- Location
- Left in the middle of nowhere
All banks had a reputation for mis-selling other products at one point or another. In the case of HSBC they mis-sold us an interest rate swap as a pre-requisite to a mortgage for a farm, that damn near lost us the farm & cost us our stock in trade due to a hidden credit line liability against us valued at US$790,000. Imagine having an extra £450,000 overdraft that you were being charged for but couldn't use - that's the equivalent of the hidden credit line.
I have spoken to other farmers who had experienced the same problems with RBS, Lloyds Banking Group (HBOS), Clydesdale/Yorkshire, HSBC, Barclays, all of them. British "High Street Banks" now operate in the most deregulated environment in the world, making it the most customer unfriendly with regards to mis-selling & repossessions. It's easy to blame rogue banking officers but the truth is it's unlikely to be the fault of an individual. European agriculture is largely funded by credit unions, mutuals & cooperatives like Credit Agricole or specialists like Rabobank (also operating in the farm sector in the USA). The Chinese banks should be viewed with some suspicion due to land grabs happening elsewhere around the world.
The deregulation of the UK banking sector created a gambling affliction amongst historically very reliable lenders, to the extent that many have weak balance sheets relying on overnight funding from the international money exchanges to stay afloat. Be more wary of banks offering higher loan to value, they are the ones offering tempting deals, but they don't tell you what they do with your security - more often than not bundling it up with mortgage bonds & rehypothecating it (sometimes up to 8 times) to other lenders. This makes it very difficult to get your security released if you pay a loan off early.
The balance sheets of the banks are propped up by rehypothecation - an example of this would be: your farm is worth £1,000,000 - the bank discounts that to only 70% or £700,000 to account for the future potential sale of a distressed asset. The bank will lend you 65% of the 70% discounted value or £455,000. The value of your asset sits on the bank's balance sheet at £1,000,000 which looks great for the shareholders, it looks even better every time it is re-hypothecated, as it adds another £1,000,000 onto the bank's balance sheet. It's a murky old world.
A couple of stumbling blocks that farmers don't understand:
1: Banks will take security over the live & dead stock of a business, but that will not generate a positive contribution towards your business valuation in the event of a foreclosure, because banks attach no value to live & dead stock in the event of your business being liquidated - they go after land & property.
2. Ask about hidden credit lines - they can be for services that you think are provided free of charge with your bank account like a credit card or a BACS facility or even where they have said they have used a Chattels Mortgage (a form of asset finance), but these all add up & are liabilities against your overall liquidity, meaning you could be lured into thinking you are able to borrow more but find out that the bank's Credit & Risk Management team think you are already maxxed out with credit.
3. Do not rely on a re-valuation of your property to help you out in the event of a couple of bad trading years - it is good banking practice to foreclose on an asset to help banks rebuild their tattered balance sheets - "buy low (or grab low) & sell high!" British agriculture could be sleep walking straight into this crisis.
4. Apply to the bank for your own DSAR (Data Subject Access Review) - this is every piece of information the bank holds on you; both correct & wrong! You might find the problem is not the bank but the information they hold about you.
Finally AMC usually work at around 50% loan to value but generally lend on an agent's valuation & then leave you alone, with no need to review until the end of the term.
I have spoken to other farmers who had experienced the same problems with RBS, Lloyds Banking Group (HBOS), Clydesdale/Yorkshire, HSBC, Barclays, all of them. British "High Street Banks" now operate in the most deregulated environment in the world, making it the most customer unfriendly with regards to mis-selling & repossessions. It's easy to blame rogue banking officers but the truth is it's unlikely to be the fault of an individual. European agriculture is largely funded by credit unions, mutuals & cooperatives like Credit Agricole or specialists like Rabobank (also operating in the farm sector in the USA). The Chinese banks should be viewed with some suspicion due to land grabs happening elsewhere around the world.
The deregulation of the UK banking sector created a gambling affliction amongst historically very reliable lenders, to the extent that many have weak balance sheets relying on overnight funding from the international money exchanges to stay afloat. Be more wary of banks offering higher loan to value, they are the ones offering tempting deals, but they don't tell you what they do with your security - more often than not bundling it up with mortgage bonds & rehypothecating it (sometimes up to 8 times) to other lenders. This makes it very difficult to get your security released if you pay a loan off early.
The balance sheets of the banks are propped up by rehypothecation - an example of this would be: your farm is worth £1,000,000 - the bank discounts that to only 70% or £700,000 to account for the future potential sale of a distressed asset. The bank will lend you 65% of the 70% discounted value or £455,000. The value of your asset sits on the bank's balance sheet at £1,000,000 which looks great for the shareholders, it looks even better every time it is re-hypothecated, as it adds another £1,000,000 onto the bank's balance sheet. It's a murky old world.
A couple of stumbling blocks that farmers don't understand:
1: Banks will take security over the live & dead stock of a business, but that will not generate a positive contribution towards your business valuation in the event of a foreclosure, because banks attach no value to live & dead stock in the event of your business being liquidated - they go after land & property.
2. Ask about hidden credit lines - they can be for services that you think are provided free of charge with your bank account like a credit card or a BACS facility or even where they have said they have used a Chattels Mortgage (a form of asset finance), but these all add up & are liabilities against your overall liquidity, meaning you could be lured into thinking you are able to borrow more but find out that the bank's Credit & Risk Management team think you are already maxxed out with credit.
3. Do not rely on a re-valuation of your property to help you out in the event of a couple of bad trading years - it is good banking practice to foreclose on an asset to help banks rebuild their tattered balance sheets - "buy low (or grab low) & sell high!" British agriculture could be sleep walking straight into this crisis.
4. Apply to the bank for your own DSAR (Data Subject Access Review) - this is every piece of information the bank holds on you; both correct & wrong! You might find the problem is not the bank but the information they hold about you.
Finally AMC usually work at around 50% loan to value but generally lend on an agent's valuation & then leave you alone, with no need to review until the end of the term.
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