How many ‘British Linen Bank’ legacy loans are out there?

1964-linen-note-431x300I’ve just been approached to help understand some technical issues on a very long established loan with ‘British Linen’ – an old merchant bank, as they were referred to. It just so happened that I already had some unique knowledge of this.

I recently had to help a client to redeem a loan based on a very complex ‘finance lease’ structure, which had no redemption calculations. A very complex negotiation followed using the principle of ‘Future Net Present Values’ and a successful outcome with a considerable saving on the figures that the lender initially proposed.

I have no idea how many more loans are still outstanding and out there – it would be interesting to know – can you help?

This bank has an incredible history; it was established in 1720’s as a linen producing company in Scotland and in the mid 1700’s was the largest single firm in Scotland. It wanted to raise funding in 1745 and as it was not a limited company it went down the route of gaining a Royal Charter, which it was eventually granted. Purely incidentally, the Charter granted the company the rights to operate as a bank, which it chose to start doing in the 1770’s.

The other Scottish banks challenged the banks legitimacy so although it operated it was not until 1906 that it was given permission to call itself the ‘British Linen Bank’. By which time however, after rapid growth, its branch network was third in size in Scotland.

An affiliation with Barclays led to a sale of the bank to Bank of Scotland, who quickly integrated it into their own bank and demolished the old headquarters in Glasgow. In 1977 the name was revived as a ‘Merchant Bank’ and it operated as a separate entity of the BoS until 1999, when the bank was ‘mothballed’ again.

From there it has been swallowed up with mergers and take-overs, with BoS being merged with Halifax to form HBoS and then incorporated into Lloyds, who now have this bank and its assets and liabilities sitting on a dusty shelf in a basement somewhere!

The issue is that in the 1990’s they issued loans using a very complex ‘finance lease’ structure. This is not uncommon but the problem that has cropped up is that the ‘lease’ documentation didn’t always cater for redemptions –  it’s almost as if the loans were never expected to be repaid early.