What are Interest Rate Swaps?
An Interest Rate Swap, aka “IRS” or “Interest Swap”, is a financial product which Investors speculate on the fluctuations of Interest Rates. Interest Rate Swaps are Over The Counter (OTC) products that you can buy directly from your bank.
For an Interest Rate Swap you don’t pay a separate amount upon purchasing one, nor a periodic premium. The price you pay is integrated into the interest rate and thus the amount of interest you pay. The Swap-Contract you sign when purchasing the Interest Rate Swap also determines this. It is the bank who determines the interest rate and other costs of the swap and because of the non-transparency of the dealing room you actually always pay too much.
The core purpose of an Interest Rate Swap is to build in a certain fixed interest rate for your loan that is based on a variable interest rate. Thus you can hedge the risk of having to pay a higher interest rate when the variable interest rate on the market is skyrocketing. It is basically insurance against the risk of rising interest rates.
The Interest Rate Swap contract contains obligations for both parties. Party A (client) and party B(bank) agree that for a specified term A (client) pays B(bank) a fixed interest rate and B(bank) pays A (client) a variable interest rate. This means that B(bank) takes on an obligation to always pay the variable interest rate, regardless of how high the variable interest rate is on the market.
This variable interest rate embedded in the Swap is determined by the LIBOR and the EURIBOR.
So when the interest rate rises on the market, the swap hedges and insures you will not be in jeopardy with having to pay higher interest because it is your bank that is paying the difference of the extra variable interest to you. This also means that when the variable interest rate goes down and is below the agreed fixed interest rate of the Swap- Contract, your bank pays you less variable interest, which is the same as the interest that you pay on your variable loan. All this takes place while you are actually ‘only’ paying the fixed interest rate of the swap.
To that effect the Interest Swap-Contract “swaps” interest values for a specified similar term (3, 5 or 10 years) and with a similar value at the beginning. The principal amount of the loan is not “swapped”.
The Treasury Inventory Form (TIF) literally says that you agree that the bank has informed you about the risks of the Interest Rate Swap and that the bank’s interests regarding that risk can be opposed to yours, as well as that you need to seek advice from experts if needed. All top banks use such terminology.
So far this all seems to be not too much different from other financial products sold by banks, until the issue arises of an interest rate that has gone down to such a low level that you are not benefitting from that lower interest rate at all, but are punished for its negative consequences, such as having to pay invoked surcharges and the need to keep paying the high fixed interest rate of the swap. It is even worse when it appears that the interest rate was manipulated and rigged.
This is the case with the fraudulent Interest Rate Swaps of Deutsche Bank and RABOBANK.
What are the issues with the Interest Rate Swaps of Deutsche Bank and RABOBANK ?
The high revenues of the interest Deutsche Bank and RABOBANK collect are direct profits for the Global Treasury Departments of Deutsche Bank AG and RABOBANK International, because all their locally operating branches directly act on behalf of Deutsche Bank AG and/or RABOBANK International. All their Treasury managers collect huge bonuses with the sale of each swap.
Through the advice and pressure of Deutsche Bank and RABOBANK (and many other banks) many Entrepreneurs, including many Farmers, entered into an Interest Rate Swap Contract along with their variable Loan Agreement to hedge the risks of paying a higher interest.
Besides this many Entrepreneurs, including Farmers, were advised in an insufficient and faulty manner by Deutsche Bank and RABOBANK, and therefore they were either unaware of the fact they had actually signed an Interest Rate Swap Contract or they did not fully comprehend the Interest Rate Swap Contract and all of its risks. Partially this issue was caused by the discrepancy between the highly sophisticated nature of Interest Rate Swaps and the knowledge of the less financially educated Entrepreneurs.
Deutsche Bank and RABOBANK have therefore failed to properly disclose to their clients that an Interest Rate Swap is actually a financial product with great financial risks. These risks manifest themselves in particular when Swaps develop a negative value, which is exactly what has happened.
Rabobank also did not disclose the full extent of the financial obligations it could then unleash on its clients nor what potential jeopardies this could expose them too. Further Rabobank did not disclose to its clients that it could expand its spread by raising the interest rates of the Swaps through imposing and increasing various premiums.
Deutsche Bank and RABOBANK have therefore unlawfully and at will imposed and raised considerable premiums on their clients Swaps, Loans and Current Accounts. The invoking of such additional premiums and related “margin calls” are buried in their Terms in vague carte blanche verbiage and were hardly, if ever, spoken of by Deutsche Bank or RABOBANK during their initial Sales-pitch and the negotiations of the Swaps.
This has constituted a series of grave Violations of Deutsche Bank and RABOBANK’s Duty of Care, as well as Fraudulent Misrepresentations and Misleading Sales-pitch regarding their Swaps.
These tortious acts caused many entrepreneurs to get into, often devastating, financial problems. Therefore the clients of Deutsche Bank and RABOBANK who have entered into Interest Swap-Contracts have been severely damaged and have paid dearly for it.
It has thus also become crystal-clear that the interest rates of their Swaps were NOT FIXED AT ALL to begin with!
The Interest Rate Swap was originally labeled and sold by Deutsche Bank and RABOBANK as a hedging-insurance against high rise of interest rates and a product that is similar to a ‘fixed rate loan’, but it turned out to be a second superfluous loan for entrepreneurs, that had devastating consequences for them.
This brings us to the ACTUAL ISSUE of the Interest Rate Swaps of Deutsche Bank and RABOBANK, which is EVEN FAR WORSE than this!
This lies in the fact that Deutsche Bank was found guilty by the EU-Commission as well as recently in April 2015 by British and US-regulators of FRAUD and Systematic Manipulation of LIBOR and EURIBOR from 2005 until early 2011.
Similarly was RABOBANK found guilty by the US-Department of Justice in 2013 of FRAUD and the Systematic Manipulation of the interest rates of LIBOR and EURIBOR between 2005 and 2011.
But the fines paid by Deutsche Bank and RABOBANK do NOT help out those entrepreneurs who have been harmed by their Swaps. Therefore have we initiated Class Actions against Deutsche Bank and RABOBANK to seek relief of the damages their Swaps have caused.
To find out WHY Deutsche Bank and RABOBANK’s Interest Rate Swaps are a FRAUD and WHAT its Consequences see: Class Actions
For more info and articles on Interest Rate Swaps also see our News-page.