RBS may be facing its most damaging scandal yet
The Telegraph, 11.10.2016
By Ben Marlow
Like many fellow journalists, when accusations of serious wrongdoing first emerged at RBS’s Global Restructuring Group, I spent some time trying to nail this shadowy unit of the high street bank.
GRG was responsible for overseeing the small business clients that had got into trouble but critics claimed it was deliberately putting businesses under, so it could take control of them on the cheap and sell on for a profit.
However, despite being granted several face-to-face meetings with Derek Sach, the man who headed up GRG, I failed miserably to get close to unearthing real evidence of malpractice.
I’m not sure I even landed a punch. Even more embarrassingly, I came away half-convinced that Sach and his colleagues were somehow a force for good, helping to turn around troubled businesses. Sure some collapsed, but those were the ones that were beyond rescue, he assured me.
In my defence, I wasn’t the first to try and fail to nobble GRG. Lawrence Tomlinson, an adviser to then business secretary Vince Cable, was the first to blow the whistle on the unit in 2013 with his report into bank lending to small businesses. The dossier claimed that the volume of complaints received against RBS far outweighed those of other lenders.
Scores of disgruntled companies came forward saying they’d been treated improperly, yet two investigations by Clifford Chance and the Treasury Select Committee cleared RBS of any real wrongdoing.
Hats off then to Buzzfeed and BBC Newsnight, for their expose of GRG.
The bank still denies the very serious charge that it sought to profit from deliberately putting companies out of business but Buzzfeed’s investigation has forced the bank to acknowledge for the first time ever that something went wrong in its treatment of Britain’s small businesses.
GRG had long had a reputation for being more aggressive than other so-called “business recovery” departments at other high street banks.
There were so many terrifying stories about Sach that I half-expected to discover a serial killer on the prowl at RBS’s City headquarters on Bishopsgate, hunting for small business owners to take out.
If Sach was a monster, he hid it well. White-haired, wiry, and mild-mannered, over the course of several meetings he seemed perfectly happy to answer questions about GRG’s conduct.
We first met in 2009 as the credit crisis was unfolding. At the time, GRG’s workload was greater than at any time since it was set up by Sach almost two decades previously.
A favourite anecdote was how on visits to troubled clients up and down the country, he performed “the Cortina test” – a check of the staff car park to see what executives were driving round in.
Those with expensive cars were clearly unwilling to make sacrifices save their company, whereas bosses that had traded down were clearly prepared to share the pain and therefore serious about survival.
Such amusing stories helped to soften GRG and Sach’s image.
Yet, even then it was clear he saw things in black and white: if he thought a business was worth saving, it was given the bank’s financial support. If not, the business was often put into administration.
I felt my piece was fair and balanced, but it was clear others in the profession felt it was far too soft on RBS.
Many insisted that the bank was more heavy-handed in how it dealt with struggling clients, but at that stage there was still no suggestions of improper behaviour.
By the time we met again in 2013, Tomlinson had blown the whistle and GRG was very much under the spotlight. Yet, armed with a stack of facts and evidence, Sach remained calm as ever, insisting that RBS saved far more troubled firms than they walked away from.
Less than 10pc of the companies that passed through its hands ended up folding, he said. It had restructured about 860 companies the previous year, preserving 163,000 jobs, and a further 200 businesses in the first quarter of 2013.
But the latest revelations tell a different story.
More than 16,000 companies, worth a barely-believable £65bn, ended up under GRG’s control during the recession. This included hundreds of farms and care homes, and thousands of leisure centres, hotels, and restaurants. More than 2,700 were property-backed.
More damning is the claim that the taxpayer-owned bank ran down businesses in an attempt to shrink its balance sheet and ramp up profits – in 2011, GRG netted £1.2bn of profits. That this came in the face of huge government pressure to reduce its exposure to bad loans, makes it all the more explosive.
Credit must also go to Tomlinson. Despite attempts (including by RBS insiders) to unfairly discredit him as a failed businessman with a score to settle, he continued a very public campaign against the bank, emboldening scores of other aggrieved small business owners to come forward.
RBS’s admission that GRG “did not always meet our own high standards” is a definite candidate for understatement of the century.
It will now be left to a long-awaited report by the FCA to decide to what degree those standards weren’t met. Since its massive bailout in 2008, the bank has racked up misdemeanours with abandon including fines for PPI and interest-rate swap mis-selling, and exchange rate-rigging. It also faces a big penalty for its involvement in America’s residential mortgage-backed securities market.
But if these recent allegations prove right, then for a bank that is the UK’s biggest lender to small businesses, this could turn out to be its most damaging scandal yet.