Bank's darkest days

It is a scandal of massive proportions perpetrated by an institution that is nearly 300 years old. People have been forced to sell their homes, got divorced and their businesses have gone under. They have lost everything. Yet no one has been brought to account despite overwhelming evidence of large-scale wrongdoing, and only a few victims have secured redress.

Royal Bank of Scotland’s treatment of its small-business customers said to be in financial distress in the aftermath of the crash of 2007-08 is shocking. Now, years after scores of business owners were brought to their knees, a report by the City regulator, the Financial Conduct Authority (FCA), has revealed the whole, horrifying picture.

The 350-page document pulls no punches. Among its many accounts of the behaviour of RBS employees are admissions that staff conduct was “disgraceful”, “inappropriate” as well as “systematic” and “endemic”. Customers felt “poorly treated, bullied, threatened, often exploited”.

It all centres on GRG (Global Restructuring Group), RBS’s now defunct troubled business unit. During and after the financial crash, RBS transferred companies struggling to stay afloat to its GRG subsidiary with the promise that staff at the unit would help business owners rebuild their finances and return to a secure footing. The bank insisted it was an “intensive care unit” focused on helping firms “back to health”.

News reports, leaked documents and studies by financial experts conclude that 16,000 small and medium-sized enterprises (SMEs) ended up in this division. They included businesses that had been passed down generation to generation, children’s centres, care homes, farms and hotels.

Solicitors for GRG companies say problems soon began to emerge, including the worrying development that many healthy businesses were moved to GRG – and there was nothing the owners could do about it. Then the heavy-handed tactics began. Some firms pushed into GRG were forced into expensive new loan arrangements that incurred hefty fees, punitive fines and high interest rates. Others were put under pressure to sell their best assets at bargain basement prices, often to West Register, the bank’s own property division. It wasn’t long before some businesses – both those in trouble and those with previously viable balance sheets – collapsed under the weight of onerous loan repayments.

“The people employed by GRG really seemed to take pleasure in causing people as much distress as they could.”

Alison Loveday, Manchester-based partner at law firm Kennedys, which has dealt with hundreds of affected RBS customers, says: “If you look at the numbers in the FCA report, very few businesses ever came out of GRG. It was described as a turnaround business but it didn’t attempt to turn anybody around – it just tried to get their assets.

“The people employed by GRG really seemed to take pleasure in causing people as much distress as they could. They kept them under the cosh.”

A memo from RBS called “Just Hit Budget” shows how. Circulated among staff at the subsidiary as a training aide it included a section headed “Rope” which said: “Sometimes you need to let customers hang themselves. You have then gained their trust and they know what’s coming when they fail to deliver.” Companies in distress were called: “Basket cases: Time consuming but remunerative.” As for calculating fees, the memo said: “Be specific: avoid round number fees – £5,300 sounds as if you have thought about it. £5k sounds like you haven’t.”

In addition, RBS files leaked to Buzz Feed News and BBC Newsnight in October 2016 revealed that, far from helping businesses, GRG employees did all they could to feather their own nests in the form of individual bonuses and profits for the bank. They show that GRG pocketed huge fees and netted increased interest charges from customers forced into expensive new loan arrangements, and scooped up customers’ assets, including valuable property, when businesses fell behind in their repayments.

Loveday explains: “In the main, GRG did not seek to turn any business around. It didn’t look at the normal restructuring arrangements they might choose to look at. Across a whole range of businesses, we saw that they were often not given a very clear picture why they were in GRG – they were just told that GRG had more flexibility about the support they could offer. But typically they wouldn’t get any support.

“What businesses already under cashflow pressure would get is an increase in the charges. GRG would then increase the interest rate, they would be put under increasing pressure to sell assets – and they were assets they didn’t want to sell and often their best assets – and they would be forced to sell them. They [GRG] would do things like insist that part of the business be given to the bank.”

In a Commons debate on GRG in January, Bill Esterson, MP for Sefton Central, said his constituent John Pile had his personal bank account frozen.

He said: “Mr Pile had never previously missed a mortgage payment on his commercial properties, yet the result for him and his family was the bank claiming that he had defaulted, despite having substantial sums of money in his personal account, which was frozen. He could have used that money, but was prevented from doing so by the same bank.”

He added that: “customers who were making decent profits, whose rental incomes were well in excess of their interest payments” were put into GRG when the bank decided their assets – which were security for their loans – were now worth less, “on the basis of revaluations carried out by the bank’s own valuers”.

Esterson continued: “Then there was the overnight demand of repayment of overdrafts that were a key part of the day-to-day operations of many businesses. This was not proper turnaround practice – it was not turnaround practice at all for the customers. It was more like the turnaround of the bank at the expense of its customers.

“Perhaps the name, Global Restructuring Group, was a clue. It was a division responsible for the restructuring of the bank, not the small businesses that banked there.”

Speaking to Big Issue North, Esterson says: “John Pile has been treated appallingly by RBS and there simply is no back-up from the authorities. The government needs to hold a full, independent inquiry so that John Pile and thousands like him receive the justice they deserve, and so that this can never happen again.”

Leeds-based businessman Lawrence Tomlinson was the first to expose GRG’s practices when he published a report in 2013 as “entrepreneur-in-residence” to the government. Tomlinson is chairman of LNT, a group of businesses in sectors including healthcare and construction that employs more than 1,000 people.

Initially, Tomlinson was tasked to get small and medium-sized businesses back to health after the recession, and asked them whether they could get the finance they needed from banks. Access to finance was terrible, he learnt, but another pattern emerged, involving RBS – which itself had been rescued by massive government funds to prevent the financial crash turning into something far worse.

“I contacted all the different banks that had business support units and RBS were just on an industrial scale compared to everyone else,” says Tomlinson. “It’s an absolute national scandal.

“While we bailed out a bank at £45 billion, they’re then putting businesses to the sword for profit. Now they’ve finally come out and said it wasn’t a restructuring unit – it was a profit centre for the bank. This is about a bank that’s been an absolute bully and continues to bully people.

“It’s been absolutely horrific. I’ve felt ever so sorry for people that I’ve been interviewing.”

Businesses that have been compensated by GRG often face gagging orders, while others are pursuing ongoing legal cases, so few will go on the the record. But Tomlinson says: “I don’t think you can ever fully compensate these people for what’s happened to them – not necessarily because it’s a massive amount but because the businesses have been destroyed in administration and in some cases even liquidated. They’re not even the owners of the business anymore so how do you compensate them?”

RBS announced its first profit since the financial crisis last month, which will stick in the craw of the businesses dealt with by GRG who are no longer trading. RBS is still 71 per cent publicly-owned following its rescue. But the men and women whose livelihoods were wrecked by GRG have a slim chance of seeing a share of RBS’s profits. Their opportunity to seek compensation runs out, for the most part, after six years.

Loveday says: “Most business owners will be absolutely unable to face taking on a high street bank like RBS, which has limitless funds. Our experience of dealing with them was, of all the banks, they really looked to bully the claimants by the approach they took and by racking up the fees.

“Unfortunately, for the people who have allowed limitation to pass, I don’t think the FCA’s report gives them necessarily a new course of action. If they’ve gone past the limitation, they will have to prove fraud. The report is too late for many businesses.

“I’ve got two clients who have died in the last six months and if you speak to their families they will say it’s because of the pressure they were put under by the bank. The bank tries to give the inference that these were chancy business people who had overextended themselves. In my experience, the vast majority were just everyday people who were running a business, often family businesses which had been in the family for generations, and they trusted their bank manager.”

Hollinrake claims the FCA has “actually watered down the full report findings”

The FCA dragged its heels so much on making its report public that, in the end, the Treasury Committee, chaired by an exasperated Nicky Morgan, invoked parliamentary privilege to release it. She said the report’s findings were “disgraceful” and that the “overarching priority at all levels of GRG was not the health and strength of customers, but the generation of income for RBS, through made-up fees, high interest rates, and the acquisition of equity and property”.

But for some, the report does not go far enough. Yorkshire MP Kevin Hollinrake, co-chair of the All-Party Parliamentary Group for Fair Business Banking, refers to GRG’s behaviour as “the most shameful episode in Britain’s banking history”. But he claims the FCA has “actually watered down the full report findings – changing the key conclusions of the full report of ‘widespread inappropriate treatment’ into the ‘isolated examples of poor practice’ in the official FCA summary”.

He adds: “The FCA has critical questions to answer regarding its ability and willingness to carry out its function as a regulator.”

Since the report was published, the Treasury Select Committee has also released correspondence from RBS chief executive Ross McEwan revealing that 75 per cent of the bank’s current restructuring employees previously worked at GRG, prompting Morgan to raise concerns the bank has merely been through a “rebranding exercise” rather than fundamentally changing its behaviour.

The correspondence also says RBS has paid out £1 million in direct loss claims to GRG customers, which on current trends could reach £5 million in total. But McEwan has acknowledged that consequential loss can often be far higher than direct loss, and according to Morgan RBS has earmarked up to £280 million that could be paid out in consequential losses.

Rob Evans, partner at law firm Moore Blatch, which has clients affected by GRG’s actions, urges business owners affected to move quickly if they want to seek redress. “Do it quickly because limitation is going to be a real issue,” he warns.

The FCA will now consider whether RBS management knew or sanctioned GRG’s misconduct, but Hollinrake wants that part of the inquiry conducted by an impartial third party.

An FCA spokesperson said: “The FCA fully supports the Treasury Committee and BEIS [Business, Energy and Industrial Strategy] Committee inquiries into the issues facing SMEs. The FCA feels that it is important for everyone, including financial services firms, that there is an effective dispute resolution mechanism for businesses.”

Big Issue North contacted RBS for comment but did not receive a reply. The bank has said publicly that it is “deeply sorry” that customers were not treated well by its subsidiary.

Mike Cherry, national chairman of the Federation of Small Businesses, says: “It’s hard to believe that victims of GRG were left with nowhere to turn when they had their lives destroyed a decade ago. But nothing in the FCA’s regulatory framework has meaningfully changed since then. What’s more, its recommendations for giving more firms access to the Financial Ombudsman are wafer thin.”

He continues: “Ten years on from the crash and we’re still seeing a very low proportion of small firms accessing new finance. One reason for weak demand is undoubtedly a lack of trust in major lenders among small businesses in the wake of scandals like GRG. Small firms want to see the finance landscape change, with increased competition from challenger banks and non-traditional lenders. Small businesses need to know that another GRG can’t happen again.”