Property investors sue AIB over ‘misselling’

A retired Dublin property investor and his wife are suing AIB over the alleged misselling to them of financial derivatives in notional amounts of about €45m.

Robert Madden, aged 72, said he and his wife Rosaleen, aged 79, of Terenure Road East, Rathgar, built up a substantial porfolio over many years generally based on acquiring a property and paying down most or all of the loan before moving to another purchase. They initially focussed on residential property but later acquired commercial ones.

Mr Madden said that every loan taken out with AIB over their 40 years banking with it was based on variable interest rates and they had never asked AIB to fix interest rates concerning their indebtedness.

He claims before the Commercial Court that the derivative products entered into in 2006 were contrary to this “prudent” banking relationship, wrongly inflated the amount of his indebtedness, and AIB had also overcharged “hundreds of thousands of euro so far” on various facilities.

He said rents on various properties of the couple secured in favour of AIB amount to €3m a year but liabilities under the derivatives amount to €1.3m annually. He would be able to pay more towards his underlying debts were it not for the derivatives, he claims.

He and his wife had also entered into other facility agreements with AIB about Nove 2009 for various sums, including for about €30m. Those agreements were governed by tracker rate ECB provisions which were “entirely inconsistent” with the derivatives, he said.

Mr Justice Peter Kelly yesterday granted an application by Michael Howard SC, for the couple, to fast-track the action in the Commercial Court. Counsel for AIB did not object to the fast-track but said it denied the claims.

The case concerns two derivative instruments, one for €5.1m and the second for €39.8m. Both were entered into in 2006 with termination dates in Jul 2013. The first was between AIB and Mrs Madden and the second was between the couple and the bank.

In an affidavit, Mr Madden said the derivatives provided for fixed interest rate repayments over longer periods than the underlying indebtedness. This was “a hallmark” of misselling of derivatives, he said.

The couple’s stated position was always that they wanted variable interest rates, he said. However, he noticed in recent years he was continuing to pay very high interest rates despite media reports that interest rates were very low.

Ultimately, after correspondence and meetings with AIB, and having seen media reports about interest rate products being missold, they were compelled to issue the proceedings, he said in an affidavit.

They claim AIB was required under the Central Bank’s code of conduct for investment business services of credit institutions to treat them, jointly and individually, as private clients, but failed to do so.

They also claim it should have engaged in a “know your client” process with them to ascertain their financial objectives before entry into the derivatives.