More Banks Probed by FSA

LONDON -- The whole banking sector became a bit murkier today, as the Financial Services Authority announced an extension of its investigation into the possible mis-selling of interest-rate hedging products.

Serious failings in the selling of interest-rate swaps has already been uncovered at four major banks, and it looks like it could cost Barclays (ISE: BARC.L) , HSBC Holdings, Lloyds Banking, and Royal Bank of Scotland (ISE: RBS.L) 1 billion pounds or more after they agreed to a redress plan with the FSA.

These rate-swap products are sold to large numbers of small businesses, with around 28,000 such transactions already under scrutiny for possible financial damage to customers.

Many were offered such products as hedges against interest rate rises when they took out loans, but the hedges went the wrong way and cost them money. The question is whether these sales were conducted appropriately, with some saying they were pressured into buying them.

Deeper delving
The investigation is now to be widened to cover seven more banks, as Allied Irish Banks (ISE: AIB.L) , Bank of Ireland (NYS: IRE) , Clydesdale Bank, Yorkshire Bank, Co-operative Bank, Northern Bank, and Santander (NYS: SAN) have all agreed to a review of their sales of these products -- the FSA has stressed that there is no presumption of mis-selling.

This latest news can only increase the public's distrust of the banks, and is yet another setback for those investing in the sector. Many have lost a stack of money by buying what they thought were upright institutions before the failings became known and the dirty laundry hung out for all to see.

Did you avoid it?
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If you want to find out what Mr. Woodford has been investing in instead, grab yourself a copy of the free Motley Fool report "8 Shares Held By Britain's Super Investor," in which we've analyzed the 20-billion-pound portfolio of the legendary City fund manager. Click here to get your copy while it's still available.

And feel free to tell us what you think of this latest twist to our ongoing banking catastrophe in the comments section below.

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Alan Oscroft does not own any shares mentioned in this article. The Motley Fool owns shares of Bank of Ireland. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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