Some of this is difficult to comprehend.
The Treasury committee has published the full unredacted report into Royal Bank of Scotland’s “disgraceful” treatment of struggling small businesses that came to it for financial assistance in the wake of the banking crisis.
Commissioned by the FCA in 2014 after allegations made by former RBS clients, the 350-page document details “widespread inappropriate treatment” of small businesses by the bank’s Global Restructuring Group, resulting in “material financial distress”
“The findings in the report are disgraceful,” said Morgan, speaking as she announced the terms of an inquiry into the financing of small businesses.
“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.
City watchdog the Financial Conduct Authority had refused to publish the full report, citing legal reasons, but the committee invoked parliamentary privilege, allowing it to release the document.
Morgan said: “The committee has not taken the decision to publish lightly” but it was in the public interest.
Written by compliance and risk management group Promontory and accountancy firm Mazars, the report covers six years in which 5,900 struggling businesses were referred to RBS’ specialist turnaround division, Global Restructuring Group.
The authors sifted through 323 gigabytes of data, including 1.5m pages of documents and 270,000 emails.
They came to the conclusion that GRG was guilty of “widespread inappropriate behaviour” that caused “material financial distress” to dozens of small businesses.
What RBS did
“Just Hit Budget” memo
- A memo entitled “Just Hit Budget” was circulated among GRG staff as a training aide. It contained advice on “how to get a customer to agree chunky fees and upsides and thank you for it”.
- In a section headed “Rope” the memo 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.”
- “Missed opportunities will mean missed bonuses,” staff were told.
- Regarding businesses in severe distress, the memo said: “Basket cases: Time consuming but remunerative.”
- On fees to be charged, staff were told: “Be specific: avoid round number fees – £5,300 sounds as if you have thought about it. £5k sounds like you haven’t.”
The FCA report concluded that the memo was“indicative of an unprofessional culture that set little store by the interests of the customers handled by GRG. Rather customers were viewed as opportunities.”
“Don’t take the p*ss”
- When a shop went under, GRG staff were invited to cherry-pick items for themselves.
- They were told: “Can you go in and add your name and what you want ... It’s looking tight [...] to get any special treatment here so keep things to staff only and don’t take the p*ss.
Bullying and intimidation
- Small business owners complained of intimidation. One said: “At one point (the GRG manager was) banging on the table with his hand really loudly, shouting at the top of his voice, issuing threats of receivership.”
- Another customer complained of “cynical and bullying tactics … which are frankly way out of order.” They were also threatened with being put into bankruptcy.
- GRG staff were also alleged to have applied pressure on a businessman to increase the price he needed to pay to regain control of his company from £400,000 to £2m, by using the “Kissinger school of negotiation”. The phrase is thought to be a reference to the hardball tactics deployed by former US secretary of state Henry Kissinger.
- A December 2010 email included “mimicry” of a customer’s foreign accent that the FCA deemed “disrepectful of the customers’ nationality”.
The report’s verdict
“There was in certain respects widespread inappropriate treatment of SME customers by RBS,” the report found.
It described this treatment as both “systematic” and “endemic”, adding that GRG’s behaviour had “profound impacts” in some cases.
The report’s authors found that 16% of business they analysed that were still viable when they entered GRG were likely to have suffered “material financial distress” due to its treatment of them.
While RBS “did not set out to engineer” financial difficulty, the bank had a “conflict of interest”, with staff encouraged to prioritise the extraction of fees and so-called “upside instruments” to boost revenue, rather than looking after the needs of the small firms.
“This was not in our judgment a result of idiosyncratic decisions by local managers, but was endemic in GRG’s arrangements in respect of those dealing with SMEs,” the report said.
The incentive to boost revenues meant that staff “would take action that was unfair and inconsistent with genuine efforts to turn a distressed SME around,” the report found.
It warned this might place an “otherwise viable business on a journey towards administration, receivership and liquidation.”
“There was in practice little focus on returning customers to financial health [...] through genuine business restructuring.”
Customers felt “poorly treated, bullied, threatened, often exploited” and were met with a “dismissive attitude” when they complained.
GRG’s management“was aware (or should have been aware) of these issues.”
“It is clear that the bank was aware, at least in part, of some of these failures but, it would appear, chose not to prioritise action to overcome them.”
How RBS responded
RBS said it is it is “deeply sorry” that customers were not treated well by staff in GRG during and after the the 2008 financial crisis.
“The report makes for very difficult reading and some of the language used by our staff in the past was clearly unacceptable,” it said, though the most serious allegation – that staff “deliberately targeted otherwise viable businesses in order to distress and asset-strip them for the bank’s profit – has been shown to be without foundation”.
The banks said it has responded by:
- Putting in place a complaints process overseen by retired high court judge, Sir William Blackburne
- Setting up an automatic refund of fees charged by GRG.
The bank said: “The culture, structure and way RBS operates today have all changed fundamentally since the period under review and we have made significant changes to deal with the issues of the past, including how we treat customers in financial distress.”
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