The “financial terrorism” of Royal Bank of Scotland

Another of the banking scandals I’ve been covering for more than three years is gaining a wider audience, following the publication of the Tomlinson Report on Monday and this morning’s confirmation from the Financial Times that the Serious Fraud Office is “considering” an investigation into the bank’s alleged theft of customers’ assets.

>Listen to Radio 5 Live’s Stephen Nolan interview me about this topic [the interview starts at one hour 7 minutes]

I first looked into the activities of RBS’s “recovery and restructuring” arm – global restructuring group and West Register – three years ago, publishing a blog that examined RBS’s treatment of Scotland-based businessman Derek Carlyle. I first looked at the allegations of “systemic institutionalised fraud” inside GRG in June 2012. And in October 2012, I provided further details of alleged widespread wrongdoing inside RBS’s global restructuring group and West Register.

This included details of “manufactured defaults”, which are when a bank trips a business borrower into breach of covenant through mechanisms including:-

(a) selling interest rate hedging products under false pretenses, and often under duress as a condition of continued funding support

(b) the removal of overdraft facilities at 48 hours notice

(c) arbitrary changes to the terms and conditions of loan agreements, including raising interest rates, adding charges and dramatically shortening loan maturities

(d) “losing” and then “recreating” lending agreements

(e) the placing of false valuations on the customers’ commercial property assets using “tame” firms of chartered surveyors, which are alleged to include Graham & Sibbald in Edinburgh

Through such mechanisms banks, including RBS, are able to make business customers “in breach” of loan-to-value agreements and/or covenants. In the case of RBS, the evidence from several hundred case studies assembled by Tomlinson, and more than 60 I am aware of myself, suggests a pattern of abuse which, while perhaps not systematic, is certainly systemic.

Legally or otherwise, the alleged pattern of abuse permits the bank to transfer targeted business customers’ accounts to its “recovery and restructuring” unit GRG. While it is sometimes dressed up as a “hospital” or “intensive care unit” intended to help distressed corporate borrowers back onto their feet, it is nothing of the sort. Once a business is in GRG, it is saddled with additional fees and charges, often for wholly spurious reasons. The bank often imposes amateurish and unqualified “consultants” posing as advisers who charge £1000 a day plus, seemingly with a view to further destabilising the business customer.

Once a client firm has been “zombified” and milked for fees and its carcass is of no further use to the bank, it can be put into administration. There is not enough space to go into the iniquities that can arise from collusion between RBS and large accountancy firms including PWC, Ernst & Young and KPMG during administrations and receiverships, but suffice to say these parties have been known not to act in the interests of all the affected companies’ creditors.

Sometimes, they have been known to favour the sale of commercial property assets to RBS’s shady West Register property arm at prices well below those offered by rival bidders, including fully funded bids from what might be considered to be the properties’ legitimate owners. Only about six per cent of corporate and commercial borrowers who enter GRG return to RBS’s performing portfolios (source: RBS annual report 2012)

Both GRG and West Register are profit centres for the bank, and are run a bit like private equity funds, albeit ones that obtain their assets at knockdown prices. It is at or after this stage in the process that RBS’s West Register arm often seizes (or buys at crazily low valuations) the “distressed” customers’ commercial property assets. Like GRG, West Register was established by RBS’s former chief executive Sir George Mathewson in 1992 to try and profit from “distressed” situations in the wake of the 1990-1 recession.

Since I first spoke about RBS’s alleged maltreatment of business borrowers on BBC News (towards the end of the clip) and the Keiser Report in July 2012 I have been deluged with emails, phone calls, voice messages, and texts from SME directors and shareholders who complain that, for no legitimate business reason, RBS snuffed out their life’s work and seized their business assets using the methods described above.

I have had people literally crying down the phone about the despicable way in which the bank has treated them, with some in a suicidal state. And, as far as I am aware, most were running profitable, stable, creditworthy businesses, before the bank set out to destroy them — not so called “zombies”.

Victims of the abuse only really have three avenues to go down – sue RBS; complain to their MP; or go to the media. However in all three of these routes the odds are stacked against them. Unless they have an MP like Jim Hood or Guto Bebb, complaining to their MP tends to get them nowhere. Speaking on Channel 4 News on Monday, Jesse Norman, MP for Hereford and Herefordshire South, admitted that all 650 of the country’s MPs share a dirty little secret – that their inboxes have, for the past four years, been stuffed full with emails from constituents complaining that RBS has snuffed out their livelihoods and destroyed their businesses.

Complaining to the bank, Financial Ombudsman Service or the regulators is a complete waste of time. It will achieve absolutely nothing. It’s also worth noting that Business Secretary Vince Cable has been fully briefed on this scandal since May 2010 but has chosen to do little or nothing about it. He only appears to have taken any real action once the Tomlinson Report was published on Monday.

The putative SFO inquiry, mentioned on the front page of the FT today, (but which I also mentioned in the Sunday Herald on 3 November), which has only arisen thanks to the persistent efforts of businessman Neil Mitchell, former chief executive of Torex Retail, clearly offers a glimmer of hope to the thousands of businesses effected by this scandal, and the majority of the UK population who believe that, if there are criminals inside RBS, they should be prosecuted and convicted for their crimes.

RBS’s decision to refer the matter to the ‘magic circle’ law firm Clifford Chance – which is already said to be acting for the bank in defending itself from claims that it stole customers’ commercial property assets and joined the bank’s panel of law firms alongside Freshfields, Linklaters, Simmons & Simmons, White & Case, Allen & Overy and Eversheds in July 2013 – is a risibly pathetic response to these very serious allegations. I am unable to think of an organisation more inclined to produce a whitewash than Clifford Chance.

I will be revealing more about this scandal, including further detail of the methods by which RBS has been plundering SMEs up and down the UK since May 2009 in my book Shredded: Inside RBS The Bank That Broke Britain, which is published by Birlinn in spring 2014. Not only is this sort of behaviour by RBS holding back the UK’s economic recovery, causing unemployment and reducing tax revenues, it is also creating much unwarranted misery including family breakdowns and even suicide among targeted firms. It is also completely destroying any trust which UK citizens may at one time have had in the banking sector.

For the record, the top people at GRG include Derek Sach, Richard Dorman, James Cresswell, Frank McCusker, Joss Brushfield, John Baini, David Whatham, Andy Thomson, Neil Graham, Tony Lewis and Laura Barlow, while the top people at West Register include Aubrey Adams, James Rowney, and the ex LGIM property expert Helen Gordon.

Update: Saturday, 30th November 2013

On Friday afternoon, the Financial Conduct Authority announced it is launching a Section 166 “Skilled Person’s Report” into allegations of wrongdoing in RBS, GRG and West Register. Clive Adamson, director of supervision at the FCA, said: “These allegations, if proved, raise serious concerns about how banks’ treat their customers. An SME’s relationship with its bank is essential for any business to have a chance to succeed, and claims like the ones made threaten to undermine that. We expect all firms to act with integrity and put customers at the heart of their business.”

The bank responded by saying: “We welcome the FCA’s inquiry. As of now, no evidence has been produced that backs the claims of systematic fraud made this week. These claims have done damage to RBS’s reputation and threaten to undermine our ability to build trust with customers and to increase lending to businesses in the UK economy. We need to get to the facts as quickly as possible. That’s why we fully support the FCA’s work and will carry on with our own investigation.”

These case studies come from the Sunday Times 24 November 2013

This blog was posted on 27 November 2013