The banality of vulture financing: The placid face of RBS’s distressed debt recycling factory

10 September 2013

Derek Sach inadvertently gave away some of RBS’s trade secrets in this interview with Debtwire’s Mario Oliviero.

Sach — who is in charge of RBS, NatWest and Ulster Bank’s so-called Global Restructuring Group — was interviewed during the Debtwire European Forum in London’s Dorchester Hotel on 16 October 2012.

Sach, who joined RBS from 3i in 1992, refers to “opportunities” in relation to new “distressed businesses” coming his way. When he talks about the need to re-restructure already restructured businesses as a result of the slow pace of the UK’s economic recovery, his eyes seem to light up, perhaps at the prospect of the fees and revenues the bank might earn.

Sach also talked about sales (“exits”) being thin on the ground at the moment, adding that:-

“Anything which is close to the consumer is struggling, and we see a steady supply of consumer businesses coming to us. Because economies are depressed, shipping is another depressed area that we see a lot of opportunities in.”

RBS logo
Photo: Daily Mail

His use of words, and especially his use of the word “opportunities”, suggests that Sach is not averse to “preying” on customers’ assets.

GRG is supposed to look after RBS Group’s “distressed” corporate and commercial borrowers. But, as I’ve pointed out in earlier blog posts and articles, many of the RBS, NatWest and Ulster Bank customers whose accounts are transferred there claim that the bank put them there through sleight of hand. As I have also explained, the bank often achieves the transfers through the use of manufactured defaults, “missold” swaps, and by placing phoney valuations on customers’ commercial property assets using “tame” chartered surveyors.

I say the surveyors are “tame” partly because, even though many supposedly work for independent firms, they are physically working from desks inside GRG’s offices around the UK. For example, surveyors from Graham & Sibbald are working out of GRG’s offices at 24/25 St Andrew Square Edinburgh, and have gained a reputation for slapping conveniently low valuations on RBS customers’ assets — many of which subsequently wind up in the bank’s West Register arm.

Through methods such as these, the bank is able to conjure up defaults and breaches of loan-to-value ratios in otherwise profitable, creditworthy and stable businesses — making it look like they are in breach of covenant. Almost every business that has been transferred to GRG  of which I am aware — and there are now hundreds of them — alleges they were put there through foul means and that, once they are they are there, they are subjected to appalling treatment by Sach and his crew.

Bully-boy tactics and a regime of fear designed to ensure silence and compliance with the often rapacious wishes of the bank seem to be the order of the day. Some have compared their experiences in GRG to being in a slaughter house, concentration camp or even in  the ninth circle of Dante’s Inferno.

GRG’s treatment of the Edinburgh-based property developer Leonard Wilcox and his company Bayfield, recently reported by Simon Bain in The Herald, gives a taster of the sorts of methods used. There is evidence of chicanery on the bank’s part. The bank has sought to argue it has no “fiduciary responsibilities” towards its customers claiming it acts in a “purely contractual relationship”. As Cat McLean, a solicitor-advocate with law firm MBM Commercial, which is representing Wilcox, has pointed out:

“RBS is adamant in its rejection of the suggestion that there could be any implied duty to take reasonable care while dealing with a customer – what many consumers will see as a startling proposition.”

She adds that the court battle between Wilcox and the bank could have a major bearing on the law on personal guarantees, given Wilcox’s claim that the personal guarantees over Bayfield’s loans are invalid because of the way in which the bank obtained his signature. The next hearing in the case is on Thursday, 12 September.

In the clip above Sach comes across as a smug and self-satisfied technocrat, utterly impervious to the unnecessary pain, distress and upheaval that he, RBS and GRG are inflicting on business customers up and down the UK as they seek to extract maximum value from so-called “special situations” in favoured sectors such as care homes and hotels. The part of the interview in which Sach refers to senior debt-holders, such as RBS, throwing in “a bit of cash” to “get” the real value is perhaps the most telling.

Here is a partial transcript of the interview:

MO: “Have you seen much change in major restructurings in Europe in the dynamics between senior and junior creditors?”

DS: “I think people are getting more sophisticated. The same fundamentals apply that always applied — in that, first of all, you have to establish where is the value break. That gives you seat at the table. Frankly, if you’re outside it, it’s going to be jolly hard to muscle your way into the party, unless you’re prepared to put more money in…

“Over this cycle, the senior lenders, and the one who may be the second-tier lenders, are getting a bit more sophisticated. They’re working out that if they put a little bit of money in, they can actually keep all the value for themselves, whereas historically they perhaps have been a little prone to say ‘we don’t do new money’ and people in the mezzanine say ‘we’ll put up the money’ and the senior lender gets wiped out. So, yes, people are getting more sophisticated and taking more notice of where the real value is.”

Debtwire’s Mario Oliviero comes across as a classic “embedded” journalist in this clip. He is emollient and even in awe of Sach, and gives him a shockingly easy ride. Perhaps he’s unaware of the rapidly growing body of evidence of systematic abuses inside RBS and, specifically, GRG.

An initial dossier of evidence, including quotes from a senior whistleblower from inside the state-owned bank, was presented by Lawrence Tomlinson, chairman of Leeds-based LNT Group and “entrepreneur-in-residence” at the Department of Business Innovation and Skills, to Vince Cable in August 2013.  Tomlinson has since been inundated with further examples and will be presenting further case studies said to be suggestive systemic institutionalised fraud and/or patterns of abuse by UK banks to business secretary Vince Cable in due course.

One former RBS GRG executive gives an inkling of what Sach is like, and how he is viewed internally.

“I used to work with this guy; he has always been arrogant and, despite having many senior enemies in the bank over time, he’s always believed he’s untouchable. His sole focus is to maximise value [for himself and RBS] by forcing liquidity issues, then stepping in at the last minute, provided he can get his equity kickers, or just equity swaps. [He has ] not a care for any human collateral damage.”

For background here is an excerpt from a Daily Telegraph article by James Hurley, published on July 9th 2013:

Lawrence Tomlinson accused banks of loading punitive charges on companies to maximise returns and bonuses and of “making directors passengers in their own businesses”. “The attitude should be, ‘what can I do to help this business recover?’ In fact, it’s ‘let’s take as much from each customer as we can’,” he said.

Jonathan Straight, chief executive of AIM-listed recycling products firm Straight Plc, said an 18-month spell in a high street bank’s turnaround division had cost his business £276,000 in IBR fees, penalties and increased interest rates. “How are you helping a business by piling on charges?” he asked. “You end up in a parallel universe where none of the normal rules apply.” He called for the “unhealthy” relationship between banks and the large auditing firms conducting IBRs to be investigated.

A former banker who worked inside a turnaround division of one of Britain’s nationalised banks told The Daily Telegraph that the “independent” consultants often act under the direction of the lender.

H/T Brett Scott (aka Suitpossum) for revised headline

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Posted by Ian Fraser on Sep 10 2013. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry