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Royal Bank of Scotland Accused Of Covering Up For 'Corporate Psychopaths'

Has RBS Been Covering Up Its 'Corporate Psychopaths'?
Asa Bennett
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Protesters outside the RBS (Royal Bank of Scotland) annual general meeting in Gogarburn, Scotland, as The World Development Movement call on the bank to stop investing in coal mining.
Danny Lawson/PA Wire

Royal Bank of Scotland executives have been reportedly accused by shareholders of "covering up" for "corporate psychopaths" in their controversial business support unit.

The furious attack came at the state-owned bank's annual general meeting (AGM) today, following a report by entrepreneur Lawrence Tomlinson, who accused the bank of "killing off" small firms managed through its GRG 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.

RBS shareholder Gavin Palmer used the bank's AGM, held at its headquarters outside Edinburgh, to warn that the bank's GRG unit was staffed by "corporate psychopaths" who were unable to admit to their wrongdoing.

Palmer went on to accuse RBS chairman Sir Philip Hampton, who defended the unit's behaviour, of "covering up" the bank's activities for years.

Another shareholder railed at the bank for the massive pay packets enjoyed by its staff, after paying out £3.4bn in bonuses in the past four years.

"How do we get out of spiral of all banks paying obscenely large bonuses and extremely large salaries?," the bank's executives were asked.

RBS will be set to pay executives only 100% of their salary in bonuses after the Treasury used the taxpayer's 85% stake in the bank to block the idea. Bank chief Ross McEwan is in line for £1 million a year in "share allowances" that dodges the EU bonus cap, a tactic also used by other banks.

From 2014, executives will get up to 400% of salary through the share allowance and long-term incentives. "It is disappointing to see that the bank has found a way to circumvent the spirit" of the new EU rules, shareholder group Pirc said.

7 Things RBS Would Not Want You To Know Was In The Clifford Chance 'Whitewash'
RBS didn't play by the book in its valuations(01 of07)
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The Clifford Chance report reveals that RBS' internal valuations of businesses were not carried out in accordance with best practise as laid out by the Royal Institute of Chartered Surveyors, saying: "Internal valuations were not carried out to the standard of the Red Book, but they were undertaken according to set assumptions by qualified surveyors employed by the bank.
RBS may have exploited small firms' debt levels(02 of07)
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Clifford Chance suggested that RBS should revisit a GRG training manual suggested threatening to remove a distressed business' overdraft as a way to gain "leverage" in negotiations over equity.Or as the report termed it: "using the on-demand nature of the overdraft as a point of leverage in negotiations of equity upsides when the customer is not in breach of its facilities but the business may be experiencing underperformance against expectations/forecasts.But the firm didn't pass judgement, saying: “The circumstances win which it is appropriate for a bank to remove or to warn a customer that it will remove an overdraft are beyond the scope of this report”.
Even Clifford Chance couldn't understand RBS' fees(03 of07)
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"We found it difficult to understand how the bank calculated the fees which it proposed to customers in any particular case and therefore found it difficult to assess allegations of unfairness," Clifford Chance write. Not a ringing endorsement for a report into how fairly businesses were treated by RBS.
Some perfectly profitable businesses got RBS 'support'(04 of07)
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Clifford Chance "identified a number of other cases where a customer had been transferred to BRG [Business Restructuring Group] without an event of default having occurred.”In short, the firms were not struggling with their loans, but were still deemed to need help.
RBS used fees to 'encourage' firms to do things(05 of07)
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Clifford Chance found that RBS "sought to encourage or incentivise a specific course of action by the customer through its pricing such as an exit or sale of assets to reduce the customer’s debt." The law firm decides not to pass moral judgement, saying: "It is difficult for us to say that it is wrong in principle for the bank to use fees as a lever to persuade the customer to follow a particular course of action."
RBS staff were meant to have an eye on money (06 of07)
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Clifford Chance found that the financial contribution from RBS "relationship managers" in the Business Restructuring Group was "clearly an important part of the performance assessment process" and worked towards its "revenue generation/loss avoidance" objective.Individual RBS staff who generated extraordinary amounts of revenue were "highlighted" at appraisal, especially "cases where they had generated strong revenues". Clifford Chance found that RBS relationship managers were "encouraged to seek upsides" in negotiations, but that they also were made aware of "the need to treat customers fairly.”
And what about West Register? (07 of07)
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RBS admitted that the fact that a "damaging perception" of a conflict of interest arose due to fact that the bank was effectively able to buy a business' property through its West Register vehicle. And so the bank has decided to sell all assets on its books and wind it down.As the report noted; "In December 2012, West Register's UK property portfolio was valued at £929m. Property acquired from the bank's UK SME customers totalled approximately £400m, less than half the overall portfolio. Between 2008 and 2013, West Register made acquisitions from 166 SME customers13 at an average of approximately 50% of the original loan value at the date of the transfer to GRG."

The bank's GRG unit has been an item of continued controversy for the bank. Derek Sach, head of the global restructuring group division, told MPs earlier this month that the unit was "absolutely not a profit centre" nor rough with its customers.

"Generally [I] do believe we do good overall," he told MPs on the Treasury select committee. Sach insisted that the bank "would never get any advantage from destroying a customer", pointing out that GRG had lost £2.1 billion over a five-year period.

“There can’t be all this smoke without some fire,” said Andrew Tyrie, committee chairman, adding: “There have been widespread concerns about RBS’s lending practices.”

In response, Tomlinson told the Huffington Post UK that he found some of RBS' evidence to MPs "particularly surprising".

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.

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