May 31, 2012 (updated June 7th, 2012)
On Wednesday May 30th, a shareholder stood up at the Royal Bank of Scotland’s annual general meeting and made some serious and credible* allegations of “systemic institutionalised fraud” inside the Edinburgh-based bank.
Neil Mitchell, a former chief executive of listed software group Torex Retail, claimed that malfeasance and financial fraud has become rampant inside the bank’s multi-billion repository for “distressed assets”, or “special situations” division. Called the Global Restructuring Group (GRG), this is overseen by global head of restructuring Derek Sach, and also includes West Register, a vast ‘warehouse’ for distressed commercial property assets.
Mitchell accused the RBS board, some of whom were visibly squirming in their seats in the Gogarburn conference centre as he spoke, of turning a blind eye to, and even sanctioning, an epidemic of:-
“corporate governance infringements, regulatory breaches and systemic institutionalized fraud”
Mitchell claimed the alleged malpractice, which includes conspiring to defraud corporate customers, was signed off at the highest level in RBS and aided and was abetted by the ‘Big Four’ accountancy firm KPMG. He said he was disappointed by the bank’s refusal either to meet him or to take receipt of “crates and crates of evidence” detailing the alleged crime wave.
He said he was surprised that the bank had even refused to investigate an initial “black file” which provides an executive summary of the cases that Mitchell and others have investigated, copies of which are also being held by a number of senior UK politicians including business secretary Vince Cable and lord chancellor Ken Clarke.
Mitchell said he had expressed a willingness to assist RBS with an investigation into the serious allegations but it had rejected his offer. Instead, Mitchell said he had received a “three line message” from the bank denying everything and saying it does not want to meet. This is classic ‘deny, dilute, delay, divide‘.
Mitchell also told the AGM that he has been forced to take out a ‘cease and desist order’ to prevent RBS from using electronic and physical surveillance to monitor his activities.
He said he was dismayed — as, of course, are many, many others — by the bailed-out institution’s refusal to investigate genuine complaints levelled against it. Instead, the bank’s modus operandi is to incite those it has wronged to issue writs against it, which serves the double purpose of ensuring complaints get buried in the quagmire of the UK judicial system, and giving the bank an unfair advantage thanks to it always superior legal firepower (it can also lead to complainants being bankrupted, and therefore partially silenced). (Watch a video of part of Neil Mitchell’s intervention at the AGM).
One might have thought the serried rows of financial journalists at the event in the RBS conference centre at Gogarburn would have taken some interest in this, or at least reported the fact of Mitchell’s publicly-stated allegations. But no. Not one of them mentioned Mitchell’s speech or his questions to RBS chairman Sir Philip Hampton in their published reports.
There were parallels with the media silence that followed similar allegations from Nigel Henderson at RBS’s last AGM on April 19th, 2011 (which I reported for the American financial website Naked Capitalism). Here’s what I wrote at the time:-
Towards the end of the session, Nigel Henderson, a shareholder and a former hotelier from the historic Scottish coastal town of Montrose, gave an eloquent and impassioned speech about what he sees as the bank’s questionable history of wrongfully expropriating the assets and businesses of small and medium-sized corporates.
Henderson, together with other corporate customers known as “Baker’s Dozen” claim they have incontrovertible evidence that RBS has ‘nicked’ their businesses by arbitrarily shortening payback periods and amending the terms and conditions on loan agreements without notice. Henderson said:-
“The conduct of a significant number of employees in your bank would make even the most crooked, unscrupulous and despicable back street loan shark appear as a paragon of virtue. Yes, the jackboot culture is alive and kicking – literally as well as metaphorically within your bank, despite your pious statements.”
All the financial hacks in the room religiously downed their pens at this point, clearly believing such claims would be of no interest to their readers.
If one of the UK’s largest banks, which is 83% owned by the taxpayer, is systematically (or being accused of systematically) ‘looting’ the country’s base of small and medium-sized enterprises and larger corporates in order to inflate its perceived profitability, one might have thought it was vaguely newsworthy. I’d be fascinated to hear why the Times, the Telegraph, the Financial Times, the Scotsman, the Daily Record etc do not believe such claims are of any interest to their readers.
To be fair, the Herald’s business correspondent Simon Bain did produce a more comprehensive write up of the annual general meeting than the other journalists present (with the possible exception of the Telegraph’s Harry Wilson and Matthew Sparkes), and alluded to GRG’s activities. Simon detailed allegations levelled at the bank by other shareholders, including one about alleged industrial-scale misselling of interest rate swaps to SMEs.
In response to this claim, RBS chairman Sir Philip Hampton sought to downplay the scandal, insisting that swaps sold to SMEs were “simple risk-management products” and “not remotely comparable to the PPI problem“. Bain continued:-
… but his vow of a “shift in culture” at RBS met with shareholder claims that the bank was “forcing businesses into administration” and setting “unrealistic sales targets” for staff which posed future risks for the bank.
The annual meeting in Edinburgh, attended by only 180 shareholders … was lobbied outside by the Bully-Banks campaign which claims widespread mis-selling of interest rate swap agreement to small businesses.
Inside, shareholder Paul Nightingale, an Exeter businessman, told the chairman: “It would appear many small businesses are in severe financial difficulties as a result of mis-sold swap agreements with RBS – you have talked of the massive cost of PPI and said we must learn the lessons, but have we learned them?”
Sir Philip said: “We have looked pretty carefully at our sales processes in relation to these products and I believe they were extremely strong.” Only one of 67 complaints to the Financial Ombudsman Service had so far been upheld,” he added, [claiming they were “simple” products] ….
But Mr Nightingale responded that the products were “far from simple”, adding: “Personally my breakage charges have been in excess of £1.2 million. That is crippling me in every respect. There are thousands of businesses in the UK that RBS is forcing into administration, it is absolutely unsustainable what is happening.”
Shareholder Alison McLean, an official of the Unite union, said bank staff were under extreme stress from the threat of disciplinary action for failing to meet short-term sales targets. The bank was thereby creating “a culture where excessive risk becomes acceptable”. She called on Sir Philip to commit to a joint approach with Unite to reduce stress and to “eradicate the bonus culture that brought about the likes of PPI mis-selling” [Hampton agreed to do so]
… Gavin Palmer, a former director of two small shareholder organisations … complained that three non-executives all had connections with accountant KPMG, and called for a process which would enable directors to be nominated by shareholders.
Yet, like all the other journalists present, Bain failed to mention Mitchell’s claim of “systemic institutionalised fraud” inside RBS’s global restructuring group. Nor did he cover a question from shareholder Maurice Foley who pleaded with Hampton to stop “the blackguarding” at Ulster Bank, which he said is “still bleeding” billions.
Oh and, for the record, while RBS chief executive Stephen Hester was remarkably taciturn at the event, saying only one word, “Yes”, its chairman Hampton said he would take a look at Mitchell’s allegations.
* I believe Mitchell’s allegations are credible because, prior to meeting him on Wednesday May 30th, I had heard independently from some 30-35 owner/managed UK-based businesses that RBS’s Global Restructuring Group uses a standard methodology to ‘wilfully destroy’ and ‘misappropriate business assets’ (i.e. asset strip). I’m further convinced Mitchell’s allegations are credible because both Derek Carlyle and Nigel Matheson have sued the bank over the way it destroyed their businesses … and won. The fact the FSA is probing West Register provides a further clue that all is not well in RBS’s distressed assets division.
Nigel Henderson has lost three court cases against RBS in the Court of Session, in 2006, 2008 and 2011. However, some might argue there is an unlevel legal playing field, since in at least one of the cases Henderson represented himself as a ‘party litigant’.