A recent Panorama investigation has propelled banks back into the limelight, particularly RBS and their subsidiary Ulster Bank for those of us in NI. The governmental Tomlinson Report suggested RBS and Ulster Bank systematically wrecked viable businesses and utilised its Global Restructuring Group (GRG) department as a “Profit Centre” for the bank. This is denied by RBS and Ulster Bank.
The Panorama programme only serves to highlight what GDP have been saying for the last four years - there has been a severe strain on the relationship between bankers and borrowers due to a total breakdown in trust between the two.
It has become very clear of late that RBS has tightened its grip on its problem subsidiary Ulster Bank. In the last few months our team has been inundated with enquires from SME’s whose loans are in the process of being sold.
From the bank's perspective, in order to shrink the debt exposure the lenders have packaged the non-performing loans with the performing loans - the good, the bad and the ugly - to end their relationship with borrowers by selling them. In 2014 alone, over €30bn of loans has been sold already in Ireland with potentially another €20bn of loans about to hit the market in the next twelve months. These loans are predominantly NAMA and Ulster Bank. This is an incredible amount of real estate for such a small country.
Ireland is now a hot spot for the world’s top private equity firms, so-called “Vulture Funds”, whom have a business model to purchase distressed debt from local financial institutions at huge discounts. The idea is to work this out over a few years returning expedited profits.
It was very interesting that Panorama suggested Cerberus, a New York based private equity firm who bought the NI NAMA loan book, to be very aggressive toward borrowers. “Cerberus” in Greek/Roman mythology, is a multi-headed dog, with a serpent's tail, a mane of snakes, and lion's claws. Cerberus guards the entrance of the underworld to prevent the dead from escaping and the living from entering.
Cerberus are only one of these Vulture Funds who will now own the loans and will be responsible for the outworking of them. How can an individual or SME protect themselves? To be frank, this is a major threat, but education and a better understanding of money and finance will lead to empowerment in decision making. The challenge for the borrower, through no fault of their own, is how they remain in control of their assets and their business whilst coming to an agreement with the new owner.
It has turned out a murky old world debt crisis and it has ruined many banking brands, families and SME’s over the last few years. Trust that has been built up over generations has been wiped out in a flash... a cost that cannot be reflected on any balance sheet. There are too many conflicts of interest within the professional services industry.
In the “good times,” the champagne was flowing like the lending on the books of the banks and there was no reason for either party to be paranoid of the other. However, the banks have now had a lot of bad press in the last six years, some of which is self inflicted and some of which is not. Whatever your point of view, it is a natural reaction for each party to play “the blame game”.
This approach will ultimately get us all nowhere fast. The fact remains that the banks have been overwhelmed by the levels of debt in society and at the end of the day, the banks are required for access to finance and economic stability/growth. Trust needs to be restored and both banks and borrowers must be open, willing and transparent with each other.