Clydesdale calls in mortgages for small firms

Business Correspondent/Personal Finance Editor

Saturday 20 October 2012

CLYDESDALE Bank is calling in small business mortgages following the recent transfer of its commercial real estate portfolio to parent National Australia Bank (NAB) in Melbourne.

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SIMON BAIN

The bank has at the same time told customers it will examine the possible mis-selling of some loans which deploy interest rate hedging – but will exclude fixed-rate loans" tied to swap agreements and carrying similarly huge breakage fees.

Now many businesses that have been locked in by breakage fees are being told mortgages will not be renewed and they must repay in full immediately their agreements expire.Meanwhile, NAB announced a shock uplift in bad debt provisions from £45 million to £206m, citing deteriorating conditions. The provision "excludes the overlay allocated to the UK commercial real estate portfolio", it said.The Herald revealed in June that mis-sold interest rate swap agreements posed a major threat to Scottish businesses, and in July that Clydesdale's widely-sold tailored business loans (TBL) were technically excluded from the "review and redress" exercise agreed earlier that month between the banks and the Financial Services Authority. This week, Clydesdale said it had agreed with the FSA to review TBLs which "exhibited comparable features to other interest rate hedging products".These include five structured collars and five swaps. But in common with other banks, Clydesdale will not be reviewing fixed-rate loans, even though a significant proportion typically sold to small businesses involve attachment to a swap and an unpredictable breakage fee.One businessman who has two £900,000 loans told The Herald the breakage fee on his "participating fixed rate loan" (a structured collar) was £62,000 at the end of last year, while the penalty for breaking the fixed-rate loan (not covered by the FSA) was almost the same at £59,000. Two or three years ago, the fees had been far higher and prohibited any sale of properties or rebanking. He said: "These are massive amounts. We wanted to sell the properties, but we were always told there would be significant breakage costs."We have now been told it has been transferred to NAB, and they require full repayment of the loan on March 31 – it expires on March 30. "We never had any warning it might be allowed to expire, our repayment record is absolutely impeccable, we have never missed a mortgage payment. If there is word in the market that NAB is putting people in this position, where properties have to go in a fire sale, it will deter other banks even further from lending."A hotelier told The Herald the Clydesdale had five years ago "approached us about changing our already fixed loans to the better TBL package... we were pressured with phone calls and staff coming to the hotel... at no time were we informed of huge breakage costs." A year ago overdrafts were slashed and reviewed monthly, and the business forced to spend £9000 on reports, he said. "At no time have we defaulted on our payments, but they have called a halt to any form of future funding. Yesterday, I had a call from my bank manager advising me he was transferring to a new division, as all the existing portfolio had been transferred out to the parent company."A Clydesdale spokesman said: "Under the terms of the agreement the bank has entered into with the FSA, all qualifying customers will be treated exactly the same irrespective of whether they were part of the CRE transfer or not. We have published guidance on our websites and customers will have received letters this week outlining the process and next steps. To ensure we support customers who may be experiencing financial difficulty, these cases will be reviewed first."

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Clydesdale calls in mortgages for small firms

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