RBS Accused of Closing Profitable Small Businesses
In two separate reports, the publicly-owned RBS bank has been accused of shutting down viable businesses to maximise its own profits.
The Royal Bank of Scotland (RBS), the 81% state-owned high street bank, has been accused of closing viable small businesses in order to make its own books balance.
Not one, but two reports, both released yesterday, highlight a number of issues at the bank.
The first, by former Bank of England Deputy Governor and former deputy chairman of Barclays Bank, Sir Andrew Large, was commissioned by RBS to look at the bank’s lending to small businesses.
In his report, Sir Andrew Large recognised RBS’ efforts to stabilise the bank but said that there were some "serious allegations" made by a small number of businesses.
RBS’ new Chief Executive, Ross McEwan, who took up the post just one month ago, has already responded to Sir Andrew’s 95-page report, citing his bank’s alleged swing from irresponsible lending to risk aversion.
The other report was written by the Department of Business’ adviser and Entrepreneur in Residence, the multi millionaire businessman, Lawrence Tomlinson. His remit was to look at access to finance for UK small businesses since the financial crisis hit the global economy in 2008.
In the less verbose, 20 page Tomlinson Report, the banks in general are accused of mistreating small firms and that whilst RBS is just one of the banks mentioned, the number of complaints against them were disproportionately high.
The Tomlinson Report, backed by numerous small businesses and at least one former RBS worker, turned whistleblower, accuses RBS of having deliberately stressed businesses into financial default in order to be moved into its "turnaround" division, the Global Restructuring Group (GRG)
Once "trapped" in the GRG with increased rates feeding more profits into the bank and devalued assets, RBS were alleged to have been able to obtain deliberately distressed firms’ assets at heavily discounted rates and disposed of them for a profit.
The Business Secretary, Vince Cable, who is said to have been "appalled" at the behaviour uncovered, has passed the reports on to City regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
RBS themselves have called in law firm, Clifford Chance, to investigate further.
Lawrence Tomlinson’s report finished with recommendations that banks remove incentives for short-term bank profit in order to favour the customer.
Competition is the key to making the banks work better and Tomlinson recommends that more "challenger banks" be allowed to operate. Splitting the large RBS and Lloyds banks and selling them off could be a solution to this problem.
You can read the full findings of the Tomlinson Report here.