The Herald has obtained a letter from the bank, and testimony from a well-placed banker, that cast doubt on the bank's refusal to widen its review of loans which use interest rate hedging or swaps.
The bank is already under pressure after Treasury Minister Greg Clark promised Dundee West Labour MP Jim McGovern in the Commons this week the Clydesdale would widen the review, only for the minister to be contradicted hours later by the bank.
Mr McGovern said yesterday: "Action must be taken immediately to ensure a full and open investigation is done and the victims are fully compensated."
At issue are Clydesdale and Yorkshire banks' fixed rate tailored business loans (TBLs), which the banks have excluded from their review, by agreement with the Financial Services Authority.
Yet customers, backed by derivatives experts, say fixed rate TBLs have breakage costs priced daily in the money markets, proving they contain "embedded swaps" created using a derivative.
Failure by banks to disclose fully the potentially huge breakage costs, a failing alleged by a significant number of Clydesdale borrowers, constitutes mis-selling, according to the FSA.
The NAB Customer Support Group is to stage a picket outside Clydesdale headquarters on Monday.
The bank has told The Herald the fixed rate TBL "does not contain an embedded swap", while Roderick Campbell MSP has been told it is "a simple fixed rate loan that does not contain a derivative".
But one small businessman has now revealed the bank, in a letter rejecting his mis-selling complaint, told him: "We are now able to confirm tailored business loans with an embedded swap which 'fixed' a customer's interest payments and had the effect of creating a fixed rate loan are out of scope of the review."
Meanwhile, a banker with knowledge of the Clydesdale's processes when most TBLs were being sold five to 10 years ago has revealed that fixed rate TBLs made up 90% of hedged loan sales, and were created in the same way in the bank's treasury department as its "standalone" swap products and its "cap", "swap" or "collar" TBLs.
That means 21 other hedging products which the bank has included its review were sold to only 10% of customers, and 12 of them are also TBLs which, unlike standalone products, technically fall outside FSA regulation.
The banker said: "The whole idea was that a lot of banks didn't do derivatives below £1m so the Clydesdale came up with tailored business loans which allowed them to sell these products to customers who didn't have that volume of debt."
He went on: "An embedded swap has exactly the same impact as the standalone swap if you decide to break the contract at any time during the loan. There is a derivative involved.
"Some of the smaller loans did not require a face-to-face meeting with treasury, but even then they would have to speak to treasury to book it, and all of these conversations had to be recorded for compliance."
The FSA has said failure to adequately disclose breakage costs constitutes mis-selling.
The banker said: "Any time the customer asked what it would cost to break the deal, the bank would say it was impossible to be accurate.
"But it was not impossible to give an illustration – it could have been more open as regards what the potential costs might be."
The banker said several loans might be tied to the same swap when the bank bought in the money in the derivatives market, then added its profit margin.
"If you have got someone who is sophisticated and will know roughly what the rates are, you might only take 0.25%, but if you have got someone who doesn't know the market the maximum we would be allowed to take was 0.40%."
He said that when bonus targets had to be met, "you might think 'I will take the maximum to get through my target'."
Abhishek Sachdev at Vedanta Hedging, who has studied the bank's products, commented: "There is no logic whatsoever in the distinction between TBL products."
A spokesperson for Clydesdale Bank responded: "Unlike standalone hedging products, fixed rate TBLs are not linked to an identifiable and distinct swap arrangement, and fixed rate TBL customers are not contracted into a swap or any other derivative in the market. Therefore they are not included in the review.
"Meetings with customers were recorded to ensure sales were compliant. The breakage fees are fully explained to customers and they are advised to seek independent legal and financial advice before agreeing to the loan.
"Pricing of business loans is specific to the nature of each deal, and the associated risks involved."
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