Ulster Bank settles case with Dublin developer over alleged mis-selling

ULSTER BANK has settled a case with Dublin property developer David Agar, in which he argued that the bank had mis-sold him a number of complex derivative financial products related to property loans.

In a move that could have profound implications for other cases in Ireland and the UK, Ulster Bank, which is owned by Royal Bank of Scotland, reached a settlement with Mr Agar last week.

The bank declined to comment yesterday on reports that the confidential settlement included a write-off of swaps and loans worth €30 million, in addition to payment of Mr Agar’s legal fees of €1 million.

Mr Agar, whose property interests include the Harcourt building in Dublin, took the case against the bank earlier this month.

His argument was that Ulster Bank had mis-sold to him a number of financial products that were related to interest rates on loans totalling some €87 million.

He claimed that interest rate products were recommended to him by the bank following a meeting in July 2007 but also that their effects were not explained to him.

Mr Agar argued that he was unaware until months later that the products obliged the bank to pay him a dividend where interest rates increased and obliged him to pay the bank a dividend where they fell.

The rates later fell and the bank sought the extra payments.

The bank denies it recommended the products to Mr Agar or made any misrepresentations to him.

It counterclaimed for €47 million related to loans for the Harcourt building, arguing that it was entitled to appoint receivers over the building due to alleged defaults by Mr Agar.

The products in question include a derivative contract executed in late July 2007 for €47 million and four separate derivative contracts purportedly entered into between Mr Agar and the bank, which purportedly covered accumulated liability of €40 million.

The Ulster Bank case has been closely watched in the UK, where a number of banks have settled mis-selling cases. Mr Agar’s case was one of the only cases to reach the courts.

Last month, the Financial Services Authority in Britain found “serious failings” by some of Britain’s top financial institutions in the selling of interest-rate swap arrangements to small businesses, products that were designed to help companies hedge against higher interest rates.

Following an agreement from four banks – Barclays, HSBC, Lloyds and Royal Bank of Scotland – to compensate customers, seven more banks, including Bank of Ireland and AIB, agreed to review the sale of the complex financial products to small and medium enterprises.

The FSA pointed out that it had not made any finding of mis-selling against the seven banks, “but in agreeing to join the review, they are ensuring customers that bought these products will be treated consistently, irrespective of who they bank with”.

Ulster Bank parent company Royal Bank of Scotland, which has been battling with the fallout from an IT malfunction that has affected millions of customers, will report interim results for the first six months of the year on Friday.

On this day the bank’s exposure to interest rate swap mis-selling will also be a focus.

Stephen Hester, RBS’s chief executive, warned yesterday that the bank faces a further hit to its reputation – and a huge fine – from the Libor scandal, which has engulfed the main UK banks.

“RBS is one of the banks tied up in Libor. We’ll have our day in that particular spotlight as well,” Mr Hester said in an interview.

He did not know the size of the RBS fine but said that the investigation by the Financial Services Authority was “in process”.

Mr Hester said: “Even though when all the Libor are out, most of it is going to be around the wrongdoings of a handful of people at a number of banks.

“Those wrongdoings taint a whole industry beyond the handful of people and that makes it a huge problem.” – (Additional reporting, the Guardian)