5 Important Quotations for a Prudent Borrower to Consider

Commercial Borrower Beware

Commercial Borrowers should consider these important quotes when thinking about fixing an interest rate swap:

The Statement

Who Said It

What Does It Mean?

“as a seller of the swap, a loss to the customer works to the banks’ advantage” Federal German Court of JusticePresiding Judge, Ulrich WeichersOn Deutsche Bank Every dollar of [undisclosed] profit to the bank creates a loss for the borrower.  The more negative to the borrower, the greater the profit to the bank.
no business in finance is as profitable today as derivatives. Not making loans. Not offering credit cards. Not advising on mergers and acquisitions. Not managing money for the wealthy. Prof Darrel DunfieStanford University Graduate School of BusinessNYT Article Selling of swaps is a huge profit center to the banks and each dollar of profit is a direct expense to the borrower
“…often we advised clients to execute trades solely because they presented opportunities for us to profit… I learned to think we were simply smarter than the client.  For unsophisticated clients, being smarter meant quoting padded rates.” Omer Rosen, Former Citigroup Derivativesfrom The Huffington Post Borrowers cannot see and do not understand pricing.  Banks will pad the costs to profit from the deals at every opportunity.
Banks collect many billions of dollars annually in undisclosed fees associated with these instruments [swaps] — an amount that almost certainly would be lower if there were more competition and transparent prices. New York TimesDecember 12, 2006 If the borrowers could see the fees, the banks would never charge as much as they do.
“Only swap dealers or other participants in the swap markets have access to current market rate data at the confirmation of swap transactions” First Amended ComplaintPress Communications v Wachovia BankSuperior Court of Justice, Mecklenberg Cty, NC.  Case No. 09 CVS21335 Borrowers will not know the true costs and are unable to know with any certainty what undisclosed profits are hidden without the assistance of some in the business having access to live data such as a swap negotiator.