A government adviser has published a damning report on the Royal Bank of Scotland’s (RBS) treatment of “viable” UK businesses.
Lawrence Tomlinson, entrepreneur in residence for the Department for Business, Innovation and Skills, has claimed the findings suggest there are instances where RBS is engineering a business into default in order to move it out of local management and into its Global Restructuring Group (GRG).
According to Tomlinson’s Banks’ Lending Practices report, this generates revenue for the bank through fees, increased margins and the purchase of devalued assets by RBS’s property division, West Register.
Tomlinson said: “The profit-making nature of GRG significantly undermines its position as a turnaround division, in which good businesses should be restructured and returned to normal banking. The temptation to get hold of assets and take additional profit from these businesses to boost GRG’s balance sheet is clear.
“From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price. This needs to be addressed and the conflict of interest removed.”
He added that once in this part of the bank, businesses are “trapped”, with no opportunity to move or trade out of the position and “are forced to stand by and watch an otherwise successful business be sunk by the decisions of the bank”.
Tomlinson stressed it is not a reflection of every bank and explained there are banks “actively aiding growth”.
But he claimed those businesses dealing with RBS “are completely in the dark as to what is happening around them until it is too late”.
Tomlinson said: “Most worryingly, the businesses affected are often perfectly viable and but for the action of the bank, would have been able to positively contribute to UK growth.”
In a statement RBS said it is “committed” to an inquiry to investigate how customers are treated by RBS when facing financial difficulties.
A spokesperson for RBS added: “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. That has been one of GRG’s main tasks. GRG successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved.”
The report also uncovered “shocking” examples of business owners receiving last-minute demands from RBS for information and money.