BIRMINGHAM, Ala. (CN) – Regions Bank walked away with $800,000 in undisclosed fees from a real estate developer it sold interest-rate swaps that did the bank’s client no good at all, the developer claims in Montgomery County Court.
The developer, P&N Kissimmee, says it relied upon the recommendations of Regions Bank’s Capital Markets Division to enter into the swap agreements to “hedge against the risk of fluctuations in interest rates” on permanent financing for a construction project.
But after the initial swap agreement failed, Kissimmee says Regions recommended that it “restructure” the swap so it would not have to pay a termination fee of $1.5 million.
Kissimmee claims that rather than restructure the swap agreement, Regions terminated it and replaced it with the new one so it could “pocket” $800,000 in hidden overpayments and roll the almost $1.5 million termination fee into a higher fixed rate.
Kissimmee says it agreed to the swap strategy based on Regions’ guarantee that the swaps would ensure a maximum “all-in” rate of 6.46 percent on the permanent financing.
But Kissimmee says it has been left with a new rate of 11 percent and is paying $80,000 to $90,000 a month for the “swap settlement payments,” about three times more each month than it would have paid under the original swap agreement.
Kissimmee wants the deal rescinded and damages for fraud and negligent misrepresentation. It is represented by Alfred E. Smith, Jr. of Birmingham.