Barclays in swaps targets scandal

Steve Smith, a senior corporate manager at Barclays with 36 years experience who operated in Norfolk and Suffolk, said he introduced his customers to Barclays Capital to meet sales targets. He admitted he now felt "sorry" if former clients now faced inflated bills as a result of the swaps going wrong. He said they would not be complaining if interest rates had risen rather than fallen to historic lows: "If interest rates had gone up to 12pc, to 18pc they would then the bank was a jolly good bloke." Asked whether commercial bankers were trained to understand the workings of structured interest rate swaps, he said: "I knew the principles; what it did." "At the time they were being devised there was some merit. Interest rates were being projected upwards. It was like having a fixed rate. You were protected," he said. The fact that bankers were given sales targets will increase pressure on the banking sector to explain whether or not the products were appropriate for the small businesses many were sold to. Over the past three weeks a The Sunday Telegraph and The Daily Telegraph investigation into allegations that the "swaps" were mis-sold has revealed examples where businesses claimed they did not understand what they were buying. Many have now been left with large bills after interest rates collapsed following the financial crisis. Last weekend Barclays was forced to apologise to the Financial Services Authority after The Sunday Telegraph revealed that the bank had demanded that its clients withhold information from the regulator. The FSA has now launched an inquiry into the sale of the swaps which were offered by the main high street banks. All have denied any wrong-doing and say that proper procedures were followed and products were explained and appropriate. Small businesses that have contacted The Sunday Telegraph have said bank staff referred to the swaps as "fixed rate" loans and "protection" from adverse movements in interest rates. One small electrical retailer, Adcocks of Watton, Norfolk, was introduced by Mr Smith to Barclays Capital. He was sold an "asymmetric leverage collar" that effectively penalised the business with £2 of cost for every £1 of benefit it offered. The interest rate hedge was meant to protect Adcocks' £970,000 of borrowings from the bank. It also profited the bank, with Barclays Capital likely to have booked a profit of as much as £100,000 from the sale of the product in the over-the-counter market. "It took me two days of trying to puzzle out what they had done to this guy. Normally it takes me half an hour, but this was a structured collar, a real bastard thing," said a former senior derivatives banker hired by Adcocks to establish whether it can bring a claim against Barclays. Mr Smith, who is now a corporate finance consultant, said: "I do feel sorry, with hindsight, if a client is paying £3,000, £5,000, £10,000 a month more. But if they have been given £3,000, £5,000, £10,000 a month they would have loved it. "As far as I recall there were targets to sell the products to appropriate people. We were passing a customer to a specialist arm and acting as an introducing source," he said. "It was a regulated product and we could only give general information." Mr Smith said he did not recall any individual payments – commission – for commercial staff to cross-sell interest rate swaps under Barclays incentive system. "We were paid in the same terms as we would every product. Every product has a profit," he said. "I don't remember any of my colleagues bullying people, but who knows. "My own philosophy was always to sell to a customer need. I would certainly not force it. If it was marginally complicated you should bring in the customers' adviser. I did that all the way through. If the adviser thought it was a good deal then why should they not buy it from Barclays and not HSBC?" Paul Adcock from Adcocks and one of Mr Smith's clients, said he had not been told to take independent advice before agreeing to the swap: "Did we ever have an accountant with us to discuss swaps, no," he said. Barclays said it had complied with all the regulations over the selling of swaps. "The sale of any interest rate risk management product was and is carried out by specially trained and regulated personnel in a separate team to the relationship managers in compliance with our legal and regulatory obligations," a spokesman said.