Ross McEwan, Chief Executive of the Royal Bank of Scotland (RBS) has spoken out against allegations that the bank has routinely been distressing viable businesses for its own profit.
The New Zealander, McEwan, was brought in to head up the bank on 1 October, replacing the out-going Stephen Hester. In an email to staff in the days following his appointment, McEwan said “The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans”. Yet just weeks later the new Chief Executive finds himself defending the bank against accusations that it has been taking assets away from viable businesses at discounted prices and putting customers out of business. McEwan says there is “no evidence” to support such claims.
The claims made against the bank have resulted in an enquiry by the Serious Fraud Office (SFO). Whilst they have not yet commenced a full scale criminal investigation the SFO is considering whether the bank has been putting customers out of business for profit. The question for the SFO is whether the RBS has merely been engaged in poor business conduct or whether a line has been crossed and criminal actions taken.
The accusations first came to light in the published Tomlinson’s Bank Lending Practices report earlier this week. The report looked at the work of the bank’s Global Restructuring Group into which customers who made sometimes very minor breaches of its borrowing facilities, were referred. It is suggested that the restructuring division then charged the customers exorbitant fees and interest which some customers could not pay and collapsed as a result. The bank would then, so the report suggests, buy the cut-price assets through its property division, West Register.
Business Secretary, Vince Cable, said he was “appalled” by the allegations and Chancellor George Osborne described them as “shocking”.
In addition to the SFO enquiry, investigations are underway with the Financial Conduct Authority and the Prudential Regulatory Authority. The RBS has instructed city law firm Clifford Chance to undertake an independent review of the restructuring group’s activities.
The author of the report, Lawrence Tomlinson, has expressed concern at the appointment of Clifford Chance to carry out an internal investigation which he says leads to “too many conflicts of interests”. Many of the companies who have suffered at the hands of the bank, Tomlinson says, had relationships with the law firm. He goes on to question giving Clifford Chance £1 million in fees when the bank should be conducting the internal enquiry itself.
Chief Executive McEwan accepts that the bank has suffered further damage to its reputation by the accusations and promised to report back on the findings by Clifford Chance. He recognises that the allegations undermine customers’ trust in the bank and says that customer trust is “vital”.
Tomlinson’s opinion on the bank is damning. He suggests the bank should be split into 3 new banks and that the name RBS is so toxic it should disappear. He says that since publication of the report another 250 bank customers have complained about the Global Restructuring Group.