A CARE home operator will take on Barclays in a landmark case at the High Court on Monday over claims it was mis-sold complex financial products.
Guardian Care Homes (GCH), which is responsible for the welfare of more than 1,000 residents, was sold in two interest rate swap arrangements worth £70m between 2007 and 2008 when it sought to refinance loans with Barclays.
The company, which runs 27 homes and is headquartered in Wolverhampton, will claim that it should never have been sold the controversial products, which are designed to insure businesses against rising interest rates.
But GCH will also claim it should be compensated as the products were based on Libor – the key interbank lending rate that Barclays staff rigged to boost profits.
The bank agreed to pay £290m in fines to UK and US regulators in June to settle allegations that it manipulated Libor, while more than dozen other banks are being investigated.
Barclays, which has set aside £450m to compensate customers mis-sold interest rate swaps, is expected to argue that GCH was sophisticated enough to understand the terms of the agreement.
A preliminary hearing will take place on Monday at which the parties will argue the details of the case before the judge determines what should happen next.
The dispute – the first of its kind to come to the High Court – will be watched closely by businesses that believe they have been mis-sold a rate-swap product.
Gary Hartland, GCH chief executive, said: “It is simply wrong that with one hand a bank is aggressively selling a highly complex financial product designed to protect someone against an interest rate rise, while the other hand is manipulating the rate for its own benefit.”
GCH, which looks after primarily elderly but also some vulnerable residents, took out the original loans to improve care homes, increase bed numbers and refinance away from lenders.
But the company, founded in 1995, claims it was not properly informed that the swaps could incur huge costs in the eventuality of interest rates falling.
In addition GCH, which employs more than 900 staff, claims Barclays did not inform the business that it would have to pay a £25m break cost if it wanted to exit the swaps.
GCH first issued proceedings in the High Court against Barclays in April. An independent study of the case, conducted by JC Rathbones Associates, found that the swaps were mis-sold as Barclays did not assess the business’s suitability for the swaps or explain the disadvantages of the swaps.
Barclays, HSBC, Lloyds and Royal Bank of Scotland agreed with the Financial Services Authority (FSA) to compensate customers where the mis-selling of interest rate swap arrangements (IRSAs) had occurred.
As well as offering redress directly for those customers that bought the most complex products, the banks have also agreed to stop marketing certain swaps products to retail customers.
The FSA said not all businesses will be owed redress.