Will RBS/Ulster Bank Pay Compensation?
Reuters has today published information of an interesting meeting at RBS HQ in May 2015. GDP have been following these affairs carefully after they broke the news to NI borrowers in November 2013 as well as following this up with our “Big Bang To Tomlinson” Road Show, to which Lawrence Tomlinson and Nick Leeson gave their views on the RBS/Ulster Bank Global Restructuring Group (GRG) saga.
Reuters state that three sources claim to have direct knowledge of a meeting amongst senior executives and suggest that Ross McEwan (post a meeting with officials at the Financial Conduct Authority (FCA)) had important news…"I think they've found something".
McEwan was referring to the regulator's investigation into claims by customers that RBS / Ulster Bank, had deliberately pushed small businesses to bankruptcy so it could pick up their assets cheaply through a Subsidiary West Register. For three years, RBS and its subsidiary Ulster Bank has vigorously denied the allegations about the activities of GRG.
According to Reuters insiders, the meeting at the FCA convinced McEwan outright denial was no longer an option. Now it is understood that the lender is considering a compensation scheme for small firms which say GRG abused them or forced them out of business.
After the financial crisis GRG was seen as part of the solution to RBS / Ulster Bank's problems. At its peak in 2010, RBS GRG handled tens of thousands of British businesses with a combined value of around 90 billion pounds. That's twice as much as the state spent to bail out the bank. Indeed 80% of GDP’s clients at the time were Ulster Bank GRG customers.
A report compiled by Lawrence Tomlinson, employed by the government as an "entrepreneur-in-residence," raised awareness of the complaints about GRG and alleged that RBS had systematically set out to break its small business customers to generate profits for the bank. At the time Mr Tomlinson also confirmed his findings included Ulster Bank customers. A position Ulster Bank has always denied.
Tomlinson said RBS "artificially" distressed otherwise viable businesses and put them on a journey towards administration, receivership and liquidation. Once in GRG, they were tipped towards insolvency and the bank bought up their assets "at cut prices." He later told members of parliament that more than 1,000 companies had come forward alleging "morally wrong" treatment by GRG. A link to the report can be found here - http://www.tomlinsonreport.com/docs/tomlinsonReport.pdf
Both RBS and Ulster Bank denies the allegation that it systematically abused SME’s.
RBS executives were called to appear at a parliamentary inquiry into Tomlinson's allegations in June 2014. They said GRG had not become a "profit centre" for RBS. But five months later, RBS chairman Philip Hampton wrote to the committee to retract that statement and apologise for what he called "misleading" evidence. He said GRG was a profit centre; the RBS executives had made "an honest mistake." In August 2014, RBS said it was closing GRG and was replaced by RBS Capital Resolutions Team (RCR).
According to Reuters insiders, it was at a board meeting at the end of May that RBS directors decided to change strategy. The directors agreed to hire external advisers and to prepare a scheme to compensate GRG customers.
Many of the firms GRG dealt with no longer exist, so their former owners won't be able to claim compensation. Firms that have survived would have to claim what are known as consequential losses. These take into account missed opportunities, to try to take businesses back to where they were before an alleged wrongdoing. None of these are easy to prove.
The cost to the bank, rescued during the financial crisis by British taxpayers, could run to billions of pounds. But bank executives hope the step might help draw a line under the mounting tally of blunders and alleged wrongdoing which has dogged RBS since 2007, crippling its reputation and impeding its recovery.
Reuters asked, Jon Pain, RBS's Chief Conduct and Regulatory Affairs Officer, to comment on the bank's plans but he said the bank is cooperating with the regulatory investigation. "We have no plans for any redress scheme in relation to this matter".
An FCA investigation is on-going and Reuters confirmed that the FCA declined to comment on the scope of its investigation, but reiterated an earlier statement that it expected to complete its review by the end of 2015.
GDP will watch this space with interest.