folded, and this would have taken down such substantial numbers of business that the UK would probably have never recovered. We are now 10 years down from the start of the horror – which started in August 2007 – and we are still fighting to shore up the problems. Lloyds and HBOS have only just paid off the Government, RBS has not even started. RBS, in my view, is likely to be split up into a number of smaller banks and will survive. It is unlikely it could survive as it is and be able to repay the Government. Since 2008 it has only ever shown one profitable year, the rest were multi-billion pound losses.
During that period no rules were introduced to protect commercial customers of banks. Commercial borrowing remains unregulated, despite what we learned during the economic collapse.
Are we going that way again?
Across Europe banks have been in trouble for most of the last two years. This weekend (24 & 25 June 2017) Italy has had to bail out two banks. The Financial regulator the FCA has had to regularly stop short-selling on bank stock, predominantly Spanish banks. Personal & corporate defaults on lending in China is at an all-time high. The Co-op Bank put itself up for sale at £700 million and has announced that it has now taken itself off the market because no-one will buy it.
It has looked, for the last 18 months, that we are indeed headed towards economic failures again. This weekend’s bail-out of two banks sounds very familiar to those that remember the horrors that started in 2007 and the failure of banks. But this time the UK’s banking system has been shored up by the substantial works undertaken to ensure that no bank would ever be too big to fail and no bank would need Government or trans-Government bail-out in the event of its failure.
The principal problem is that the model for banks getting themselves out of a hole was set by Lloyds and RBS, and it was not pleasant for the SME customers. That involved going after your SME customers and forcing them to pay the banks substantial fees. Then they sold off their loans to funds that are often referred to as vulture funds. The stories from customers that have had their loans sold to a vulture fund has been truly horrific, but the Government’s sole concern is ensuring that we do not ever face another 2008 collapse again – the loss of SME businesses is secondary and, apparently, not of great concern. That is where law firms come into their own.
In the FCA review into the historic sale of Interest Rate Hedging Products (“IRHPs”) the Government through the FCA gave the banks substantial powers, which we view as having been abused substantially by two banks. The RBS GRG complaints process has only just got under way and it would seem likely that RBS, given the framework it has allowed to be imposed, means that few self-represented customers will get a good result. We had the same problem with IRHP reviews. People assumed they had to prove “mis-selling” in the IRHP Review, not knowing that there is no such thing in English law. They expected the FCA would over-see the review and would force the banks to be honest and do the right thing. They “saved money” by doing the review themselves. In so many cases they then approached a law firm after their final appeal was rejected. In many of the cases we have collectively seen, had they elected not to “save money” and used a solicitor they would almost certainly have been successful. We also saw people using big firms, because of their names, which were in fact nothing better than a room full of paralegals churning submissions out in bulk, resulting in a higher than expected rejection rate.
I do not say that from a sales pitch perspective, I say it as someone who lost just one single case in the IRHP review (“lost” in that the business was too big to be included in the review). Cases that had been lost and then approached us and were able to go to the Financial Ombudsman Service, I won those too. It has therefore been heart-breaking to see cases that I know I would have won had I made the submissions knocking on the door when all appeals are exhausted and there is nothing else that can be done.
But cases did come to me where they had done the review themselves, then done the appeal themselves and only contact me after they had received their final rejection. It was absolutely heart-breaking to have to tell so many people that they had ruined their case and now had no further recourse anywhere. Cases that were time barred but never thought to ask for a standstill agreement when they were in time. Cases that were too large to go to FOS but did the review themselves on the assumption that if all is lost they can go to FOS.
I had one case that was an absolute slam dunk of a case. It really was a case that would have won, hands down, any day of the week. But they elected to do the review themselves to “save money”. They elected to do the appeal themselves, to “save money”. They allowed the time bar period to pass them by, and approached me a few days after their case became stale because it passed the limitation period. I and the counsel we instructed estimated we could have recovered between £40 million and £60 million if we had litigated in time. They had lost the FCA Review because they submitted documents that evidenced “mis-selling” – which as I note, does not exist. They actually had an amazing case, they just did not have the legal experience & knowledge to know what case to submit, and as a consequence they lost their case and it, literally, withered and died a few days before they approached me. It was heart-breaking to tell a man that his entire life’s work was gone and, worse, he had lost it to ensure he saved himself £10,000 in legal fees.
We now have the RBS GRG reveiw, and I have seen the same, again. Businesses wishing to save money by not paying legal fees. We were instructed by a gentleman who had a land development and RBS moved him to GRG having, it would seem, purposefully damaged the sale of the property. As a consequence of the damage done to the original sale GRG was able to impose substantial fees, interest and back-end charges that they would have not been able to charge had the original sale gone through. He received nothing in the automatic fee review by RBS. He drafted his own complaint, and then, thankfully, instructed us.
In the letter we drafted for the GRG Complaints’ Process, we included the regulations that are relevant (he did not know they existed), we included the contract breaches and we included the narrative of what happened and what went wrong. His complaint was one page. Ours was substantially longer. His complaint dealt with what is unfair, ours dealt with the regulations, the contracts and the framework the bank was required to work under. Whilst our client had to pay us to draft the complaint, we have no doubts he would have failed in his complaint had he continued with just his complaint. We are confident that we have taken the case and put it over the line of what in law is allowed as a complaint in these very specific circumstances of this case.
So what do you need to know? Banks operate in the UK with a lot of regulation and rules. But there are no regulations that govern day-to-day commercial banking, no regulations or legislation that governs commercial banking products such as loans. Almost all of the relationships between a bank and a commercial customer operates under a framework imposed by common law.
The reason law firms such as Muldoon Britton are necessary for such cases is that we have many years’ experience of crafting complaints to banks and, as importantly, crafting claims in Court and at the Financial Ombudsman Service. With that experience comes knowledge of how banks work, how they are supposed to work and how the Courts, adjudicators and Ombudsmen decide cases. A law firm with no experience but which offers effectively “free” legal services can offer you almost the same as you doing the complaint yourself. A lack of knowledge of the workings of a bank and a lack of knowledge of how such cases are ultimately decided makes a substantial difference. They result in more lost than won cases.
So the question you have to ask is what you want out of your case. We are now heading, it looks like, into another period of uncertainty in the economy and banking systems. We are going forward into a period where it is possible that the events of 2008 may recur again, though this time the economic collapse may not be as savage as 2008/09 was. But what we would expect to happen is another off-loading of loans to vulture funds and new fees and charges to be imposed. If, as has been suggested, interest rates go down to 0.00% or lower loans, overdrafts and related financial products will all have to be reviewed again by the banks to work out how they can make up the difference in fees – you are likely to be the one that covers the banks’ costs on this.
Complaints to banks, whether in the RBS GRG complaints’ process or for any other new or pre-existing complaint, should be viewed as a “one-shot deal”. It must be done properly the first time. For most cases, you get to appeal a decision if rejected. It is for better to include in your originating complaint everything that is needed. You get far better results that way. Using inexperienced lawyers to draft it (or claims management companies) will not benefit your case. Using a law firm that has thousands of complaints that are all driven on a bulk basis also usually result in less than optimal complaints beign drafted. My oftens aid motto is that you will likely win or lose a case based upon the comments in one line in an email – what if the paralegal or solicitor has no time to actually read all of the emails and documents and misses that crucial case defining email? You may have saved money instructing them, but was it money well spent?
We appreciate that money is difficult. However, if the result of a complaint is a refusal, what have you saved? Have you honestly saved yourself legal fees, or have you cost your business a million pound settlement? Whenever you look at the future of your business, do so with the knowledge that there are experienced people in all walks of life that can help. If you spend £5,000 to gain £1 million it seems far more sensible than saving £5,000 so that you can lose £1 million.
Remember, whenever you speak to a lawyer, ask them to tell you what successes they have had. Everyone at Muldoon Britton would be delighted to tell you what successes they have had over the last decade. Those successes have led to many, many millions of pounds being returned to SME businesses. We have also seen the results that have flowed from businesses looking to save on legal fees and only realising that an experienced lawyer is needed when it is too late. Speak to us should you need to discuss your RBS GRG case, your LIBOR case, or any issues you may have with financial products that have been sold to you by a bank.
If we do end up with a new financial meltdown, remember to get advice before you sign new documents with the banks. Do to sign documents assuming the bank is working in your best interests. 2008 taught us a lot. IRHP Review taught us a lot. LIBOR has also taught us a lot. In almost every case we found businesses had signed contracts they did not fully understand. Please do not fall in to that trap.