An Australian law firm which recently won a big payout for disgruntled investors is eyeing the ongoing investigation into hundreds of millions of dollars in "interest rate swaps loans" allegedly "mis-sold" to New Zealand farmers.
The Commerce Commission is currently investigating whether farmers were misled or deceived by banks who sold them complex loans as a means of managing the risk of rising interest rates during the run up to the 2008 global financial crisis.
Falling interest rates since the crisis has seen farmers who took the loans paying interest rates far higher than market rates, causing significant financial hardship.
Commission officials last week told a Parliamentary committee that the value of loans they were investigating was in excess of $100 million and there was anecdotal evidence that some farmers may have been forced into accepting them. The loans were reportedly made by ANZ National and Westpac banks but the commission says it is investigating three banks.
This week Australian law firm Johnson Winter & Slattery told the Herald it was keeping an eye on the investigation.
The firm recently won a significant victory on behalf of Australian charities, local authorities and other investors who lost money in the 2008 collapse of Wall St investment bank Lehman Brothers.
Johnson Winter & Slattery partner Jim Hunwick told the Herald there appeared to be some parallels between the Lehman Brothers case which involved the sale of complex investments based on collateralised debt obligations, and the sale of interest rate swap loans to New Zealand farmers.
"We've got clients buying complex financial products who are not necessarily regarded as retail investors so they're not benefitting from the same legislative requirements as to disclosure. Nevertheless the person arranging the product and selling it may at law owe them some duties, and if the products are really complex, one of those duties might be to consider whether it's suitable in the first place."
Mr Hunwick also said one of the issues in the Lehmans Brothers case which may have relevance to the swap loans affair was "a huge information imbalance".
"The banks have all these complex models and data where they can value the derivatives and they can value the risk that they're taking, but their clients don't have that.
"The clients don't know that they're getting the right price for the risk that they're taking and that's how the banks make their money. They're getting the clients to take the risk for a relatively small price then they're repackaging what they're selling on the market for the real price of the risk and they're pocketing the difference."
Labour's primary industries spokesman Damien O'Connor who has been pushing for a Parliamentary inquiry into the loans told the Herald he was also aware of a British law firm monitoring the issue.
Britain's banks are facing compensation bills that may top STG10 billion after financial watchdog the Financial Services Authority analysis found more than 90 per cent of swap rate loans, sold mainly to businesses, did not comply with at least one or more regulatory requirements.
Mr O'Connor said the majority of New Zealand farmers affected by the loans were not in a position to undertake lengthy and expensive litigation, "that's why you need a thorough investigation that is outside the court process".
Mr O'Connor said the Commerce Commission's investigation dealt with the fairly narrow test of whether banks complied with the Fair Trading Act when selling the loans and it could not deal with the issue of potential redress.
"That's where the Financial Markets Authority or a select committee may be able to come in."