Westpac Banking Corp's New Zealand unit has agreed to pay $2.97 million in a settlement with the Commerce Commission over the way the bank sold interest rate swaps to farmers between 2005 and 2012.
The bank will make $2.47 million available to 38 customers who registered their complaints with the regulator, $250,000 towards the commission's costs and a further $250,000 to Rural Support Trusts, the Commerce Commission said in a statement. The deal comes two months after its last settlement and wraps up its investigation into the sale of the swaps that have already seen ASB Bank and ANZ Bank New Zealand cut deals with the regulator.
The regulator said it considered the way Westpac sold the swaps was misleading and likely to have breached the Fair Trading Act, and while Westpac didn't accept the commission's opinion, it did admit some of its conduct breached the act, the commission said.
"The payments to be made under the settlement are, in our view, a reasonable approximation of the potential losses that the commission could have recovered through any court proceedings," commission chair Mark Berry said. "In reaching the settlement farmers have certainty and will not need to go through a potentially lengthy court process."
Interest rate swaps are a financial derivative product that allows a borrower to manage the interest rate exposure on their borrowing. Typically aimed at large corporate and institutional customers, from 2005 they were offered by various banks to some rural customers nationwide.
The Westpac deal takes total compensation payable by the three banks to $24.2 million, the bulk of which came from ANZ's settlement.
Westpac's smaller amount reflected that the bank didn't have an across the board practice of increasing margins on swap rates and didn't differentiate its break costs under a swap and under an ordinary fixed rate loan, the commission said.
As a result of the commission's investigation, the Financial Markets Authority entered into a separate settlement with the bank, the regulator said.