One of the biggest scandals to hit the Royal Bank of Scotland, dating from 2013, got a new lease of life after a number of businesses that claim RBS engineered them into
default on their debts so that the bank could extract cash from them leaked documents to Buzzfeed and the BBC.
The BBC and Buzzfeed say these new documents “confirm” that:
“… bank staff were rewarded with higher bonuses based on fees collected for ‘restructuring’ business customers’ debts – cutting the size of their loans and getting cash or other assets from the customer.”
“In what was described by an RBS executive as ‘Project Dash for Cash,’ staff were asked to search for companies that could be restructured, or have their interest rates bumped up.”
“RBS has been very clear that GRG’s role was to protect the bank’s position, where possible by working with distressed businesses to return them to financial health. In the aftermath of the financial crisis we did not always meet our own high standards and we let some of our SME customers down.”
“… Specifically, we could have managed the transition to GRG better and we could have better explained to customers any changes to the prices or fees we were charging. We also did not always handle customer complaints well. As a result, a number of our customers did not receive the level of service they should have done or, importantly, that they would receive now.”
RBS also said that there is no evidence that “the bank artificially distressed otherwise viable SME businesses or deliberately caused them to fail.”
The revelations may be shocking but they are not new
The revelations may seem shocking but they are not new.
In 2013, Lawrence Tomlinson, an independent businessman who owns the construction and healthcare group LNT Group, was asked by the then UK business secretary Vince Cable
to investigate problems small- and medium-sized businesses were having with the bank. Cable also asked two consultancies, Mazar’s and Promontory, to also do a report on the GRG unit in RBS and to give it to the regulator Financial Conduct Authority.
Tomlinson subsequently released a report in January 2014 which claimed that RBS would make money out of struggling businesses by placing them into RBS’s “turnaround division” — the GRG unit. He included real life case studies of businesses that claimed they were engineered into default.
The GRG unit then allegedly engineered these businesses into defaults, bought their assets cheaply, bumped up their interest rates, or otherwise extracted cash from them.
More than 12,000 companies were allegedly pushed into the GRG unit after the onset of the credit crisis in 2008. The BBC pointed out that “between 2007 and 2012, the value of loans to customers in the GRG increased five-fold to more than £65 billion.”
Tonlinson outlined at length that RBS was able to increase revenue by charging higher fees and margins for the struggling businesses in the GRG unit and this, in turn, would allow the bank’s property division, West Register, to purchase devalued assets.
We found no evidence of systematic defrauding of business customers
In April 2014, RBS responded by calling in the law firm Clifford Chance to do an “independent review” of the situation. They “found no evidence of systematic defrauding of business customers.” RBS’ full statement is here.
However, that was not the end of the saga.
In July 2014, Andrew Tyrie, the chairman of the Treasury Select Committee criticised RBS for being “wilfully obtuse” and delivering a “belated U-turn” when the panel grilled RBS executives over the GRG unit.
RBS Deputy Chief Executive Chris Sullivan and GRG boss Derek Sach actually sent a letter to the panel apologising for misleading it.
“It now appears that RBS has been wilfully obtuse with the committee. If this is how RBS deals with a parliamentary committee, how much can customers and regulators rely on it to be straightforward with them?” said Tyrie at the time.
If this is how RBS deals with a parliamentary committee, how much can customers and regulators rely on it to be straightforward with them?
Meanwhile, RBS still faces lawsuits from GRG “victims.” The newly appointed CEO of the Financial Conduct Authority has yet to say when the report by Mazar’s and Promontory will be released. It has already been completed and passed to the FCA.
When Business Insider spoke to Ian Fraser, author of “Shredded: Inside RBS, the Bank That Broke Britain,” he said:
“The bank is in denial about it and I have actually seen some pretty convincing evidence from ex-insiders that this was true. That suggests that this was, and perhaps remains, a rogue bank, not just a few rogue traders. When Ross McEwan talks about putting the customer in the centre of everything they do, it doesn’t sit comfortably with what they are doing to some of their business customers right now.”
“Many SMEs (small and medium sized enterprises) and customers have done very little wrong but have been hounded, persecuted, and abused through the courts by the bank. It seems brazen and hypocritical for a bank to do that at the same time as presenting itself as cuddly and nice via its TV commercials and public relations.”