RGL’s group action case versus Clydesdale Yorkshire Banking Group (CYBG) – now Virgin Money – was heard by the courts during the last quarter of 2023. The verdict awaits.
The key to the case is as follows: CYBG charged many of its borrowers of fixed rate loans ‘break costs’ in the event that the borrower repaid the loan early.
These break costs emanated, CYBG says, because it hedged the fixed rate loans with a counterparty (which transpired to be National Australia Bank, its then parent), and under circumstances where long term fixed interest rates had fallen, NAB had the right to come to CYBG and ask CYBG to make good its losses. CYBG then charged their borrowers the break cost, in order to make itself whole with NAB.
Representatives of CYBG have said, on different occasions, that they hedged each and every fixed rate loan on an individual, like-for-like basis, but also in its annual reports and accounts that it ‘macro-hedged’ some of them, that it, bunched fixed rate loans together and hedged them in clumps.
Whatever did happen, CYBG only faced losses, from NAB if there were actual interest rate swaps in place between the two banks, with payments made under the swaps.
There are a whole number of additional issues to be brought before the bank, which may well become headaches for Virgin Money. This is why the CEO of Virgin Money is under pressure, alongside the other pressures facing smaller banks outside of the big 4-5 main clearing banks. While the FCA and PRA, bank’s regulators are hoping that newer, smaller banks will come to be competitors of the big 4-5, there is only so much the regulators can do to encourage this to happen.