POLITICS

RBS Boss Ross McEwan Confronted Over Controversial GRG Bankers

18/07/2014 10:35 BST | Updated 18/07/2014 10:59 BST

Royal Bank of Scotland boss Ross McEwan has refused to rule out paying bonuses to staff at the bank's business support unit, which has been accused of causing "huge financial harm" to small business owners.

The state-owned bank's Global Restructuring Group (GRG) unit has faced a maelstrom of controversy after entrepreneur Lawrence Tomlinson accused the bank in a report for the government of "killing off" small firms managed through its business turnaround unit by adding on fees or pulling lines of credit. Another report by former Bank of England deputy Sir Andrew Large found that the GRG unit was being run to make profit, something that the Bank denies.

McEwan was confronted about the turnaround division as he hosted a phone-in on LBC radio for the first time, and was forced to deny that GRG had been "malicious or fraudulent".

The caller, who gave her name as Sarah, asked how staff working at the bank's GRG unit could "morally" get bonuses "after causing so much emotional and financial harm".

She told McEwan of how the small property firm she worked for "had to repay millions on loans with RBS" and had to pay "a considerable amount of fees" despite never defaulting on any loans, and was on the verge of being put into administration.

In response, the RBS boss defended the controversial turnaround team as a "pretty good unit" that was "under a huge amount of pressure', adding that: "I have not seen malicious or fraudulent activity going on in the business."

Following Tomlinson's allegations, the bank commissioned lawyers from Clifford Chance to investigate the claims and later welcomed the report for claiming it of trying to "systematically defraud" small firms, something that Tomlinson had never claimed.

Clifford Chance's report, which interviewed 138 small businesses managed by the bank's support unit, found that the bank's fees "lacked clarity" in "some cases". RBS is still under investigation by the City watchdog, the Financial Conduct Authority.

In response to Clifford Chance's report, RBS admitted that the process which allowed the bank to bid for ailing businesses’ property that it was auctioning off in order to help get on top of their debts led to a "damaging perception" of a conflict of interest. As a result, the bank decided to wind down West Register, the vehicle through which it would bid on property, and sell all of the assets it has on its books.

McEwan later admitted in his LBC phone-in that the bank is set to still face legal issues and be forced to pay out more in compensation for potential mis-selling and financial misdeeds over the next 18 months.

The RBS boss also warned that the burgeoning foreign exchange rigging scandal, which would affect the £3.1 ($5.3) trillion-a-day currency market, the biggest market in the world, has the "hallmarks" of another Libor scandal.

"It'll be good to have the enquiry... I welcome it, let's get on with it".

Meanwhile, Britain's "big four" banks, Barclays, HSBC, Lloyds and RBS, face a full-scale competition probe over personal accounts and small business banking under plans set out by the Competition and Markets Authority watchdog.

McEwan, on behalf of RBS, welcomed the CMA's proposed enquiry, after the watchdog warned that customers had not seen enough benefit from efforts to open up the market.

"It'll be good to have the enquiry," he said. "I welcome it, let's get on with it".

The CMA said it had found that "essential parts of the UK retail banking sector lack effective competition and do not meet the needs of personal consumers or small and medium-sized enterprises (SMEs)".

It follows two studies in collaboration with City watchdog the Financial Conduct Authority (FCA) into the £8 billion personal current account market and the £2 billion SME current account and lending sector.

The CMA found that concerns remained about competition not effectively serving customers despite measures to make authorising new banks simpler and faster, to make account switching easier and to improve transparency.

It found that it was still too hard for newer and smaller banks to enter the market or expand, with much business remained concentrated in the hands of a few.

There was "very little movement" in the market share of the largest banks - other than as a result of mergers and acquisitions - and many customers saw little difference between the largest banks in the services they offered, the CMA said.

It added that levels of shopping around and switching between banks remained low and that very limited gains had been made by those with the highest levels of customer satisfaction.

This was "not what would normally be expected in well-functioning, competitive markets", the CMA said.

The watchdog also said it was hard for customers to make comparisons between lenders, particularly on complex overdraft charges, limiting banks' incentives to compete, and possibly resulting in higher overdraft charges.

In response to the CMA's decision, business secretary Vince Cable said: "My long-standing concerns about the state of competition in UK banking are well documented, so I welcome the CMA's announcement today.

"This is an issue that really matters for the real economy - constraints on banking competition mean less choice for both consumers and small businesses seeking finance to grow.

"This Government has already acted to improve competition, by setting up tough new regulators, establishing the British Business Bank to make the business finance market work better, and making it easier for new players to enter the market.

"But the CMA's initial decision to conduct a full market investigation is a very significant further development, and I very much look forward to their final decision in the autumn."

Shadow chancellor Ed Balls said: "Ed Miliband and I have repeatedly called for an inquiry into bank competition, so it's welcome that the Competition and Markets Authority is now set to start this work later this year.

"Ministers claim there is no problem to solve, but everyone else recognises that we have a lack of competition in our banking sector.

"As we said earlier this year, in the next parliament we need to see at least two new challenger banks and a market share test to ensure the market stays competitive for the long term."