Royal Bank of Scotland faces claims of ‘killing off’ small firms

Royal Bank of Scotland is facing calls for an investigation into controversial practices by its turnaround unit following allegations that good companies have been forced out of business for the taxpayer-backed lender’s profit, reports The Telegraph.

Vince Cable, the Business Secretary, has passed on a dossier to the City regulators containing a series of complaints against RBS and its global restructuring group (GRG). The division handles loans classed as being risky and is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.

The report, detailing a series of allegations against the bank, was compiled by millionaire businessman Lawrence Tomlinson and will be published today following several months of investigation. Mr Tomlinson is currently employed as the “entrepreneur in residence” at the Department for Business, Innovation and Skills.

“Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken,” said Mr Cable, who has referred the report to the Financial Conduct Authority and the Prudential Regulation Authority.

The report alleges that firms not necessarily in immediate financial distress are “engineered” into GRG, sometimes through small technical breaches of loan terms, such as late filing of minor financial information. They are then hit with high rates and fees, which in some cases cause them to collapse, allowing RBS to buy their property and assets on the cheap for the benefit of its West Register property arm, it is alleged.

Among the allegations in Mr Tomlinson’s report are claims that estate agency businesses were put into administration after so-called “desktop” valuations of their assets that did not involve any visits to their properties, as well as revaluations of properties that used unrealistic “fire sale” scenarios.

As well as the allegations of businesses being put under the control of GRG for spurious reasons, Mr Tomlinson’s report claims that “very few” companies are ever actually turned around by its staff and that most end up stranded there, or enter into bankruptcy.

Chancellor George Osborne said the reports about RBS were “shocking”.
He told ITV’s Daybreak: “We are actively trying to seek out these problems, we are not trying to brush them under the carpet.

“We are trying to make sure the banks are working for small businesses, the banks are working for hard-working families.

“We are, of course, investigating now the findings of this report but, generally, what I’ve been trying to do is make sure, which is fingered in this report, is working for the families of this country.”

In a statement RBS said: “GRG successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress. Not all businesses that encounter serious financial trouble can be saved.”

The Tomlinson report will be published at the same time as the final report by former Bank of England official Sir Andrew Large, who was commissioned by RBS itself to look at problems with its SME lending business, including the role played by GRG.

Sir Andrew’s initial recommendations were published last month alongside RBS’s third-quarter results and included calls for the bank to reorganise its smaller business lending division, as well as raising concerns about the role of GRG.

Following Sir Andrew’s report, RBS began a review of GRG that is expected to see the bank look at ways to improve its handling of companies in distress.

Ross McEwan, who took over as chief executive of RBS in October, has launched his own review of the bank’s strategy and is due to publish the results alongside the lender’s full-year results in February.