The pace of dealing with ‘ruinous’ problems caused by the bank’s Global Restructuring Group is too slow for some critics
Donald Trump must look like useful cover for those seeking to bury bad news. In a move that understandably led to accusations of cynicism, the Financial Conduct Authority and Royal Bank of Scotland chose the day that America voted in its 45th president to reveal a complaints scheme for companies that had been systematically mistreated by the bank’s Global Restructuring Group.
If diverting attention was the aim, it appears to have been a qualified success. While the bank has been busy trying to agree a settlement with shareholders who want to see Fred Goodwin, the former chief executive, in court, things have been quiet on the GRG front since November.
Perhaps too quiet. Five months on, many companies that have applied to the GRG complaints scheme say that they are still awaiting a timeline for a decision, never mind an outcome.
Yet there are signs that the compensation process is springing into life. Whether it will be enough to assuage suspicions that it is a glorified public relations exercise for a bank long dogged by accusations concerning GRG is another matter.
A report commissioned by the FCA revealed a series of failures within GRG, which customers were told was a “turnaround” unit designed to help struggling businesses. Its true purpose was to repair the bank’s capital position, which at times put it at odds with customers.
A brief summary of the FCA review was published in November. It cleared RBS of having set out to “artificially engineer” the movement of business customers into GRG in order to profit from their struggles. However, it did highlight a range of issues, including “an undue focus on pricing increases and debt reduction without due consideration to the longer term viability of customers”. Some elements of RBS’s “inappropriate treatment of customers should also be considered systematic”, it concluded.
In an update posted on RBS’s website this month, the bank noted that it had paid out tens of millions of pounds to small and medium-sized companies in GRG that had been unfairly charged “complex fees” or in which the lender had taken equity stakes in the business or its property.
The bank has written to 3,263 small business customers, including 1,558 who were due refunds. While £19.3 million has been paid to 1,089 companies, a further £10.5 million is awaiting “payment instruction” from the guardians of 469 dissolved or insolvent entities, meaning that the directors at the time are unlikely to benefit.
About 40 companies in which the bank took stakes in their assets have been offered a combined £9 million.
While this review of GRG’s complex fees and equity stakes is expected to be completed by July (this was said to be an “automatic” part of the process), the more complex business of getting a complaints scheme off the ground has taken much longer to swing into action.
Under the redress initiative the bank will decide whether or not to make compensation payments for the direct and indirect costs to businesses of an encounter with GRG.
Sir William Blackburne, the retired high court judge who will provide independent oversight, has indicated that he is finally ready to begin looking at his first cases. He said that a “robust” process has been designed and a team had assembled to begin overseeing customer files. Barristers and banking experts have been drafted in to assist Sir William with the workload and another retired senior judge may be called into help. Boston Consulting Group was hired to advise on the process.
In a letter published on RBS’s website, Sir William said that his initial impression of the process had been that it was “robustly designed, includes an appropriate number of checks and balances and is conducted by an experienced team”.
RBS has already received 653 complaints from “eligible customers”, which it says are being assessed. The scheme is open only to small and medium-sized companies under the control of GRG between 2008 and 2013. RBS will look at complaints that are “not in scope”, but they will not be subject to independent oversight.
Sir William said that he was working under the assumption that RBS would receive up to 2,500 complaints. One of the complaints that has already been filed is from Andi Gibbs. The architect borrowed £1.3 million from RBS in 2008 to fund a redevelopment in Norwich designed to provide a complex for companies in the creative industries.
A condition of the credit was that he took on an interest-rate swap, which he was told would offer protection against rising interest rates. However, the product was missold and he was not warned that in the event interest rates fell, which they soon did, it would result in a significant drain on the resources of his small business.
When the bank said that it feared Mr Gibbs’s company’s property was now worth too little to be able to underpin his bank debt, he was transferred to GRG, where he says he was subjected to increased fees. Mr Gibbs says that he sold his family home and paid off a third of the bank debt, but ultimately lost the development. The bank has indicated that it was willing to restructure the indebtedness but this had been rejected by the customer.
Mr Gibbs says that the episode took a huge toll on his personal life, including his health. “RBS have destroyed a sixth of my life.” Now the 58-year-old is awaiting a timescale from the bank on how long it will take to look into his complaint. “It is quite obvious to all of the victims that RBS continue to play the time game.”
Mr Gibbs said that it was time for the bank to do the “decent thing” and press on with compensating customers “today and not tomorrow”. “Many of us have our files in order; why haven’t they [got theirs in order], even after all of this time?” There are broader concerns among some politicians and representatives of small companies claim that the design of the scheme provides little justice for affected businesses, owing to restrictions on who can access it and on which aspects of the process have independent oversight.
Sir William’s team can look into cases only if customers disagree with RBS’s redress determination, yet any redress offer from the bank will lapse the moment it is challenged by a customer.
He will not look at consequential losses, or the “knock on” effects of being in GRG. Directors of companies that went through an insolvency process or changed hands after encountering GRG are unlikely to benefit.
Andrew Mackenzie, a former RBS banker and a director of Veritas Treasury, a financial advisory company for small businesses, said: “There are too many parties excluded from the complaints process for it to be regarded as credible and the bank are being allowed to get away with paying out the bare minimum.
“It appears that they are too big to be held to account for their previous misdemeanours and that is a real shame for the people who have had their lives ruined yet have no right of recourse.”
The cost of doing battle A David wishing to take on Goliath requires very deep pockets (James Hurley writes). While often it is only the weaker cases against a bank that get to trial, Royal Bank of Scotland has shown it is willing to take some strong cases right up to the court steps, which drives up costs to an extent that rules out all but the wealthier adversaries.
The recent fortunes of those who have managed to take the bank to court are mixed. RBS scored a significant victory this month against one of the most vocal critics of its Global Restructuring Group. Neil Mitchell, former chief executive of Torex Retail, claimed that the software company he led had been bought for a knockdown price by Cerberus in 2007 after the company had suffered at the hands of the GRG. RBS and Cerberus then colluded to rig a “sham” auction, he claimed.
The lawsuit was dismissed by a High Court judge, who said that the “alleged conspiracy makes little sense”. Mr Mitchell has indicated he plans to appeal against the ruling.
Mike and Diane Hockin, owners of a Plymouth-based property business, fared better. Their four year legal battle against RBS ended this month with the bank paying out a substantial sum, understood to be several million pounds.
The Hockins claimed that an interest-rate hedging product had ruined their business, as it caused them to be in GRG where, they alleged, they were charged excessive fees and told that they had “not suffered enough pain yet”.
The bank did not admit liability.
Bigger tests for RBS lie ahead, with two separate legal claims being prepared for a group litigation related to GRG.