Vince Cable Refers Report Into Rbs Treatment Of Business To Watchdogs

[Eddie_George]

http://www.bbc.co.uk/news/business-25077124

Business Secretary Vince Cable has referred a report about how RBS dealt with small business to City regulators.

RBS put some "good and viable" businesses into default so it could make more profit, it is claimed in a report by government adviser Lawrence Tomlinson to be released on Monday.

The findings have been sent to the Financial Conduct Authority and the Prudential Regulation Authority.

RBS said it was already committed to an investigation into customer treatment.

The allegations centre on the bank's Global Restructuring Group (GRG) lending division, which specialises in handling loans seen as being more risky.

The Tomlinson report will say that putting a business into the GRG generates revenue for the bank through fees, increased profit margins and the purchase of devalued assets by their property division, West Register.

The practice of removing a bad debt from a bank's books is not an unreasonable one, particularly as major lenders have been trying to move away from riskier assets.

But Mr Tomlinson told the BBC that there is a perception among small businesses that they are being "purposefully distressed" in order to get them into the GRG, which even if wrong, should be addressed by RBS.

'Really disturbing'

Mr Tomlinson acted independently of government in producing the report, and did not set out to look solely at RBS.

But he said what he had uncovered through talking to businesses had put RBS and its GRG into focus.

He also said conversations with affected businesses had made a big impact on him.

"I feel really sick sometimes. It is really disturbing," he said.

"It is ruining people's businesses for sure, and in some cases having a huge impact on their personal lives too, even leading to family breakdown."

The bank said in a statement: "In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy.

"RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near collapse as valuations rapidly plummeted.

"Facing up to these mistakes has been a difficult, but essential part of making RBS a safe and strong bank once again."

Mr Cable said: "Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken.

"I am however confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium sized businesses."

Action

The shadow business secretary, Chuka Umunna, said: "The claims made by Lawrence Tomlinson against RBS' Global Restructuring Group are extremely serious indeed.

"To artificially distress otherwise successful businesses in order to seize their assets and profit would be utterly scandalous and deplorable. It's right that the FCA [Financial Conduct Authority] and PRA [Prudential Regulation Authority] look into the claims as a matter of urgency."

BBC business correspondent Joe Lynam says that if it is shown that RBS had a deliberate strategy of liquidating their own customers, it could open the bank to extensive legal action.

The 81% state-owned bank's report into its own lending practices to small and medium sized companies by the former Bank of England deputy Governor Sir Andrew Large will also be published on Monday.

RBS's new chief executive Ross McEwan has already said this report will make for uncomfortable reading, but promised to implement its findings in full.

Edited November 24, 2013 by Eddie_George

[The Masked Tulip]

Being far more than just naughty IMPO.

[TheCountOfNowhere]

Being far more than just naughty IMPO.

Will it then go to the police?

[Saving For a Space Ship]

Will it then go to the police?

On Radio 4 earlier, there were allegations along the lines of Rbs selling the repo'd assets cheap to a co. owned by RBS

[Eddie_George]

RBS put some "good and viable" businesses into default so it could make more profit, it is claimed in a report by government adviser Lawrence Tomlinson to be released on Monday.

Destroying the UK from within. Not only are they a British company, they're now state owned and still doing this. It's unbelievable.

The UK's own Goldman Sachs. Except RBS is the "Damp Squib".

Edited November 24, 2013 by Eddie_George

[Saver]

On Radio 4 earlier, there were allegations along the lines of Rbs selling the repo'd assets cheap to a co. owned by RBS

Big article in the ST today alleges they had a policy of targeting viable businesses with attractive assets, by finding any technicality they could to call in loans and cancel overdrafts. Once the business went under, then this other company, somehow linked to RBS, bought the assets which they can now sell at a large profit due to subsequent price increases.

[Eddie_George]

Big article in the ST today alleges they had a policy of targeting viable businesses with attractive assets, by finding any technicality they could to call in loans and cancel overdrafts. Once the business went under, then this other company, somehow linked to RBS, bought the assets which they can now sell at a large profit due to subsequent price increases.

Dsstroying UK businesses like a Trojan Horse.

[1929crash]

Vince cable is useless. What's the point of referring these people to so-called watchdogs who never bark or bite? They are not just too big to fail they are too big to jail. There is no rule of law as regards the financial sector.

But most people on here already know that.

Edited November 24, 2013 by 1929crash

[The Masked Tulip]

Vince cable is useless. What's the point of referring these people to so-called watchdogs who never bark or bite? They are not just too big to fail they are too big to jail. There is no rule of law as regards the financial sector.

But most people on here already know that.

Yep, the bank might be fined but no individual will be fined let alone go to jail. They know they got away with it in 2008 and now they are a law unto themselves.

Cable is pathetic IMPO.

[The Knimbies who say No]

There's going to have to be a lot more good businesses put through the mincer if we are to keep the zombies alive. They need fresh meat, and lots of it.

[porca misèria]

Destroying the UK from within. Not only are they a British company, they're now state owned and still doing this. It's unbelievable.

The UK's own Goldman Sachs. Except RBS is the "Damp Squib".

Report I heard said this practice was from before the crash. Sir Fred's time, I infer.

More worrying: it's all too credible. Friend of a friend lost her business when bank called her loan in. I just wish I'd heard of that one earlier, in time to get together, take a look at her books, and possibly put up some capital to keep the business alive.

[Peter Hun]

These 'businesses' are actually property speculators aren't they?

Probably had a margin call.

[billybong]

Similar things happened with banks and businesses during the 80s/90s recession and they were so going to sort it out then. Evidently nothing was ever put in place to stop it happening again.

Give it another economic cycle and they'll be wheeling out the same old headlines again.

It also sounds like they want to make a hoo ha and pretend they're doing something about banks undervaluing stuff while they do nothing about dodgy sub-prime housing loan stuff not being marked to market.

Edited November 24, 2013 by billybong

[frederico]

Yep, the bank might be fined but no individual will be fined let alone go to jail. They know they got away with it in 2008 and now they are a law unto themselves.

Cable is pathetic IMPO.

Totally agree

[ChumpusRex]

These 'businesses' are actually property speculators aren't they?

Probably had a margin call.

Not by what I've heard (2nd and 3rd hand though), but then i don't know many slumlords.

I've heard one story of a reasonably profitable manufacturing business (making specialist industrial plumbing pipes and fittings). Under their loan agreement, they had a maximum LTV ratio. At the time was written, the "value" part was calculated on the basis of cash at bank, amounts owing from creditors, and wholesale cost of stock. When the crisis started to bite, the bank's valuer unilaterally decided that "value" would now only consist of cash at bank, and (with a substantial haircut) amount owing by creditors. Stock, of which the company held several £100k of, could no longer count towards "value" for loan purposes. The result of the big haircuts in valuation were enough to cause the company to breach the LTV term of the loan, the loan was called in; this effectively imploded the company.

[porca misèria]

These 'businesses' are actually property speculators aren't they?

Probably had a margin call.

Some of them probably are. Perhaps most of them.

But some definitely aren't.

[billybong]

It's little wonder that the banking and financial sector is "all the UK has". They work hard to make it so.

[wonderpup]

Will it then go to the police?

nice one.

[billybong]

One of these days some government minister is going to have a flashbulb moment and shout out "Hey!! Weren't they going to sort this stuff out during the last recession".

Some hope

[Ash4781]

Compensation?

[Peter Hun]

Not by what I've heard (2nd and 3rd hand though), but then i don't know many slumlords.

I've heard one story of a reasonably profitable manufacturing business (making specialist industrial plumbing pipes and fittings). Under their loan agreement, they had a maximum LTV ratio. At the time was written, the "value" part was calculated on the basis of cash at bank, amounts owing from creditors, and wholesale cost of stock. When the crisis started to bite, the bank's valuer unilaterally decided that "value" would now only consist of cash at bank, and (with a substantial haircut) amount owing by creditors. Stock, of which the company held several £100k of, could no longer count towards "value" for loan purposes. The result of the big haircuts in valuation were enough to cause the company to breach the LTV term of the loan, the loan was called in; this effectively imploded the company.

I find that highly unlikely. The bank would have to take a write off. When they call in a loan - you don't pay the bank.

If the cash in the bank isn't sufficient to cover the loan then the stock and creditor won't help - banks can't sell specialized stock and creditors can tell the bank to F*** off.

Banks are only interested in property assets.

Why would a bank close down a company if it was servicing the loan and had a descent amount of cash at hand?

Under their loan agreement, they had a maximum LTV ratio. At the time was written, the "value" part was calculated on the basis of cash at bank, amounts owing from creditors, and wholesale cost of stock.

Again, highly dubious. Lending against creditors is called factoring - its a short term loan. Its worthless as a asset. Stock, again pretty worthless - a liability not an asset, as you have to pay to hold it and dispose of it.

Edited November 24, 2013 by Peter Hun

[SNACR]

Not by what I've heard (2nd and 3rd hand though), but then i don't know many slumlords.

I've heard one story of a reasonably profitable manufacturing business (making specialist industrial plumbing pipes and fittings). Under their loan agreement, they had a maximum LTV ratio. At the time was written, the "value" part was calculated on the basis of cash at bank, amounts owing from creditors, and wholesale cost of stock. When the crisis started to bite, the bank's valuer unilaterally decided that "value" would now only consist of cash at bank, and (with a substantial haircut) amount owing by creditors. Stock, of which the company held several £100k of, could no longer count towards "value" for loan purposes. The result of the big haircuts in valuation were enough to cause the company to breach the LTV term of the loan, the loan was called in; this effectively imploded the company.

I would say when banks are prepared to view any stock other than cars/property or similar as an asset it's pretty much heading towards peak bubble.

At the moment I'm not sure this is as scandalous as it's all sounding. I think it will be pretty likely this is all going to focus on interest rate swap products sold to small businesses. If interest rates had gone double digit, like the early nineties recession, none of these businesses would be complaining.

[fluffy666]

Perhaps you are not listening.

Add fees and charges to the debt. Call the loan in for breach. Repossess their assets - pass the asset at an undervalued amount to a subsidiary (GRG in RBS's case) to deal with. Job's a good'un as they say.

A profit - not a write off.

The really amazing thing is that they will tend to focus on businesses where they can do this rather than, as you say, call in properly bad loans that result in write offs. No - those you take an equity stake in and keep feeding it credit in the hope that t will eventually come good.

As usual, Private Eye was onto this a while ago, and it's not only RBS.

[onlyme2]

Shock horror. It is found out that bank is only really interested in how much it can ream for the "relationship" between itself as the lender and the borrower.

This has been and is the way banks operate in this country, it goes well beyond business loans and pervades the whoile economy. The more they could stick it ot th real economy the more likely they were to receive bailouts. If they had just blown up their own finances, stopped paying their unearned/underseved bonues and had to sell off their asset base, reduce their own salaires maybe the taxpayer would never have been involved.

Should have done to the banks exactly what they do to other busineses.

[Venger]

Dsstroying UK businesses like a Trojan Horse.

What a yawn. I wouldn't be complaining if the banks were pulling the plug on more Serpico style massively over-expanded businesses, selling the assets (commercial premises with flats above) dirt cheap to new business entrants, as his bank did. Probably just as back then, most of these com-props aren't actually worth what the owners think them to be. He was still blaming Thatcher 15+ years later for the VAT hike on motorbikes, whilst reliving his deserved life of boom in the good years, how he'd expanded to have NW's franchises for Yamaha, BMW and Honda, and telling us of his life of boom in the good years, new top car every year, Bentleys, live-in staff, airplane gobbling up hangar fees, top hunter horses.

Early 90s recession the police were called in on the local RBS branch manager. He had smoothed some branch money around from other accounts to help local businesses in trouble stay afloat. He had no personal interest in according to the local newspaper article at the time, but just knew the business-owners and tried to help them in their plight - for whatever reasons they'd got themselves into trouble. He lost his position at the bank. He should have swung the axe, rather than ultimately lose bank more money, keeping bad business people who couldn't repay debts or had assets value -to-equity away from what banks thought safe (awwwwwwww but their entrepreneurs... even though bank has right to do it in agreements signed) and instead of selling on to others in the market better placed to make a go of.

The local solicitor also got done for tapping into client funds. There's a new solicitor there now, although I suspect they've too overstretched in their personal lives (houses), and other costs like indemnity insurance has shot up recently, which a lot of smaller firms didn't put money aside for during the boom that never ends. Also seeing as we skipped one or two recessions along the way since early 90s, as BoE didn't want to allow them, so malinvestment even greater, and younger new entrants had very little opportunity to get a way in at a sensible price.