It’s uncontroversial to say banks aren’t the most popular businesses in Britain at the moment, but there’s one in particular whose reputation has been battered by scandal after scandal. The tenure of Fred ‘The Shred’ Goodwin as RBS chief executive didn’t do the bank any favours, but its behaviour since he left in 2008 hasn’t exactly been free from criticism either.
Amid the Libor rigging, PPI mis-selling and Forex manipulation, it’s probably revelations about its business turnaround division, Global Restructuring Group (GRG) that have been the most emotively toxic. In 2013 Lawrence Tomlinson, the Government’s ‘Entrepreneur in Residence’ published a scandalous report alleging that GRG had deliberately caused a number of its small business customers to fold, in order to profit from seizing their assets.
The fallout has quietly rumbled on ever since. The bank ordered its own investigation by law firm Clifford Chance, which RBS said found no evidence that it had set out to deliberately defraud its customers. The bank is still under investigation by the Financial Conduct Authority, though things have been pretty quiet in recent months.
But today The Times published fresh allegations that the bank’s management, under pressure from politicians and regulators, encouraged GRG to reduce its exposure to risky customers that were already on its books. Prior allegations claimed GRG was heavy handed in a bid to make profits, but this latest report suggests it could have been more about improving the bank’s ‘core tier one capital,’ a metric which is taken into account when banks are subjected to stress tests.The Times claims that in 2011, hundreds of GRG staff were trained to assess the businesses they were working with in terms of their impact on the bank's balance sheets.
If regulators were indeed involved it seems RBS isn't entirely to blame, and to be fair it did seriously need to improve its balance sheets - but obviously that shouldn't have been at the expense of its customers.
‘Following the reckless lending leading up to the financial crisis, many of our customers and their businesses ended up in serious financial difficulty,’ RBS responded. ‘GRG helped minimise losses where it could and successfully restructured a significant number of businesses it worked with, advancing over £100 million of new lending and safeguarding hundreds of thousands of jobs.’
The case against GRG is complex and multifaceted, and it’s likely to be a long time before we will really know the nature and extent of what it did to small businesses. But until that point RBS will carry the allegations as a reputational millstone around its neck.