I am incredibly humbled to be celebrating with our team, Vedanta Hedging’s 10-year anniversary. Over the last decade, we have helped nearly 28,000 businesses with hedging problems or advice. Many have asked us how the company started and my personal journey...
After graduating Summa Cum Laude in Economics from Durham University I was headhunted by Lloyds Banking Group Plc to join their Executive Leadership programme.
Inevitably, I found myself in the dealing room within the Bank’s investment bank where I was helping corporates to manage their interest rate and foreign currency risk management. In simple terms this meant helping borrowers from the bank to make sure they were protected from rising interest rates, as well as importers/exporters to give them certainty on the rates they would buy or sell currency at. What struck me was that all of these corporates were often hanging on my every word. First, I thought this was due to my engaging presentation skills but I then realised it's because for this specific type of risk management - there was simply no-else advising the business. All of the clients I met had solicitors and accountants; and often finance brokers too. But neither of these professions had a detailed understanding of hedging nor were they regulated by the FCA to be able to advise on them.
In 2011 this thought germinated into a willingness to take a leap of faith (supported by my mentor Truett Tate) to set up my own advisory firm. I decided to call the business Vedanta Hedging. The name ‘Vedanta’ means ‘ultimate truth and knowledge’ in Sanskrit. My vision was to demystify and bring transparency to what can be an opaque area of everyday banking. It sounds unbelievable even today, that there is no other business in the UK which is FCA authorised to advise all types of corporate on hedging. In all other parts of business life there is at least some price transparency; such as in accountancy fees, legal fees, finance broker fees, life insurance, fire insurance. But in this niche area of derivatives for interest rate and FX hedging there was effectively no way that even a large firm could check the real-time live price of the hedging they were being quoted by the bank.
In the summer of 2011, I was chosen by my Guru and Spiritual teacher, Morari Bapu to attend a 9-day religious seminar or ‘Katha’ held at the sacred Mount Kailas in the Himalayas. It was here that I asked Bapu to sign the incorporation certificate for Vedanta Hedging Ltd.
My initial objective was to earn enough just to cover my fixed costs of the specialist banking software and FCA regulation I needed (c£50k). To try and reduce all of my costs and overheads, my wife Rupa and I sold our flat and moved in with my parents. Here, I started Vedanta by working on our family dining table, and remember the hassle of having to pack away (confidential!) client files twice a day as we ate lunch and dinner.
Initially, as I spoke to SMEs, they said that my service would be helpful when they next entered into hedging, but please could I help them with what they had entered into already with the bank prior to 2009. I looked at some of these agreements and was shocked to find that some borrowers had been given a 5yr loan with a 30 year fixed rate (swap) attached to it. It's like buying a Ford Fiesta, but being forced to take out insurance for a Ferrari!
I then approached my regulator, the FCA about this. Unfortunately, the call centre advisors I spoke to didn't know what I was talking about (even though the FCA were my regulator, and indeed the banking regulator supposed to be protecting businesses from how these were sold!). I then reached out to my ex-school friend Matt Warman (who is now an MP) who was a Telegraph journalist. He referred me to his banking colleague Harry Wilson. I met Harry in December 2011. After a few months of research and corroboration, Harry started a series of articles in the Telegraph from February 2012 about this issue - starting with the mis-selling of a fish and chip shop called ‘Winking Willys’ in Scarborough.
At this point I was going to Westminster a few times a week to meet many MPs who had been hearing complaints of these issues affecting their constituents for a few years and couldn't resolve them. In March 2012, the FSA contacted me and asked my colleague Martin and I to advise them on what these products were, how they were sold in practice and how they should be sold to SMEs. We were actually paid a modest fee also by the FCA for this advice.
When we first went to meet the FCA, I did feel somewhat ‘proud’ that my regulator was paying me to advise them. However, as I sat round the table and saw the different ‘silos’ of the FCA and began to hear their questions that pride turned to sadness because I felt these poor regulators would be like lambs to the slaughter when trying to negotiate remediation with the banks. I said to them that I genuinely felt sorry for their predicament - because if they helped all of the borrowers to genuinely recover all of their losses the cost to the banks would run into many billions of pounds. At the same time, the FSA had a ‘dual’ mandate at this time of preserving the ‘health and stability’ of the financial sector - hence the conflict.
On the 29th June 2012, I remember being interviewed live on Sky TV about the Interest Rate Hedging Product Review (IRHP) that had just been announced by the FSA that morning. From this point on there has been a whirlwind of activity in trying to force banks to fairly compensate businesses. The FCA Review considered nearly 28,000 SMEs and approximately £2.5bn has been paid out as a result of this IRHP Review. Perhaps a form of direct quantitative easing into the pockets of SMEs...
Since then, my team and I have been able to speak on BBC News, ITV News, Channel 4, Radio 4, The Times, The Telegraph, the FT and of course Asian Voice on several occasions to try and explain simply the problem caused by banks.
Sadly, there are many businesses both small and large, who had to litigate, or in fact were simply not able to challenge their bank. I had to face the devastating news of some clients even committing suicide due to the shame they felt within their (Asian) families, because their family blamed them for entering into these agreements with the bank. These tragic events happened before the banks paid out compensation to these SMEs, which would have of course vindicated these individuals. The reality is that the true losses of being mis-sold a derivative can be truly catastrophic. Imagine entering into a £1m loan with a bank, and then being told that to repay it early, or refinance, would cost £350k; a staggering 35% of the loan amount - who could possibly afford this? This is why even some of the largest property firms, hoteliers, care home owners and PLCs globally have been affected by this; including Councils which we have also assisted. Some of these claims have been as large as £1bn.
Bapu’s blessings have allowed us to donate 10% of all of our profits to charity since we started, which culminated in Vedanta Hedging hosting Bapu’s Ram Katha in Khadagada, Rajasthan in May 2019 which provided food for nearly 300,000 local villagers.
The banks are better behaved today but our job of trying to provide transparency is as important as ever, because the banks often appear to be providing detailed information to borrowers but often there are subtle but important nuances which can trip up the borrower. A live example of this right now is how some banks are forcing borrowers to move from LIBOR to SONIA but not giving them the most suitable options. We continue to try and help borrowers daily with this and advice on hedging and fixing their borrowing.
