28 December 2011
The Jolly Roger – originally flown from pirate ships to frighten their victims into surrendering without a fight – is a strangely appropriate flag for the Royal Bank of Scotland to sail under.
The bank’s approach to rewarding its top staff, more than 100 of whom were paid in excess of £1 million in 2010 seems wrong given that RBS wouldn’t exist today if it hadn’t been rescued by taxpayers in October 2008.
In an interview with BBC business editor Robert Peston last year, RBS’s £750,000-a-year non-executive chairman Sir Philip Hampton complained of a “gangmaster culture” within RBS’s investment banking arm, whereby mediocre people are able to extort inflated pay out of their bosses, when transferring in groups from one bank to another (at least I think that is what he meant)(quote has been edited for brevity).
“There is a sort of gangmaster culture in this; that you recruit top people who really do make a difference … but they tend to associate themselves with people who aren’t such stars. But, they want them around them, they trust them, sometimes they move with them. And there is a team associated with it and the disparities between the top stars in the team and some of the journeyman players is … not as marked as it should be.”
I was recently speaking to a leading corporate governance and remuneration expert, who said the majority of these people would struggle to earn £40,000 to £50,000 if they were working for anything other than a bank.
Given the propensity of the bank’s entire board to threaten to resign en masse whenever shareholders, including the UK government, have the temerity to question their pay policies, one wonders how far this culture extends. As when an old-style privateer hoists the ‘skull and crossbones’ aloft, it seems the aim is terrify the bank’s owners into acquiescing to the bankers’ pay demands without a fight.
Arguably the bank, like many of its peers, is also plundering from its customers. UK base rates have been at 0.5% since March 2009, yet RBS is lending money at 6% plus. The bank is charging circa 20% interest on authorized overdrafts. It’s also worth bearing in mind that Edinburgh-based RBS was fined a record £2.8 million in January 2011 for treating customers shabbily, particularly when it came to handling their complaints. It certainly makes one wonder whether the bank is side-lining customers’ interests in its pursuit of short-term profitability gains and the Holy Grail of a return to private ownership.
What I find most shocking about RBS, though, is the behaviour of its distressed assets division, the Global Restructuring Group (GRG) within which the West Register commercial property subsidiary also sits. It emerged last October that the activities of West Register, which probably include abuse of power, the deliberate mis-valuation of commercial property assets, and pretending that loans that have turned sour have not done so, are being probed by the FSA.
Just as 16th and 17th century buccaneers were hell-bent on plundering whatever they could from vessels that had the misfortune to cross their path, GRG targets SMEs and mid-corporates. Many were loyal customers of the bank’s. But once consigned to GRG’s care (and an important point here is that a high percentage of these borrowers only became “distressed” because the bank tore up earlier lending agreements or forced them to take out interest rate swaps they did not need) they’re seen as fair game and many are basically asset-stripped.
I outlined some of GRG’s more despicable practices in the these two blog posts:-
- RBS executives seem to think they are above the law December 16th, 2010
- Is RBS getting value for money from its £200m annual year legal bill? September 20th, 2011
Cat MacLean, a solicitor-advocate and head of dispute resolution at law firm MBM Commercial, has further outlined how RBS effectively robs its own borrowers. In a recent blog post, MacLean wrote:
One of RBS’ highest-profile distressed properties is to be found at Charters, a luxury residential development comprising 34 flats in Sunningdale, south-west London. 15 of the apartments were sold off-plan in 2005 and 2006 before the downturn. However, with lending on the project at £37 million, RBS refused to continue to support the development and in May 2009 placed the developing company in administration.
At the time, John Morris, one of the directors and a creditor of the company, offered the sum of £32 million for the scheme, backed by investment bank Investec; his offer was rejected by the bank. At the time, GRG commented that “we are not attracted to accepting a discount on the full amount due”.
Nevertheless, around a year later, the bank appeared to have accepted a 47% discount on the full amount due when in the summer of 2010, RBS sold the scheme to West Register for £16.2 million. A surprising discount in a rising market.
Of course, if the debt had already been written off in 2009, in a “good year to bury bad news or appalling losses”, then it might matter rather less what price was ultimately achieved by the bank. Hypothetically, if the bank had written off the debt already, the recovery actually made would ultimately show up as a credit in the bank’s books. Thus on this hypothesis, the bank “win”, as does its subsidiary, who has acquired an asset at a huge discount. The model begins to make the debt look very far from “toxic” for the bank and its subsidiary.
By the way, I take my hat off to the folks at Occupy Edinburgh, who were behind the hoisting of the piratical emblem from the bank’s 36 St Andrew Square registered office on Christmas Day (as I do to them for continuing to camp out in the square, despite atrocious weather conditions over the past few weeks).
Details of exactly how the stunt was pulled off, how the Occupy Edinburgh guys managed to slip through the bank’s security cordon or how long the flag was actually flying there, remain patchy. All I know is that someone from Occupy Edinburgh must have shimmied up onto the roof of Dundas House late on Christmas Eve and managed to raise the ‘skull and crossbones’ up the flagpole. As you can see from the photograph, the flag flew just below the bank’s own corporate flag on the category-A listed building.
A spokesman for Occupy Edinburgh earlier told the Daily Record: “We wanted to send a Christmas message to bankers everywhere … The pirate flag is symbolic to show the underlying greed of RBS and all banks, who think people are less important than money.”
Here’s what US-based blogger Jim Mcgruder said about it: “Banking was [once] a service industry founded on trust. Today banking is a wealth extraction industry founded on deceit. So it was refreshing to see the Royal Bank of Scotland declare their true intentions by running up the Jolly Roger. Sorry, no. A little honesty is too much to ask of the banking industry these days. In fact, Occupy Edinburgh enforced truth in advertising over RBS in the wee hours of Christmas morning. Brilliant.
But all that Edinburgh’s main morning newspaper the Scotsman could bring itself to say about the event was: The Royal Bank of Scotland has received an unsolicited Christmas present from its St Andrew Square neighbours – a Jolly Roger flag. A spokesman for Occupy, the anti-capitalism camp, said: ‘I confirm this was the work of Occupy. It was put up on Christmas Eve and was the work of Santa.’