Update on negative interest rates on loans

Claims arising from non-compliant interest rate adjustment – negative interest

The interest rate indicators for variable interest rate financing (such as Euribor or Libor) have generally reached negative levels beginning March 2015 (earlier in CHF terms). Unfortunately, this situation, which is generally favorable for municipalities and companies, is clouded by the fact that many of the advantages of low or negative interest rates (hereinafter “negative interest rates”) are not passed on to the municipalities.

First judgments are available …

In this context, some lawsuits have been filed against banks. The first-instance judgments were last ruled on a regular basis in favor of the borrowers. In practice, however, one encounters very different legal starting situations that have to be taken into account in individual cases. It can therefore be assumed that the present judgments will not and can not provide clarity on the overall legal situation.

The affected borrowers will thus ultimately not be spared an individual intervention, so that both the borrowers and the banks continue to seek solutions in the comparison path.

Comparative solutions through the involvement of expert experts …

We have already accompanied and concluded a large number of individual comparisons by negotiation on the subject of “negative interest rates”. The economic results of these comparisons are, not least due to the “inclusion of the future value in the damage assessment” far above the “historical damage” (the “historical damage” is the amount that the Bank has since reaching the negative values ​​of Interest rate indicators too much).

This is made possible by a mathematically correct valuation of the “interest floor” collected by the bank. This can be used to measure the value of the “interest floor” claimed by the bank. This forward-looking value is surprisingly high on a regular basis. The settlement solutions achieved are thus in the direction of 150 to 200% of the historical loss.

In order to achieve a fair settlement solution on a secure basis, in addition to comprehensive legal expertise, it is also necessary to include expert experts in the field of finance and financial mathematics. The specialists of FRC – Finance & Risk Consult GmbH (FRC) are here to assist you.

… lead to attractive solutions

In addition to the repayment of overpaid interest and the recognition of the negative indicator for the future interest statements, there are also solutions in which the terms of existing financing can be significantly reduced (by 30 to 50%) and the credit premium for the future is legally secured , This means that the premium can definitely no longer be increased until the end of the loan term and any “legal backdoors” can be closed, for example, in the banks general terms and conditions.

Such forward-looking, legally compliant solutions also make sense, as it can not be ruled out that the banking sector will ultimately respond to banks’ negative judgments with a market-wide increase in premiums. We are already setting this up and negotiating such agreements that will ensure a sustainable result for the customer.

About The Author

Heinz Hofstaetter
Over 20 years of international experience in senior management positions in the areas of consulting, banking, finance, asset management, valuation and Real Assets.