One of the Midlands’ top manufacturing firms has launched a multi-million court case against its bankers, accusing them of losing it money through convoluted currency trading schemes.
Titan Steel Wheels, which is based in Kidderminster and is part of the listed Titan Europe group, is suing the Royal Bank of Scotland (RBS) for allegedly “mis-selling” complicated financial derivatives that involved betting against future currency values.
RBS is counter-suing the company for the loss it made after Titan cancelled its contracts with the bank.
And one financial law expert said he was expecting to see more firms to turn on their bankers as pressure from tough trading conditions combined with falling trust in bankers.
Titan launched the action over two complicated financial transactions entered into in July and September 2007. It said the two derivative products were so unusual and complex that its own financial controller did not have the authority to get involved – which the bank should have known. It also accused the bank of acting unfairly and being negligent by recommending the investments.
It said the closing down of the schemes meant a £4.1 million charge had to be put on its balance sheet.
But RBS said the firm had been using financial instruments like this for some time, and should have been able to decide by itself what the right decision was when investing its money.
It said it had not given any formal advice to the directors at the company, and had not failed any of its statutory duties.
If the company fails in its legal bid Titan will be liable for nearly £3 million RBS said it lost out on because of the closing out of the two accounts.
Titan Steel Wheels makes most of its sales in the Eurozone, but has to pay most of its costs in the UK, meaning it has to sell euros and buy sterling on a regular basis.
It had contracts with RBS to hedge against a future strengthening of sterling in 2007, but lost out when the weak pound continued to fall against foreign currencies. It suspended payments on both contracts summarily at the end of 2008, leading to the start of the legal battle. In a preliminary hearing at the Commercial Court in London, Justice David Steel rejected some of the accusations levelled against RBS, saying it had not acted in an official advice capacity.
The hearing was complicated by the fact that RBS had recorded conversations about the financial packages between one of its corporate treasury managers and a Mr Annetts, the financial controller of Titan at the time. But some of these recordings later disappeared, which Titan had claimed was an attempt at a “conscious or unconscious attempt” to cherry-pick the evidence in their favour.
But Justice Steel said he had completely rejected this kind of allegation, and there was no evidence of any kind of cover-up.
Spokesmen for both Titan Steel Wheels and RBS said they could not comment on an ongoing court case.
A financial services partner in one large law firm said there would be more cases like this coming up as companies blamed banking failures for business losses.
He said: “This becomes more common at a time where there’s been rapid market change. There are a lot of performance complaints.
“But paradoxically it often means its more easy to defend cases. The fact that everybody has experienced the same financial disaster is quite a good negligence test.”
The Titan Europe group makes steel wheels and undercarriages for specialist vehicles in the mining, construction and agricultural industries, and is the largest firm in the West Midlands to be listed on the AIM market.
Its last full-year financial results revealed a grim picture for the company. It was forced to cut more than 1,000 jobs – nearly a third of its workforce – in 2009. Sales fell 35 per cent and it made a loss of £11.4 million in the year to the end of June, compared a profit of £4.4 million in the same period last year.
Chief executive Mike Akers said last year it had to focus on lowering inventory levels, reducing operating expenses and generating cash at its UK operations.