A report by government adviser, Lawrence Tomlinson, has revealed some appalling treatment meted out by the Royal Bank of Scotland to some of its small business customers. It claims that RBS put some “good and viable” businesses into default so it could make more profit. The Business Secretary, Vince Cable, referred it to City regulators – the Financial Conduct Authority and the Prudential Regulation Authority – this morning.
Vince Cable
Wants an ‘urgent response’ to the report.
Mr Tomlinson, entrepreneur in residence at the Department for Business, Innovation and Skills, has spent the past six months compiling a report into small business lending practices across the banking sector. Few come out well – but the allegations about RBS are explosive.
These focus on the bank’s Global Restructuring Group which handles loans classed as being risky. But far from all of the loans being “risky”, the report alleges that firms not necessarily in immediate financial distress were “engineered” into GRG. This could have come about through small technical breaches of loan terms, such as late filing of minor financial information. They are then charged exorbitant fees which could run into hundreds of thousands of pounds. In its evidence, one business said that it had been charged £256,000 in fees alone, while another said that RBS made them pay an immediate sum of £40,000 to continue borrowing terms with the group. In some cases, these orerous terms caused the businesses to collapse which Mr Tomlinson claims would allow RBS to buy their property and assets on the cheap for the benefit of its West Register property arm. He called for “immediate action to stop this unscrupulous treatment of businesses”.
Lawrence Tomlinson
Shocked by his findings
He added: “From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price.”
He added: “There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners. I look forward to seeing how RBS proposes to take forward the forensic investigation into this part of the bank.”
In sending the report to the regulators, Business Secretary, Vince Cable, described some of the allegations as “very serious and I am waiting for an urgent response as to what actions have been taken. I am however confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium sized businesses.”
The new chief executive of RBS, Ross McEwan, has already said the report would make for uncomfortable reading, but promised to implement its findings in full. In a statement, the bank said that “In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy. RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near collapse as valuations rapidly plummeted. Facing up to these mistakes has been a difficult, but essential part of making RBS a safe and strong bank once again.”
There have already been suggestions that, if it is proved that RBS deliberately put viable companies out of business, the bank could face legal action from their former owners.