Weekend Economists Stamp Out Ignorance December 27-29, 2013

[Demeter]

44. Ian Fraser: The “Financial Terrorism” of Royal Bank of Scotland

http://www.nakedcapitalism.com/2013/12/ian-fraser-the-financial-terrorism-of-royal-bank-of-scotland.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

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.

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 despicable treatment of Scotland-based businessman Derek Carlyle in December 2010. I first looked at the allegations of “systemic institutionalised fraud” and systemic abuse 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 out that business customers are “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 suggests a pattern of abuse, which while perhaps not systematic, is 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 actually nothing of the sort. Once a business is in GRG, it is saddled with additional fees and charges, often for wholly spurious reasons, and with often amateurish and unqualified “consultants” posing as advisers and charging £1000 a day plus for what is often wholly inadequate advice.

Once a client firm has been “zombified” and milked for fees, and its carcass is of no further used to the bank, it generally goes into an administration process. There is not enough space to go into the iniquities that can arise from the 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 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 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 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 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.


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