1 Nov 2013

RBS: the good, the bad and the ugly

It’s five years on from the height of the financial crisis, when RBS was on the brink of bankruptcy and had to be bailed out with £45bn of taxpayers’ money.

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Today, we’re told, is the most significant moment in that timeline. A decision has finally been made to keep the bank intact and put the remainder of its toxic assets – £38bn worth – into a new “bad” bank that will exist soley to deal with the “old” bad debt and find someone – anyone – who’ll take it off their hands.

RBS has agreed to do that in three years – at record speed, we’re told – at a cost to us, the taxpayer, of at least £4.5bn. That is, another £4.5bn.

But instead of moaning and groaning like we usually do when we’re delivered more bad news about the bank we love to hate, we’re told this is good news and we should in fact be celebrating. That’s because things could be worse, apparently.

The Treasury could have decided to split the bank in two, which would have cost us even more money and taken even longer, prolonging the day when we eventually can start to sell our shares and recoup our “investment”.

John Kingman, the second permanent secretary to the Treasury, proudly tells us this is the first time all three parties – RBS, the Treasury and the Bank of England –  have reached a settlement that all have agreed on (all that tells me is how bitter and difficult things were in the past!).

It’s a settlement the senior civil servant believes will signal to the market that finally some decisive action is being taken to deal conclusively with RBS’s toxic assets, rather than talking about them and wondering what to do with them.

The market loves certainty, and furthermore, it will free the bank up to  carry on doing what it should be doing best: the business of lending to the economy.

I’ll note here that the shares fell 6 per cent today in response, and the new boss Ross McEwan told me there was no guarantee he could actually offload the assets in the set timeframe.

Technically, though, Mr Kingman’s theory is correct. Getting rid of all the bad stuff will allow RBS to focus on doing some good.

Absent lends
But what we also learned today is that RBS isn’t doing a good job of the normal business of lending either. This despite the fact that on numerous occasions the old boss, Stephen Hester, told us RBS was busy lending away and increasing its market share.

Sir Andrew Large today concluded the opposite was true. RBS isn’t even meeting its own lending goals and volumes of lending are actually falling, despite the bank’s claims.

Worse still, Sir Andrew, the former deputy governor of the Bank of England, accuses RBS of treating its customers in an “impersonal and unresponsive” manner, particularly those customers deeemed to be in distress.

This programme has featured numerous case studies of customers describing horrendous treatment at the hands of RBS. Not just a lack of lending, but in some instances a deliberate attempt, they allege, to shut their businesses down simply because RBS has decided their loans are no longer “core”.

In some instances, healthy businesses are forced into bankruptcy and placed into RBS’s global restructuring division, or GRG, where their assets are then sold off at below market values. It’s a travesty but one that has been well-documented.

So why has it taken an independent report by Sir Andrew to finally get these small businesses heard? The government, and Vince Cable in particular – who claims to be the champion of small business – should have acted sooner.

RBS, predictably, is launching a review into Sir Andrew’s findings. All of which will presumably prolong the time it takes to make the changes necessary and turn things round. Besides which, with more toxic debts to get rid of, how exactly will they be able to speed up lending in the short term?

More scandal

Which leads me on to the final imponderable. The issue of mounting scandals. First there was Libor and now RBS has admitted its co-operating with an investigation into potential rigging on the foreign exchange market.

It’s suspended two traders and a source inside RBS today told me the forex problem could end up being every bit as bad as Libor.

RBS has also been named on a lawsuit by the American mortgage giant Fannie Mae, which claims the bank’s attempts to rig Libor resulted in billions of pounds worth of losses to its business. And then there’s the ongoing costs of compensating PPI and interest rate swaps victims – neither of which are close to being concluded.

I asked RBS’s chairman, Sir Philip Hampton, how much he reckoned all these legal issues could cost. He simply shrugged his shoulders and said he wished he knew.

Throw all that into the mix and what you have is a Treasury and a bank desperate to project the image that the past is firmly behind them, that decisive action is being taken – albeit five years later – and that the bank is being honest with itself about the way it conducts its business and treats its customers.

While George Osborne and Mr McEwan may think those are all good reasons for us to cheer, the reality is that the taxpayer was hit with yet more bad news today (not least the third quarter losses, which paled into insignificance amid everything else) and the prospect of us ever exiting this bank and getting our money back looks as far away now as it has ever done before.

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8 reader comments

  1. DrSooze says:

    Don’t understand why the Co-Operative Bank is being left to US hedge-funds in the meantime – ?

  2. Philip says:

    Why don’t we nationalise the damn bank? We could then direct it into what used to be standard banking operations – lending to businesses & individual customers and running people’s bank accounts, operating locally, perhaps even used as an engine to help the rest of the country share in the economic growth London has been enjoying. It seems to me that £now early £50bn of taxpayer’s money has been spent to land u with a vast amount f bad debt, a bank that can’t even manage what the Government wants it to do and one that still maintains a lack of customer service with all the unethical behaviours and practices that got us into this mess in the first place.

  3. hugo chance says:

    I was transferred to GRG when my perfectly sound business got into difficulty after an unpaid fire claim by insurers. I got transferred to GRab and that’s when the nightmare began, I got hit with deeply distressing letters and not even a shred of sympathy or support. They ramped up the charges and started taking money directly from my personal account without any notification. The crunch came when they literally forced me to sign up to a short term loan with 50k fees, knowing there was no way I could meet their terms.

    I was desperate but instead of helping, they demanded I sell my assets at knock down prices and agree to pay 50k for a 6 month period to do so. They threatened me on numerous occasions to ‘pass my file to recovery’ if I did not comply and this con-trick really put the frighteners on me. They knew I had family and they preyed on my vulnerability.

    This I now know was sharp practice and completely illegal. In fact I am advised their behavior was probably criminal. They gave me two days to sign up to the 50k 6 month extension or else!!! Never was I advised to seek independent legal advice.

    Six months later and obviously I could not meet their terms, so they went for the kill, putting my assets into recievership and auctioning them off, one by one. I lost everything and but for a sympathetic debt negotiator I found, I nearly lost my sanity.

    I am now issuing HC proceedings against the insurers for breach of contract over the refused fire claim and such is the strength of my claim that I have managed to get insurance cover for my claim and also a CFA. All I asked from RBS was to give me a reasonable time period to launch my legal action and allow me to keep my assets and allow me to service the loans on the existing terms. I had a very strong income and a very strong profile but I got no sympathy from GRG and was treated appallingly. They classed me as being in default even though the basis for this was hotly disputed and entirely unfair.

    I am one of the many RBS GRG victims and to think the taxpayer bailed them out yet when innocent businesses needed genuine help they screwed the life out of them.

    I hope something positive happens and the culture changes but I won’t hold my breath. In the meantime I am exploring all options for the way I was treated and the losses I suffered.

    My advice if you are in a similar position is to fight back with all your means. Make as much noise as you can, contact the FCA, your MP and the press. Get a good lawyer or debt negotiator onboard and please don’t give in to their threats, they are school yard bullies and until you show some fight they will drive you to the edge.

    I think the tide is turning generally even though its come a little late for me. I still owe them a shortfall due to their ineffective asset stripping but I will fight them all the way and will not give them an inch.

  4. Al says:

    The manufactured banking crises will continue until there is nothing left to loot. We truly live in corporate Britain.

  5. adil says:

    Siobhan. I both like and loathe reading your articles and assessments. I like them because they try to cut through the cloud and get to the essence. I loathe them because every time I read them they raise my blood pressure.

    The idea of making a ‘bad bank’ within the ‘good bank’ is pure genius. The fact it will cost 4.5bn is even more impressive. I can see (from my naive point of view) that it will make it easier for RBS to ‘leak’ the toxic assets through the good bank as part of packages that no doubt wisely managed pension funds will hoover up.

    Do you think a large problem is we are looking for the bank to be profitable rather than looking for the bank to help to businesses from going to the wall. I for one would rather see the bank being more lenient on business that are in difficulty. Perhaps that would reduce the toxic debt.
    But, I may be talking nonsese.

  6. Philip Edwards says:

    Siobhan,

    Oh I SEE.

    It’s the ASSETS, the buildings, the notional values, that are toxic…………not the system that created the assets…..not the individuals who created the system……not the individuals who made decisions to acquire the assets…..not the crackpot notional “values”……

    I’m glad you cleared that one up. Or somethnig.
    :-)

  7. David Rowlinson says:

    RBS, where do we start with these legalised crooks, I and my collegues put together a development site in North Wales over a five year period, south facing and right accross the road from a blue flag beach, a first class development of 62 apartments and 9 affordable units. RBS assisted in the funding of this original 10 piece property jigsaw made up of a derelict dance hall, coach station, empty individually owned garages and a disused indian takeaway, a local eyesore to be transformed into a new and beautiful development. 15 presales with cash deposits taken, coupled with a deal well on its way with a local housing association to take all the affordable units, not good enough for RBS they had other plans, at the drop of a hat they put the development into receivership. A nominated receiver took over the development and put the site up for sale by tender. I raised £1.6m from private investors to buy the site back based on a new scheme for the site of 14 houses and 9 affordable units. The receiver accepted my offer for concideration and told me I had a good chance to secure the site with that figure, however I received a call from the receivers on the afternoon of the tender deadline to inform me that they had agreed a sale with another company and were not at liberty to tell me who the successful bidders were, or indeed what they had paid. Three days later after insisting the receiver divulged to me the buyer details, I was informed that it was a company called West Register Realisations Ltd, and thats it, but who are they?, well heres a clue, they share the same head office building as RBS, this company is RBS and was set up to aquire good quality development assets and further more their bid for the site was just £5k more than mine?????. I lost all my personal assets and savings, 5 years hard work to put the development together and mine and my families life totally destroyed and there was nothing I could do personally to stop this unbelievable process of bully boy corporate dictatorship. The site has now been sold on only this year at an undisclosed figure, to a large building company, who have just received planning approval for an amended scheme of, yes you guessed, 14 houses and 9 affordable units, I wonder where they got the idea of that scheme from, I am yet to find out how much RBS/WRR Ltd sold the site on for, my bet is that it would be around the 1 million mark.

  8. Dan Slack says:

    So, can you tell me exactly how much RBS now owe me, since I am a taxpayer, I would like to know how much I am on the hook for. According to HMRC, if you include all taxes, there are 60 million plus taxpayers or should I say RBS creditors.

    Given that RBS seem unable to pay their debts (5 years is more than the few weeks I was given on my business overdraft), I see no reason why I should not petition a winding up of the company.

    If there are any good lawyers willing to help back me for free (but publicity worth a lot) then email me at dan@kewgardener.com
    Afterall it’s illegal to trade if one is insolvent. We must enforce the law.
    Dan.

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