June 26th, 2014
The Royal Bank of Scotland seems to be rather confused over whether its infamous Global Restructuring Group is run as a “profit centre”.
A job advertisement placed by the bank in January 2014, clearly states that the “role purpose” of relationship managers within GRG is to be “a major contributor to the Group’s bottom line” (i.e. its profits). After this job advert was cited by shareholder Gavin Palmer at the bank’s annual general meeting yesterday as evidence the bank had been caught lying about GRG’s true purpose, the bank took the job ad down. So here is a “screen grab” of it.
Andrew Large, commissioned by RBS last year to review its lending to small businesses, said GRG was being used as an “internal profit centre”, a description that was retained by senior RBS insiders after they reviewed Large’s report. In a seminal report published last November, the former government advisor Lawrence Tomlinson highlighted how the bank routinely pushed viable business customers into the unit in order to hit them with massive fees and, ultimately, seize their assets.
It has been repeatedly reported that, when Derek Sach was drafted in to RBS from 3i by former chief executive Sir George Mathewson in 1992, his brief was to turn RBS’s restructuring and recovery arm into a “profit centre”. As I say on page 30 of Shredded: Inside RBS, The Bank That Broke Britain:-
[in 1992] the bank adopted a more proactive approach towards its ‘distressed assets’ – corporate, small and medium-sized enterprises and commercial property borrowers which were in financial difficulties, in breach of covenant or in default on loans … Sach established and still oversees the bank’s new ‘hospital’ for such customers – initially it was dubbed ‘Specialised Lending Services’ (SLS) but now it is known as ‘Global Restructuring Group’. The goal was to reduce the £400 million Royal Bank had set aside as provision for bad debts in the year to September 1992 by restructuring debt and nursing corporate assets back to health rather than just putting them into receivership.
Despite all this, two of the most senior executives within RBS, GRG boss Derek Sach and deputy CEO Chris Sullivan recently denied that GRG’s goal was to profit from business customer’s distress. Appearing before the Treasury select committee on 17th June 2014, Sach said:-
“It does not contribute to the bank’s profits at all. Our main objective is to restore the customers’ health and strength and … In total, if you look at what GRG achieved over the five-year period in question, the customers that we looked after in this particular area—the SME area—lost £2.1 billion for the bank.”
He was referring to the period 2008 to 2013. You can watch their evidence here:-
Members of the committee say they found Sach and Sullivan’s evidence “unpersuasive” and the committee’s Conservative chairman Andrew Tyrie said he would write to Sir Andrew Large for his view on the inconsistency between Sach’s assertion and the findings of his report. “RBS has flatly contradicted an important conclusion, and concern, of Andrew Large’s report,” Tyrie said following the Treasury committee session.
A review that the bank commissioned from law firm Clifford Chance, a member of its panel of law firms in April, claimed to have found no evidence that RBS had set out to defraud small businesses, though it did corroborate many of Lawrence Tomlinson’s findings (see also: “RBS accused of diversion over malpractice report“). GRG’s activities are still the subject of a review by the Canary Wharf based Financial Conduct Authority and are also thought to be the subject of an ongoing investigation by the UK’s Serious Fraud Office.