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Let me say that again, in case you missed it: in the eyes of the current [[common law]] '''[[email]] does not count as an “[[electronic messaging system]]”'''. | Let me say that again, in case you missed it: in the eyes of the current [[common law]] '''[[email]] does not count as an “[[electronic messaging system]]”'''. | ||
===The Loan and the interest rate hedge=== | |||
Mr. Leach, of [[Greenclose]], was the proverbial little old lady of the law. He was also, the court found, the sophisticated owner of a successful family business running small luxury hotels around Wales. But not sophisticated enough to avoid being the wrong end of the [[interest rate swap mis-selling scandal]], wherein banks lent to unwitting merchants on condition that they hedge their interest rate risk with [[derivatives]]. In this case it was NatWest, and they required Greenclose to buy an interest rate collar for five years with an option to extend it for a further seven. | Mr. Leach, of [[Greenclose]], was the proverbial little old lady of the law. He was also, the court found, the sophisticated owner of a successful family business running small luxury hotels around Wales. But not sophisticated enough to avoid being the wrong end of the [[interest rate swap mis-selling scandal]], wherein banks lent to unwitting merchants on condition that they hedge their interest rate risk with [[derivatives]]. In this case it was NatWest, and they required Greenclose to buy an interest rate collar for five years with an option to extend it for a further seven. | ||
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Greenclose therefore entered an extendable collar transaction under a 1992 {{isdama}} — the edition is important — which would expire on 30 December 2012 unless NatWest gave proper notice of its extension before that time. | Greenclose therefore entered an extendable collar transaction under a 1992 {{isdama}} — the edition is important — which would expire on 30 December 2012 unless NatWest gave proper notice of its extension before that time. | ||
===The collar renewal in 2012=== | |||
Of course, come 2012, NatWest wanted to extend its collar — not because of any particular risk that Greenclose might default (since the start of the loan rates had headed ever lower, and still have not recovered) — but because they would make a ton of money. (Marginal note: This is what banks like to do, first and foremost.) | Of course, come 2012, NatWest wanted to extend its collar — not because of any particular risk that Greenclose might default (since the start of the loan rates had headed ever lower, and still have not recovered) — but because they would make a ton of money. (Marginal note: This is what banks like to do, first and foremost.) | ||
== | ===Where NatWest went wrong=== | ||
Error no.1 — a bit of a schoolboy error, frankly — was to have notice deadline which expired during the Christmas holidays. But that’s as may be. (In fairness, it’s not ''that'' outlandish to expect a hotel to be open in the Christmas holidays.) But as a rule of thumb it’s best not to have your options expire at Christmas. Anyway, the learning here is this: ''Don’t set options that expire in when everyone’s likely to be out of the office.'' | Error no.1 — a bit of a schoolboy error, frankly — was to have notice deadline which expired during the Christmas holidays. But that’s as may be. (In fairness, it’s not ''that'' outlandish to expect a hotel to be open in the Christmas holidays.) But as a rule of thumb it’s best not to have your options expire at Christmas. Anyway, the learning here is this: ''Don’t set options that expire in when everyone’s likely to be out of the office.'' | ||