Monday 14 October 2013

Interest Rate Swaps to small business debacle

Just watched a BBC article about a small childrens nursery business which had taken a loan from Barclays and which bundled in an Interest Rate Swap trade to "protect" them from interest rate increases. The additional cost above the loan so far has been £100,000.

I'm not surprised by the reports of small businesses being caught out by interest rate swaps. The banks who sold these to businesses can have no defence. I was working in a City of London Moneybrokers in the 1990's and remember the banks being forced to unwind similar IRS deals made to the treasury departments of Local Authorities. If Local Authority had been caught out by such trades it is obvious that small businesses were in a much worse position when it comes to being aware of the risks.

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