Interest rate swaps: an offer this year or not?

According to the latest reports, Rabobank and ABN Amro will not be able to send all compensation letters to the affected swap customers before the end of the year. At Rabobank, 33% of swap customers will not receive a final offer based on the Recovery Framework until in the course of 2019.

ABN Amro has indicated that it is counting on a small run-out. Despite the banks' earlier commitments, swap customers will still have to wait until next year for their file to be completed. The deadline of the end of this year is not met by the banks.

The state of affairs so far
Rabobank and ABN Amro have each sent approximately 3.500 final offers to date, according to their website. This is a limited part of all letters that must be sent. Rabobank indicates that it has more than 10.000 items to send. According to the bank, customers who have not yet received a definitive offer this year will receive a full advance before the end of this year.

At ABN Amro, this concerns a total of approximately 7.000 offers. ING has already indicated that it will make a compensation offer to all customers this year. The other banks (Van Lanschot, Deutsche Bank and Volksbank) are said to have already finished sending the offer letters.

Final settlement of swap file
Some customers think that the advance they have received (or are yet to receive) is equal to the final offer. However, this does not have to be the case. The final offer is what matters. It is important for swap clients to realize that this concerns the final settlement of their interest rate swap file. The final offer should correspond to what the swap customer is entitled to based on the Recovery Framework.

The banks themselves also indicate that the swap customers should carefully check the letter with the outcome of the reassessment and if necessary seek advice. It is therefore important to read the cover letter critically and not just sign it; In particular, when it comes to the data used when making an offer, various errors have already been discovered in practice. Apparently because the bank does not have all files in order.

Rabobank continues a reluctant attitude
In my previous blog I have criticized Rabobank's conduct in providing final offers. Various files are closed with the announcement that the bank does not provide a specification, but would like to explain the offer in a personal meeting. It is striking that even Rabobank's own employees express their dissatisfaction with the fact that they have to decline information requests from customers.

After all, the specifications are available from their own interest rate swap department and can be provided at the push of a button. Moreover, this course of action arouses suspicion; because if there is nothing to hide, the bank can still provide full access to the calculation. Rabobank's fellow banks can do this, so why not Rabobank?

Despite having been requested to do so, the Financial Markets Authority (AFM) has not complied with the request to oblige the bank to provide insight into the calculation of the compensation components of the offer. This while the AFM should ensure that the banks operate transparently. As I have already indicated, the interest rate swap customer is entitled to insight into the establishment of the calculation.

The Recovery Framework states that the offer must be accompanied by an appendix stating 'the components of the calculation'. The swap customer can point out to the bank that this obligation is included in the Appendix to section 5.1.2/5.1.3 Recovery framework.

Control of the swap offer remains necessary
Many swap customers think that when so many bank employees are involved and so much time is taken, the offer will be right. This impression is also created by the banks. However, caution is still required. Not only because the banks do not always have the file in order, but also because a swap file can have aspects that it is up to the customer to raise.

This applies not only when considering going to court when an offer is disappointing, but also when issuing binding advice on the basis of the Recovery Framework. The customer will have to take action himself. Many customers seem little familiar with the possibility of binding advice based on the Recovery Framework. In this way, the customer can submit an aspect of the file to the Derivatives Committee while accepting the offer. This can lead to a higher outcome if the customer is in the right.

Furthermore, it is wrongly believed by some swap customers that raising aspects in their file already means that they have to repay the advance or lose the offer. In the final offer, it is important that aspects such as errors are fed back to the bank, so that the bank can correct this in favor of the customer. This is part of the control that is expected of the customer.

It has been shown in various cases that in this way an offer can be corrected at an early stage and thus yield a much higher compensation. With the final offer you have the opportunity to check whether everything is correct. It is therefore advisable to use this. Once signed, you cannot return to it.

Marianne Adama

Marianne Adema is a lawyer at Adema Advocatuur and Advice. She specializes in financial law, agricultural law and real estate law. Adema assists many agricultural entrepreneurs and has an advisory and litigation practice. She is also a legal advisor on various wind turbine projects.

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