Wednesday 17 January 2018

RBS brings in lawyers to review treatment of ailing small firms

Business Secretary Vince Cable has passed evidence of Royal Bank of Scotland's treatment of small businesses to City watchdogs
Business Secretary Vince Cable has passed evidence of Royal Bank of Scotland's treatment of small businesses to City watchdogs

Matt Scuffham

Royal Bank of Scotland has appointed law firm Clifford Chance to conduct an inquiry into the treatment received by small business customers in financial distress, responding to suggestions it closed down viable businesses too quickly.

The move comes after an independent report by former Bank of England deputy governor Andrew Large, which was commissioned by RBS, recommended the bank look into concerns over its treatment of struggling small businesses.

RBS has also been accused by government advisor Lawrence Tomlinson of pushing struggling small firms into its "turnaround" unit, so it can charge higher fees (on the basis they have defaulted) and take control of their assets.

"To ensure our customers can have full confidence in our commitment to them, I have asked Clifford Chance to conduct an inquiry into this matter, reporting back to me in the new year," RBS Chief Executive Ross McEwan said in a letter to Large.

The Tomlinson allegations had prompted business secretary Vince Cable to demand an urgent response from Britain's financial regulators and from RBS, 82pc owned by taxpayers following a government rescue during the 2008 financial crisis.

Tomlinson, a businessman hired as an advisor by Cable's department in April, said RBS had engineered businesses into default in order to move them into its so-called Global Restructuring Group (GRG).

Tomlinson said that manoeuvre enabled the bank to generate revenue through higher fees and the purchase of devalued assets by its property division, West Register.

Britain's Federation of Small Businesses said: "The regulators need to investigate the findings of both the Tomlinson and Sir Andrew Large reports and swiftly address any issues raised to restore trust in the banks."

Cable said he had passed the allegations on to regulators, RBS and Andrew Large.

"Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken," Cable said in a statement on Sunday.

SIGNIFICANT STRESS

Yet the scrutiny of GRG could expose a contradiction in what RBS has been asked to do following its £45bn (€54bn) government rescue in 2008 - stabilise its finances at the same time as boosting support for small businesses.

RBS said on Sunday that GRG had successfully turned around most of the businesses it works with.

"In all cases RBS is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved," it said.

GRG is run by Derek Sach, a former executive of British private equity firm 3i Group. It is part of the bank's non-core division, run by Rory Cullinan, frontrunner to become head of RBS's internal "bad bank", which is being created after the government decided against breaking the bank up.

Cullinan has overseen a reduction in the group's non-core loans from a peak of £258bn to around £40bn.

The latest RBS allegations come as banks in Britain and beyond continue to be the focus of public disquiet.

Tapping in to popular mistrust of the financial sector, the government has ordered Britain's financial watchdog to probe Co-op Bank after the arrest of its former chairman as part of an investigation into the supply of illegal drugs.

Also on Monday the government said it would impose a cap on the cost of payday loans, overruling the views of the Financial Conduct Authority (FCA).

Tomlinson was hired by the business department in April as an "entrepreneur-in-residence" to help address the needs of small and medium-sized businesses". He runs LNT Group, based in the north of England, which has annual revenue of 100 million pounds and interests from construction to care homes.

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