25 Nov 2013

RBS ‘drove small businesses to the wall’ for financial gain

As RBS is accused of driving small firms “to the wall”, Channel 4 News speaks to a businessman who alleges he was told by the bank that he had to sort out his cashflow or face bankruptcy.

Mark Addison ran a successful small pharmacy chain near Manchester which ran into trouble after being sold a financial instrument called an interest rate swap by the Royal Bank of Scotland.

The bank moved his business to its “global restructuring group” to help him, which he claims made things much worse because of additional fees and charges. RBS said it had provided support to Mr Addison’s business.

Mr Addison’s allegations coincide with claims, in a dossier of evidence handed to City watchdogs, that RBS drove small businesses to the point of collapse so it could buy back their assets at rock-bottom prices.

The dossier, compiled by the businessman Lawrence Tomlinson, entrepreneur in residence at the Department for Business, Innovation and Skills, alleges that the bank deliberately forced companies into default so that it could seize their properties.

Allegations contained within the report were considered so serious that Vince Cable, the business secretary, passed it to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). RBS has hired the law firm Clifford Chance to look into the claims.

It came as a review was published into lending to small businesses by Sir Andrew Large, the former deputy governor of the Bank of England.

Sir Andrew was commissioned by the bank alongside the management consultant Oliver Wyman. Initial findings and recommendations earlier this month raised concerns over “serious” allegations of poor treatment by firms in financial disress. Sir Andrew also said that RBS had failed to meet even the bank’s own lending targets or the expectations of its customers.

Ross McEwan, the bank’s group chief executive, replied to Sir Andrew, conceding that his report was “a tough read for the bank”.

Mr Tomlinson’s report is focused upon the bank’s “global restructuring group”, the turnaround division of the bank.

The division handles loans classed as being risky, and is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.

Compiled over six months, the report alleges, however, that even firms which are not at crisis point are “engineered” into the division. This can happen through small technical breaches of loan terms, such as filing minor financial information late, according to the report.

Once they are under the auspices of the global restructuring group, which is run by the veteran banker Derek Sach, they are hit with exorbitant rates and fees which can cause them to collapse.

Tomlinson dossier – the key findings:

  • The bank artificially distresses otherwise viable businesses and puts them on a journey towards administration, receivership and liquidation
  • Once inside the business support division of the bank, the business is not helped to turn its fortunes around, pushing it further towards insolvency
  • The insolvency process is not fair or accountable, and impacts negatively on the business owner deliberately
  • Calls for RBS and Lloyds Banking Group to be broken up into six banks with a 10 per cent market share to foster competition on the high street

At that point, according to the report, RBS can buy their property and assets cheaply through West Register, RBS’s specialist property arm, which takes control of some of the properties.

Mr Tomlinson’s report claimed that fees charged by the GRG can run into hundreds of thousands of pounds. One business that submitted evidence to Mr Tomlinson said that it had forked out £256,000 in fees alone while in GRG.

Another said that RBS made it pay an immediate sum of £40,000 to continue borrowing terms with the group.

“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,” Mr Tomlinson said.

“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.”

RBS said that the GRG had been key to helping the bank face up to its commercial property “mistakes” made in the run-up to the financial crisis.

A spokesman said: “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.”

He added: “GRG successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved.”

The Federation of Small Businesses said that the findings of both the Tomlinson and Large reports needed to be thoroughly investigated.

National Chairman John Allan said: “The regulators need to swiftly address any issues raised to restore trust in the banks.”