21st March, 2014
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Testimony to the TREASURY SELECT COMMITTEE on BANKING,
to be considered with reference to the committee’s forthcoming inquiry into the potential
mistreatment by banks of small businesses, and miss-selling of loans containing embedded
derivative products.
Business:
Mark Steeds t/as Hazelmark Property, Warwick.
A family residential lettings and property renovation business
A member of the National Australia Bank Customer Support Group.
Dear sirs,
I contend that National Australia Bank, trading as Yorkshire Bank Financial Solutions Centres has
wrecked a perfectly viable and still solvent business through its misrepresentation of itself,
irresponsible and profit-driven lending, miss-selling of an inappropriate tailored business loan, and
ultimate reneging on financial commitments it was happy to make prior to the 2008 crisis, by:
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Actively soliciting my custom in late 2006 when I had no intention, prior to its approaching
me, of asking this bank for finance.
Persuading me to redeem a series of sustainable, secure, and long term property
mortgages with other lenders and transfer the borrowing to the bank, using the substantial
equity to secure “easy” on-going finance for the business, which in the event lasted little
over a year.
Miss-selling me an inappropriate tailored business loan incorporating an embedded “swap”
arrangement, when the risks and restrictions attached to the loan were in no way
adequately explained.
Encouraging me to borrow large sums of money, with little in the way of risk analysis, then
reneging on a signed agreement to fund a substantial development project having allowed
me irrevocably to purchase the site in the summer of 2008 - with the bank’s blessing - and
on the understanding that development funding would be made available by the bank.
Approving the above loan virtually overnight in order to generate revenue despite, as has
been proven in the courts in Australia, the bank becoming fully aware that a crisis was
brewing in the international markets through its trading in collateralised debt.
Unreasonably refusing to refund all or any part of the arrangement fee charged on the
above cancelled facility, and subsequently adding substantial and confusingly explained
amounts of interest to the debt.
Refusing all but one approach to consider a joint venture development to resolve the
problem, NAB having made the policy decision in Australia to withdraw entirely its support
for any UK property-based business.
Obstructing my choice of sales agent in disposing of the “frozen” building site, causing me to
breach a bank-imposed sale deadline, and incur further penalties.
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Pressuring me to take an overpriced life insurance policy which was all too soon lapsed due
to the bank returning all my direct debits after the crisis hit. (The sale was pushed through at
a time when my wife was in hospital having surgery for advanced bowel cancer).
Pressuring me to re-insure with bank- approved insurers who turned out to be both poorly
organised and overpriced.
Insisting on bank- associated surveyors carrying out overpriced revaluations of its securities,
which were ultimately modified by the bank, without consultation with me, to mere “driveby” valuation only - yet no reduction in charges given. These fees were debited from my
account without prior notification - and without the issuing of a VAT invoice - despite the tax
being paid and charged to my account.
Finally, being resolutely unwilling to negotiate a settlement with its many damaged CRE
business customers, enabling those, like me, with viable and solvent businesses, to exit this
burden of bank-enhanced debt and refinance with an alternative and willing lender. Instead,
NAB has demonstrated its intention to milk as much as it can from those that are able to
pay, whilst refusing to acknowledge any culpability or responsibility for its perfidy.
The history:
1.
Not a day has gone by since the financial crisis of 2008 when I have not rued the day
I took out borrowing with Yorkshire Bank’s rather inappropriately named “Financial
Solutions Centre” at Coventry, part of the National Australia Bank’s European operation.
2.
Its representatives came to my then building site in 2006, introduced by a third
party, as I was approaching the successful conclusion of a long and demanding restoration
project, complementing me on my work, and offering the prospect of no-strings-attached
finance going forward, in return for refinancing my investment properties with them.
3.
During the period from 1999, working with my son as site manager, I had built up a
successful and respected small property renovation and conversion business, and now
employed numerous sub-contractors on a regular basis. Through this, and with the benefit
of previous experience as a landlord, I had also built up a viable and professionally run
residential property lettings business, with borrowings comfortably geared at that point at
little over fifty per cent.
4.
Previously, I had always arranged my own mortgages with different lenders, and had
a perfect payment history and no need to refinance.
5.
The bank’s offer appeared to guarantee a financially secure way forward, and a
business that I could hand on to my son. It is worth noting that at this point I had made the
decision to retire and to consolidate the property portfolio, not speculate further which the
bank firmly encouraged through its actions.
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6.
I would never have dreamed that this bank would renege on a financial
commitment, or that it would, just a year or so later, permanently withdraw its backing - not
because of any breach or reckless act by myself, but purely on the grounds of a shareholder
policy decision and the bank’s evident inability to honour its commitments after the global
crisis.
7.
This has been made more bitter by the fact that prior to starting this business, I had,
as a lifelong musician, built a burgeoning career as a composer of incidental music for TV
and film use, working with a well-established London publishing company. All this had been
allowed to go by the board due to the pressure of running a successful property business,
and now cannot be rekindled very easily.
The “good” few months:
8.
Having reeled us in, the bank repeatedly reassured us of its support, characterising
itself as a “business partner” (surely a partner shares any reasonably incurred risk - ?), and
with the relationship manager saying such things as “we want you to be relaxed about
borrowing”. He happily offered to fund two simultaneous building projects in 2007, which
would have dangerously stretched my credit, with me, not the bank, deciding ultimately not
to proceed with one of them.
9.
The bank was quick to talk me into an expensive life insurance policy, which was all
too soon abandoned after the crash when it failed to honour the direct debit payments. This
sale was made at a time when my wife was having surgery for advanced bowel cancer, and
with a very uncertain prognosis. Sales calls were made to me whilst attending the hospital.
10.
During the ensuing months, two smaller property conversion projects were
completed with bank funding, one of which failed to make a profit due to overvaluation by
sales agents in the first instance, and the overheating of the market. The second ended up
potentially profitable, but was caught in the crash of 2008. (This remains currently our
family home, since the bank allowed me, in 2009, to move in, whilst re-mortgaging and
renting out our former house to help service the spiralling bank debt).
11.
In October 2007 my relationship manager and a colleague from the bank’s Treasury
Department visited my home and informed me that the LIBOR rate, to which my then
£800,000 loan was linked, was “looking unstable” and recommended taking a new fixed rate
‘Tailored Business Loan’.
12.
This was against my natural inclination, but I trusted the advice given by “financial
professionals” and agreed to take the product. Though breakage fees were mentioned in
passing, at no point was the potential magnitude of the costs elaborated upon, nor the
relationship to interest rate fluctuation, nor the liability incurred if secured property was
then sold. There was no recommendation to get the specialised advice obviously required.
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13.
Realising that it was now difficult in 2007/8 to locate property conversion projects
with any true potential margin, and mindful of wanting to keep my business rolling, I
identified a multiple barns conversion site a few miles south of Warwick that was for sale
with the benefit of both planning and listed buildings consents.
14.
This offered the prospect of on-going work for a number of months on a project that
suited our skills, seemed assured of bucking any market trends due to the rarity of approved
barn conversions, and was extremely well positioned both for the motorway network and
being within a mile of the main technical headquarters of both Jaguar/LandRover and Aston
Martin, guaranteeing future sales inquiries.
15.
Having made a successful bid for the site in March 2008, the bank was very quick to
respond with an offer of funding both the purchase of the site (at £667,000) and an
equivalent amount to fund the greater part of the development costs.
16.
I was somewhat surprised at the bank’s willingness to lend, having anticipated a
rejection. In the event, the purchase was completed in July 2008, with me having complied
with all the bank’s conditions precedent, including the approval of my estimates by a firm of
quantity surveyors.
The “lost” years following the global crisis:
17.
Within a matter of weeks, following the demise of Lehman Brothers etc. in the USA,
a general edict was issued to all Yorkshire and Clydesdale developer customers. I was told
by my relationship manager “there will be no more lending for the foreseeable future” and
“all funding is off the menu”. The site would have to be sold regardless of any massive loss
in value, despite the existence of a signed lending agreement to fund the conversion.
18.
This was the treatment meted out to others I know of personally, and universally
across the country. The bank took no account of individual cases, and its property specialists
were instructed to stonewall all appeals, often flying in the face of experienced local
professional advice that a project might remain still eminently viable (as in the case of both
my project, and my architect’s own Yorkshire Bank-funded development).
19.
This was presented as risk management by the bank, but in truth reflected NAB’s
inability to deliver the funding whilst complying with newly enforced recapitalisation
requirements. The resulting demise of small businesses was seen just as collateral damage.
20.
However, in a court case brought in Australia last year by NAB’s own shareholders,
and upheld on appeal, National Australia Bank were found to have miss-sold share rights
issues at inflated prices in 2008, having woefully under-provisioned for losses sustained
through the bank’s risky global trading in collateralised debt products.
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21.
The bank was adjudged to have been virtually “in denial” and provisioning
ludicrously small amounts for losses that ultimately ran into billions, and it was established
that the bank would have been aware of an imminent crisis looming, even at the very
beginning of 2008. Why, then, did NAB sanction, through its UK employees, the writing of
loan agreements for customers such as myself, right through until the mid-summer of
2008?
22.
An arrangement fee of £20,000 was charged for the loan which was reneged upon,
and the bank has, to this day, resisted all requests to repay any part of it.
23.
Following the crash and the withdrawal of funding, and with property values in
distress, I received random and opaque bank statements detailing additional punitive
interest charges on all the unsold assets. In an email, my relationship manager apologised
for the confusing nature of these debits. Some £100,000 was added to the debt in the six
months following the global crisis.
24.
In 2009 the bank suggested the only way to support my escalating debt was for me
to buy out of my TBL in order for my rental income to (just about) cover the monthly
interest. At this point I was hit by the demand for £92,000 in breakage fees, having believed
I was signed up merely to a fixed rate mortgage. In breaking the news to me, my
relationship manager was visibly stunned by the magnitude of the break cost, and evidently
had not fully understood what he had been involved in selling to me a year earlier. The
figure was eventually slightly mitigated, and I bit the bullet and bought out in May of 2009.
25.
The ensuing five years has been the worst period of my life, with untold damage
being inflicted on my family relations. My son, who lost his job with the demise of the family
business, has fallen on hard times, though has retrained as a part time tennis coach and
teaching assistant. My wife, who is approaching the age of 70 and has the spectre of cancer
still hanging over her, cannot feel secure from repossession of her home. My daughter and
her child are in danger of losing their homes, as this is one of the bank-secured rental
properties.
26.
Instead of employing some 20 contractors and labourers, as would have been the
case, I have been unable to do more than simply maintain the property rental portfolio
myself on a shoestring budget in order to continue to pay the bank’s interest charges on the
loan, without default, for the intervening years. We were so short of money in 2011 that we
were obliged to apply for HMRC Tax Credits.
27.
During the four years to August 2012, my wife and I lived, at times, at subsistence
level, despite the substantial rent roll from the lettings portfolio. This has gone entirely to
supporting the debt with Yorkshire Bank, including the non-income generating building site
and house. Though the house (our home) could well have been sold, the bank told me in no
uncertain terms that it did not matter what might be sold, there would be categorically no
further lending. The fact that the rental portfolio has therefore carried up to three times its
own weight in borrowing is testimony to the ongoing viability of my business.
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27.
Despite repeated confirmation of the site’s potential profitability, the bank remained
unwilling to seriously entertain any proposal to progress the development of the barns
building site, though finally, after weeks of negotiation, agreeing in 2010 to a joint venture
with a prominent local independent development company. However, the conditions
imposed, whereby the bank insisted on priority repayment from sales, served to kill the deal
after a year spent obtaining enhanced planning consent.
28.
The developer who ultimately bought the site from me in 2012 is set to make around
half a million pounds in net profit, working to the very plans we provided. Meanwhile I am
existing in a state of limbo, paying my way only thanks to a profitable lettings business that
was meant to be my pension fund, and resisting the bank’s pressure to sell off almost all my
income-generating assets to repay the vastly hiked debt.
29.
In addition to interest charges, TBL break costs, and unjustifiable fees, I have lost
some £200,000 on the barns building site with the bank applying a £10,000 exit fee based
on not meeting their sale deadline. This after they vetoed my suggestion of a new selling
agent when the bank approved ones had generated no interest whatsoever. (My suggestion
of appointing Sotheby’s was dismissed, on the grounds of them being “new” to the area,
and “inexperienced”. In the event, I went behind the bank’s back and appointed Sotheby’s
out of desperation. They achieved two acceptable and competing offers within five weeks).
30.
Further to the losses mentioned above, which do not even take account of any
consequential or potential loss, I was forced to sell a holiday home in Spain, losing a further
£100,000, since the debt the bank had saddled me with absorbed all my income making it
impossible to service that mortgage, let alone budget for any holiday in the last 5 years.
31.
The Select Committee will hear much mention of hidden “swaps” during this inquiry,
and I certainly was one of the victims, though to a lesser extent that many. However, I
belong to a group of developers who had viable projects arbitrarily shut down by the banks
on the whim of senior management and shareholders, and with devastating consequences.
Uniquely in the case of NAB, some 2,000 or more property-related businesses have been
bundled into a “no hope” portfolio and told to repay the entire debt that we have been
saddled with through the bank’s own actions - or be put into receivership.
32.
On the wishes of its shareholders, the bank is trying to effect a speedy exit from UK
banking, having ruined the lives of thousands of business people, yet are unwilling to reach
negotiated settlements to achieve an equitable result. Like many, a modest reduction in the
debt total would allow me to move on, refinance, and continue to enjoy the proceeds of a
previously successful business, whilst feeling some small restitution had been made for the
damage done.
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Suggestions:
33.
It would be remiss of any Government repeatedly to ignore the wanton destruction
of businesses, and the massive and unquantified loss to the economy, when banks panic and
put up the barriers. In the case of property development, there can be few businesses
where the amounts borrowed are larger, and the risks to the borrower are greater, with
banks able to hide behind small print and the abuse of contract law to rewrite or tear up
agreements. Banks should be the “ladders” on the board game of business, when all too
often they are the “snakes” that lead to the downfall of successful enterprise.
34.
I have previously suggested in a letter to David Cameron that when banks feel
obliged to pull the plug on a development, its viability could be independently assessed
under a Government scheme, and if found viable, the borrowing underwritten in some way.
This could save many businesses and jobs, and insulate the construction sector, particularly
the smaller developer, from the vagaries of the banks.
35.
The purchase of property is an irrevocable step once legal completion is reached. It is
therefore utterly wrong that a bank should be able to renege, on a whim, on the further
funding agreed. This should be prohibited in law. The repercussions for the developer are
often massive, and in my case, dozens of my tenants have suffered from my being
financially unable over the past five years to honour my commitment to being a good
landlord. All because NAB has chosen to pull the plug on its CRE business in the UK.
36.
It should be plainly obvious that TBLs sold by Yorkshire and Clydesdale Banks were
sold unnecessarily, and purely for the profit of the banks. They were manifestly
inappropriate in many cases, were not correctly explained, and were often miss-sold on the
flawed pretext that LIBOR would rise.
37.
Finally I would ask the committee to do all in its power to persuade or cajole
National Australia Bank to reach a pragmatic settlement with its many still-trading and
solvent businesses to allow them to re-bank instead of continuing to keep them held in its
debt trap, and also to make some redress to those it has already ruined.
Mark A.G.L. Steeds, Hazelmark Property, Warwick
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