Member of SME Alliance and corporate lawyer James Nicholls has sent us this very important document. Many thanks from SME alliance:
Some matters arising from the Interim Summary of “A report on an independent review of Royal Bank of Scotland Group’s treatmentof small and medium-sized enterprise customers referred to the Global Restructuring Group” published in October 2017
By James Nicholls, solicitor, Partner at Gunnercooke llp
Summary of my comments
I go into detail below of how the language used throughout the report is inappropriately “pro-bank” and how misleading this is.
I expand on the mealy mouthed and mild criticisms that are implicit and show how the consequences of the conduct can devastate lives.
I point out how Mazars cannot be considered “independent” because their insolvency and restructuring partners are part of, and beneficiaries of, the culture that colluded with the modus operandi of GRG.
I show how the systematic and systemic failings cannot be put down to GRG alone and senior management and the Board of RBS must have known what was happening in GRG and decided not only to ignore it but also to benefit from it.
I point out how when all the practices gently criticised in this report are put together they add up a toxic environment for SMEs such that RBS (and it ought to be noted, other banks) was able to plunder these businesses for its own benefit.
I should apologise as there is a degree of repetition but this is because these notes follow the format of this Interim Summary itself which also repeats itself.
In conclusion, when this report is read “between the lines” and the consequences of the failings are considered it is clear that it contains a watered down but still damning indictment on RBS.
Since RBS, though, was not the only bank undertaking these kinds of practices, since I know them to be endemic in the banking and insolvency sectors, it is clear that the banks and professions of accountancy, law and valuation cannot be trusted to appropriately manage the finance industry. Too much power and discretion was placed in their hands mixed with enormous and unresolved conflicts of interest and lack of transparency and oversight such that it was inevitable that fraud and wrongdoing would become rife.
The Enterprise Act 2002 almost managed to introduce the concept of “debtor in possession” meaning that owners/managers of businesses would have been left with some power to resist that of the banks, however, the banking industry was able to, at the last minute, convince parliament that owners could not be trusted and that only banks and regulated professionals could be – to protect creditors. This report reveals what a travesty of misinformation that was and what a tragedy to thousands of people was then created.
The banking and finance industries should now be under much firmer regulation even though they will squeal that lending will collapse. The legal, accountancy and insolvency professionals have foregone their role of being the protectors of society’s creditors without much more supervision.
We need a banking act to introduce wide-ranging changes and a re-balancing of the bargaining power of lenders and borrowers and an Insolvency Act that leaves owners and managers of businesses with significant enhanced powers and protections from rapacious lenders.
The participants in the regulatory and legislative changes recommended above MUST come from the victims as a group and their advisers, yes like me, and not only from the firms of accountants, lawyers and valuers who have benefitted from years of colluding with banks, nor the regulatory bodies of those professionals such as R3 (not a regulatory body but an industry body), IPA ICAEW, RICs etc. One must also question whether the FCA is capable of managing such changes because of the “revolving door” between that regulator and the banking and accountancy industries. The Insolvency Service that has been embarrassingly quiet relating to this particular banking scandal as it has been gradually revealed since 2008 centred on its industry (including many professionals regulated by it).
A Royal Commission is probably what is need and a second “Cork Report” produced by someone who can be trusted.
To call this Interim Summary of the Report a “whitewash” would be misleading and in fact insulting to its authors because it is a much better effort at a cover-up than a whitewash. It is cleverer than a whitewash because it does not give RBS a clean bill of health. But what it does do is absorb all the indignation and anger and then channel it into a kind of milieu of minor mild rebuke.
At the same time, although pretending to be a robust “shot across the bows” of RBS, all the language used is as kind to RBS as it can possibly be. The criticisms of RBS use words like “inappropriate”, “unrealistic”, “undue… focus” and “inadequate”. All this use of “kid gloves wording” means the underlying message is one of “very little to see here”, “no one’s really to blame” and “improvements should and have been made”.
With a different tone with a bit of actual incredulity and condemnation, this report could be used as an actual reason to reform banking. And if you read between the lines and know anything about the insolvency industry, you will realise that even this Interim Summary contains a catalogue of appalling, immoral, probably criminal and downright disgraceful practices of a thoroughly disreputable organisation.
The other major criticism of the report is that it does not link all of the practices it criticises so as to point out that in aggregate the effects of the practices were unethical, immoral and disgraceful. The combined effects were devastating for the SMEs and the families that owned them. Real people with real lives, with children and mortgages to pay and Christmas presents to buy had their lives torn apart by these practices and their consequences.
It is particularly important to remember that RBS, incredibly, was able to help define the terms of reference of the investigation. The methods and procedures and abuses in GRG did not start in 2008 and neither were they a reaction to the financial crisis. In fact, GRG (and its forerunner SLS) had been using these methods for at least ten years. I know this because I was on secondment to SLS in 1998 and West Register was being used to ‘park” property assets and we were drafting Property Participation Agreements and other “Upside Instruments” even then. Being a member of the “awkward squad”, even in 1998/99 when I was on secondment at RBS SLS as a very junior lawyer, I gently questioned SLS employees about obvious conflicts of interest and arbitrary charges. Everyone knew there were “issues” but it was the early days of the development of abuses so everyone just shrugged.
Another criticism is that the gentleness and un-condemning nature of the words and phrases hide the facts and misery behind the implications of those words. It feels like reading a report into a genocide where we know what the report is about but it does not mention anywhere death, mutilation or people. Each issue of “inappropriate” conduct or “less emphasis” hides some appalling story where a family is wrecked.
So when it says something like “a failure to ensure that appropriate and robust valuations were made” or “inadequate controls over pricing practices”, which are inappropriately mealy mouthed, I think it should provide a specific example of what the consequences were when this happened. So, for the former, an example would be where a valuation GRG obtained (often internally from their own secondee valuers) would undervalue a property such that RBS foreclosed and that ruined some family’s life as they lost everything. For the latter “inadequate controls over pricing practices” means that some business was charged enormous fees and interest so that other creditors were not paid (like HMRC) and this caused the company to collapse which again ruined a family business and meant kids went without Christmas presents, marriages collapsed etc. And led to the collapse of other businesses in a “domino effect”.
Without examples, the report is cleansed of any consequences and it is unjust that this is the case. MPs and those interested in these matters need to understand the consequences of the GRG “inappropriate treatments”.
Thirdly, the use of the word “widespread” appears a great deal. It appears in two contexts, the first being where something was “widespread” and second where something was “not widespread”. There is a problem with this term. Somethings are so bad that to dismiss them as “not widespread” is not good enough.
If I say to you “I have hardly killed anyone, particularly since 2008” are you reassured or perhaps terrified? When something is “not widespread” we need to know what this means. How many instances of very bad things were found? Also, some “found” instances will be because RBS has not been diligent enough to cover them up but with a little bit more digging it might be revealed that abuses were more than “not widespread”. Remember that this report is based on a sample of cases the choice of which was influenced by RBS. The worst excesses of RBS might well have occurred in the twelve months or five years before 2008. The first inklings of the financial crisis were felt well before 2008 so maybe there are cases in 2007 in which there was much more “widespread” abuse.
The whole report is one where everyone involved, including the FCA is bending over backwards to give the benefit of the doubt to RBS and GRG. If there is anything “on the fence” then the attitude is to fall in favour of RBS. As an example, the interim summary at 2.52(f) states:
The absence of adequate records of the rationale for the decisions rendered it difficult, and often impossible, for the review to consider how a decision on price had been arrived at”.
The whole tone of this sentence shows the reviewers were trying to find a “rationale” for ruinous charges. So we can assume then, that whenever it was possible to “just about” find some “rationale”, no matter how dysfunctional or inadequate, then the reviewers would not have highlighted those cases as problematic.
Sadly, those of us who know and understand the Insolvency Industry, will know and understand precisely what this is really about. There was very often no “rationale” to any pricing decision. The fees and charges that were applied to a case would often have been based on the following 4 criteria:
I. What cash the business generated i.e. what the case could bare;
II. The particularly Relationship Manager’s budget requirements;
III. What was ‘just about’ not too embarrassingly outrageous to get away with
IV. The believability of the poor customer as he or she tried to object.
None of these criteria should have been relevant at all but when you give powers and discretions to your staff, incentivise them to misuse those powers and discretions, surround them in secrecy, ridicule and undermine any objectors and denude them of any power (i.e. money to fight) you are bound to get run-away abuse.
Another issue of context is that RBS had notice of this investigation and was able to prepare for it for months. It is the best possible report that could be produced. RBS and GRG staff had time to annotate files, fill in missing information, discuss amongst themselves and create answers and reasons for decisions and generally carefully prepare the ground for the investigators to see. That the report is still so damning must undermine RBS’s mixture of pleas of ignorance and mitigation.
How Ross McEwan can read this report – and he does know the consequences of and meanings of the findings – and still be brazen about it is quite incredible. He states that RBS made mistakes and that they are putting them right. GRG was not a mistake and list of appalling practices was not created by coincidence or accident. GRG and West Register were hidden, profit making parts of a Bank where it is now obvious corruption, fraud and malpractice were endemic. The modus operandi of GRG was to pillage customers when at their weakest and leave them with nothing and no ability to fight for redress.
The words of the report obscure what this report is about. For this reason I am going to go through the report and add some comments to add some meaning and depth to many of the opaque, disingenuous and misleading paragraphs.
I hope some people read this who can make a difference to the future because many of these practices are still going on today and if there is no fundamental shift in the balance of power between commercial lenders and commercial borrowers we will see the banking and asset finance industries pillage our economy (or sectors as they experience dips) again and again and in this way we enable bankers to cream off the value of all the hard work from others.
So, what is wrong with this report?
Foreword by Andrew Bailey, Chief Executive, FCA
Probably the most appropriate response to the full S166 Report (which has not been published) would be for the FCA to say it was handing over the whole problem to the Serious Fraud Office and the Police because what went on in GRG looks pretty much like institutional fraud and theft to me. The language of the report dresses it up but all the elements of crimes are there. What is missing is a jury to decide what is bleeding obvious to everyone which is that RBS did know what was going on and was happy to let it all happen. Sadly we do not have a serious fraud investigation police force in the UK.
The first two and a bit pages of the report are Andrew Bailey’s apology to the banking industry. He all but begs for forgiveness. He says “Given the serious allegations I believe it was appropriate for the FCA to look at the treatment [of SME customers by GRG]” which basically is “Sorry guys, but I gotta do this”.
He reminds the banks that their main defence remains that this area of banking is unregulated and of course this also lets the FCA off the hook.
He reminds us that the most serious allegation in the Tomlinson Report were not upheld and that this all happened at a time of “extreme financial stress” and he congratulates RBS for its public acknowledgement that it did not “always meet the internal standards that it set itself”
You might read Bailey’s final paragraph where he puts it all down to a lack of good complaints handling and that just a bit more ombudsman will solve all the issues and you might conclude he had not read the same report you are about to read.
His final paragraph is a bit of handwringing and that the FCA will help lawmakers in the future.
So where is the anger, the chastisement, the frustration, the sorrow or regret? I seriously do not know how he can read the report and not feel intense disgust in his industry never mind that much of this happened “on his watch” whilst at the Bank of England.
Apart from actually giving his contact details and a list of his hobbies you could not have a more obvious Job Application to the Banking industry. He signals “I am one of you. Sorry I have to do this. I have watered it down as much as I can”.
Right at the outset of the review somehow RBS was able to influence the terms of reference by limiting the sample period to the dates 1 january 2008 to 31 December 2013 and to only SMEs. There does need to be a start and finish to the review period but in allowing the bank to insist on this short five-year window, the FCA was hoodwinked. 1 January 2008 was not the start of anything (other than 2008) and clearly was just chosen as a neat starting date. The financial crisis did not start in 2008 and nor did the problems of hundreds of businesses that went into GRG during the early stages of it.
By using this date as some kind of “gate” and taking all the issues created by the financial crisis as “givens”, the FCA allowed RBS to use the cover of the financial crisis to show that almost ALL of the businesses transferring to GRG were already in financial difficulties.
A number of important points then occur:
1) How did RBS influence the FCA to get this as the starting date and limiting the investigation to SMEs?
2) RBS did not, in any way, pass on the forbearance or the bailout it had received to its own customers. Either the Government missed the opportunity to pass on the “rescue” or it tacitly (or maybe evenly explicitly) gave RBS permission to go and pillage all the businesses affected by the downturn.
3) RBS, one of the World’s biggest banks, and all the other banks in the World largely caused the financial crisis by their recklessness in the preceding decade. In wrecking the world’s economies, they caused the crash of property prices the result of which was to create the covenant defaults which enabled them to take the businesses into GRG.
4) In 2007 and 2008 there was probably not a “balance sheet solvent” company in Great Britain and so accordingly RBS and GRG were probably able to pick and choose who they decided would be taken into GRG and thence onto West Register without it looking the least bit suspicious. What needs to be looked at is not only which defaulting companies did get transferred into GRG but also which did not. Only by looking at both sets can the FCA really be assured that GRG and WR did not “cherry pick” their property portfolio.
The other factor being largely ignored is that Swaps and Interest Rate Hedging Products, pressed onto RBS customers were the causes of financial difficulties of many of these SMEs. Accordingly, for this report to essentially say that almost all the SMEs in the sample were already or very likely to go bust is also unfair.
It could be, and can be shown, that RBS causes many businesses to get into financial difficulties and then, using all the abuses that are outlined in the report, it took advantage of its strong contractual position to sweep away all the value in the business.
The other interesting point is that the review was limited to SMEs. Again, this allows GRG’s treatment of large and very large businesses to remain unexamined. From my experience there is likely to have been just as much abuse of the defaults by large customers as there was of SMEs. By excluding all these files from the eyes of the investigators, they allowed RBS to focus on preparing their files on the SMEs only. It has also to be added that because the assets held by SMEs are usually quite small and the figures involved also quite small it is easier for abuses to appear within the realms of normality.
Scale and conduct of the Independent Review
These paragraphs briefly describe how the review was undertaken but many questions and issues arise.
1. Were any secondees interviewed? GRG was “staffed” by many secondees from all the large firms of solicitors, accountants and valuers.
2. The sample size of 207 (or 178) seems quite small? How many businesses went into GRG in 2007 which was the start of the financial crisis and, by definition, were excluded from the review?
3. What proportion of all the cases that entered GRG were the 178?
4. How many larger businesses went into GRG during this period?
5. How was the sample arrived at? What notice was given to RBS and GRG about this sample?
6. Were any insolvency practitioners interviewed? If not, why not?
7. Were GRG staff briefed on how to conduct themselves during interviews?
8. Were GRG staff interviewed in the presence of an RBS instructed solicitor or their own solicitor?
9. Was anonymity given to GRG staff in the interviews? Were any ex-staff interviewed?
One cannot read the Review Outcome (also published in November 2016 in summary) without wondering what report they are referring to.
How can it be said in November 2016 “while some isolated examples of poor practice were identified” and then in October 2017 say they “found that there had been widespread inappropriate treatment of SME customers by RBS…”?
Referring to the bullet points on page 6, specifically:-
1. What does “artificially” mean in this sentence? What should be asked is – What part did RBS or any of its products or facilities play in causing or facilitating the move into GRG?
2. Every business in 2008 was “exhibiting clear signs of financial difficulty” caused either by the general collapse in property prices caused by amongst others RBS or from being mis-sold (i.e. fraudulently sold or forced upon) an interest rate hedging product.
3. “not a widespread practice” of “inappropriate reasons” for transfer to GRG, but here was some then? How much? How much of this abuse is OK?
4. “not a widespread practice” practices of requesting personal guarantees etc , again, but there was some? How much? How much of this abuse is OK?
5. Ditto for “unnecessarily burdensome requests for information”?
6. Ditto for Shadow Directorships? What has happened to these companies? Anyone been disqualified as a director? What admittance has been made?
Many of the other points are addressed further on in this note because the report itself addresses them in a little more detail.
In this section it is considered that inappropriate treatment was “systematic” which was a conclusion roundly rejected in the report created by Clifford Chance in response to The Tomlinson Report.
It is a shame that there is no discussion about what is meant by “systematic” in contrast to ,say, “systemic” or even “endemic”. The conflicts of interest that are mentioned in the report and the lack of control and transparency in the dealings of SLS and latterly GRG were fairly obvious to me in 1998 and it was also obvious that quite a few people were concerned and occasional nervous about such things. It does not surprise me at all that for many of the accusations against GRG there is no evidence. In 1998 it was obvious care was required to avoid accusations of “shadow directorship” or abuse of position. The staff in GRG were not stupid nor completely naïve. They would have known what it was not ideal to write down or put on the file.
Further down this section, towards the end, there are two comedy paragraphs obviously left in my mistake. The first says that none of this is meant as any kind criticism of anyone involved in the management of GRG and the second states that none of the conclusions should be “understood” as criticisms by the FCA of GRG, RBS etc.
I simply do not understand these paragraphs. If a finding of “widespread” overcharging is not something to be criticised, well one wonders what the point of the whole thing is. I think in reality it, again, illustrates how reluctant the FCA is to find fault with banks generally and RBS in this case in particular. It also undermines the report knowing this.
Addressing harm caused to SME Customers
Paragraphs of appeasement and congratulation to RBS for generously stopping stealing from its customers and the mention of the scheme to refund some of the over-charging (i.e. fraudulently obtained proceeds) but only to, what it calls, “eligible” SMEs.
So now SMEs have a complaints procedure, to RBS, and an appeals procedure, to RBS and a retired Judge, on the payroll of RBS, will review it for the FCA. Do these people think we are stupid? Yes, is the answer and they have contempt.
Also, is made mention of how much better it would be for everyone if they would stop bothering about their devastated lives arising and instead focus on complaining about how their financial disembowelment was not very well explained. There is veiled threat here as well, if you do not go through the RBS administered complaints system there will be delays because it is all so complicated. I would question, why one person’s consequential loss claim should delay another person’s grievances being compensated.
Summary of the Independent Review Findings and Conclusions
Before we look at this section let’s just remind ourselves who undertook this review (note “review” not “investigation” so it’s all very friendly).
Now, I do not know much about Promontory except they appear to have a bit of chequered history in the sense of not managing conflicts of interest very well but I do know Mazars.
Mazars is a firm of accountants and insolvency practitioners. Naturally they are part of the accountancy and insolvency professions and accordingly are not entirely “new” or independent of the conduct into which they are being asked to review. Of all the firms to use in the UK, I suppose they have had less involvement with RBS than most of the other large firms like EY, Deloitte, PWC, KPMG, BDO, Grant Thornton, Baker Tilly, FRP etc but they are down this list – may be at number 15. One issue, though, is that I bet they would like very much to have lots of work from RBS in the future. Secondly, even if they have not had much to do with GRG, they might have undertaken very similar work for HSBC, Barclays and/or Lloyds or any of the tens of Asset Based Lenders like Bibby. So they are hardly likely to find fault or be very critical of practices that they have either taken part in or that their own clients or relationships have shown them. This is an important conflict of interest.
Not only this though, the insolvency world is very small and everyone knows just about everyone else. It is not beyond possibility that R3 and/or the BBA had “words with” Mazars either formally or informally or that one of the large accountancy firms or a large law firm had, in order to suggest to Mazars to keep the tone friendly and to help RBS with this situation.
So this is the section that starts the non-criticisms relating to the limited findings and even with all this they found “widespread inappropriate treatment” in much the same way as “inappropriate social interaction” is a wordy way to describe a mugging.
Key review findings
1.1 a. and b. in this list are minor but are put first perhaps hoping we will skip over the next few. The implication and emphasis is that what is to follow is probably less serious. A bit like in the mugging example, the first complaint about the mugger is that he was rude and lying about wanting directions.
1.1 c. is slipped in and what amounts to gouging as much out of struggling customers as they possibly can is described as “undue focus on pricing increases”. Like the muggers “undue focus on property redistribution”.
In 1.1 d. they cannot find a rationale for the gouging – this is because the rationale was implicitly understood by everyone – charge as much as you can and sod the consequences to the customer.
1.1 e. hides within its criticism of the way they used valuations that hundreds of businesses were wrecked on dodgy valuations. When RBS ask you to do a valuation, particularly GRG, everyone knows what they want, so there is no need to say “We want the lowest possible valuation so we can go in” and quite often it will only take a small change in a valuation to trigger a covenant default and this is all that is needed. This important trigger point is breezed over as if, “oh, it’s just a minor difference of opinion. Nothing to see here. Ooh! Look! A butterfly…”.
1.1 f. and g. are just padding about communications and complaints procedures. Essentially the criticism is that RBS should have explained more as it “disembowelled” its victims and then handed them feedback form. Of course, in the future I am sure RBS will communicate better because it will add costs they can put on the customer and when challenged they can say “Sorry, but the FCA requires us to tell you in detail why and how we are taking your home”.
1.1 h. states “a failure to handle the conflicts of interest INHERENT [my emphasis, because clearly the FCA will not emphasise anything] in the structure…”. I would imagine the word “inherent” was left in by accident because for once it is a bit damning. It means that anyone in management should have seen that there was a problem and, may be, they should have done something about it.
At 1.3 we then have the similar list of findings as in the summary published in November except that the wording is getting opaquer and this leaves questions begging.
For example, when the report says, “no widespread” it must suggest that there was SOME.
Some things are less important than others. To be honest, most of the victims I have met and spoken to are not really complaining about the lack of explanation for why they were robbed and so if lack of communication was not “widespread” it is not a big issue.
To state, however, there was “not a widespread practice of identifying customers for transfer for inappropriate reasons, such as their potential value to GRG [etc.]” without then saying how much there actually was is, frankly, disingenuous. It suggests an intention to mislead or at least obfuscate. If there was one such incident then all the cases involving that GRG member of staff should be investigated and any others connected with it. It was “not a widespread practice” for Fred West to murder girls, but it was right to get to the bottom of exactly how many he did kill rather than concluding that “in the great scheme of things, he hardly killed anyone”.
The same issue arises to most of the points in 1.3 a to h.
In 1.3 a. we see the word “artificially” used. This is a qualifier to the word “engineer” that could hide all sorts of appalling, unethical, and unfair behaviour that would not be “artificial”. In fact, the conclusion to draw is that since the word “artificial” is there, that RBS did engineer a position to cause or facilitate the transfer to GRG, it just was not “artificial”. We can only hope then that Part 2 of this review, now in progress supposedly, will look at precisely what RBS did do to engineer these insolvencies.
Paragraph 1.4 hides much and needs careful deconstruction. A mere 86% of the 207 reviewed cases including “inappropriate treatment”. This is dropped in without comment or anything. Err… did you say 86%? Like, that’s nearly all, don’t you think this deserves some kind of comment? How about “endemic misappropriation of value and abuse of SMEs?”
But interestingly even this paragraph tries to hide some interesting points.
Instead of saying, with a bit of incredulity and disgust, “nearly two-thirds of all businesses put into GRG were probably viable” it says “over a third” were probably not viable and could be expected to go bust. To phrase it in this way, again, shows a bias. The issue here is not how many businesses were not viable; the big issue is how many viable businesses were wrecked.
It is useful though what we are now getting closer the actual number of businesses transferred into GRG during just this five year period i.e. 5900. As another aside, this was also a period in which RBS knew it was coming under increasing scrutiny – remember we had more vocal complaints about banks generally the noise leading to Tomlinson was growing.
Now, I am no statistician but is a sample of 178 a statistically relevant sample from 5900? It might be but it does leave one-hell-of-a-lot of unexamined cases. It is about a 3 in 100 chance of the Reviewers finding the bad cases. Of course, they must and did find a few. But is the description of “not widespread” acceptable given the sample size? I doubt it – any mathematicians out there?
There is, however, another point. It is that this review is focused on a sub-set of a sub-set of a sub-set of the businesses that were abused by RBS. This paragraph tells us not to worry about the third of businesses that were not viable because they would have gone bust anyway. It might be true that they would have gone bust. In fact, the whole reason for these recoveries departments in banks is to manage the bank’s exposure to such customers and so to ignore them for this review is not right. The outcomes for these problem customers could still be made worse or better depending on how GRG treated them and there was still plenty of scope for abuse by GRG. In fact, probably more so. In the insolvency industry, there is an unattractive (if not downright unethical) contempt for ordinary creditors and this is illustrated by an industrywide practice of basically taking whatever you want, when the only ultimate losers are the ordinary creditors or even the owners. So, in all these “liquidation” case scenarios there is likely to be even less scrutiny of what the bank helps itself to. I have described these cases before as the “fill your boots on this one boys” cases, because this is precisely what bankers say to you on them.
The figures in this paragraph start to be confusing. The review says the review found 16% of the viable businesses had experienced “inappropriate action… which appeared likely to have caused material financial distress”. Clearly there is a lot of room here to hide a great deal more abuse than 16%. Firstly, it has to have caused “material” financial distress which means that if the situation was already distressed (quite likely in the circumstances) then the bank stealing just a small amount was not a problem. Secondly, it must have “appeared likely” which is quite a high hurdle to get over.
This paragraph also suggests that “there were seldom clear-cut causal links” (which must mean there were some, as before) and this seems to let the bank off the hook like “Oh, it’s all so complicated! Who knows why businesses go bust?”
Paragraph 1.5 is a bit like a “get out of jail card”. Firstly, it says a “pragmatic approach” was adopted. What does this mean? I suppose no one can object to it, I mean, no one is going to say “I suggest you take an un-pragmatic approach to this review” are they? So why say it?
It is stated because the rest of the paragraph is basically a set of excuses for obfuscation and lack of precision. It seems to be saying that they did not focus on the legality of any of the problems but focused on what the customers were complaining about. And, no doubt, this could be fine but it does leave the question then begging, “Well, what about the legal position? Was it legal to use conflicted valuations to trigger a default that led to collapse to enable the inappropriate application of fees and charges?”
What is the legal position in the cases where you did find that the bank had been a shadow director? Have you informed the Insolvency Service or the Insolvency Practitioner dealing with that case?
Independent Review’s thematic findings
So far we have only been looking at the summary of the report. Now we get to the actual findings and they are set out under headings.
GRG objectives and strategy
Finally, after lying to Parliament, lying to newspapers (so what) and lying in Court, RBS has admitted to the Independent Reviewers that GRG was meant to be “a major contributor to RBS’s financial objectives”. Whether this was “revenue generation” or “protection of capital”, it makes no difference. It means that the main role of GRG was to maximise money coming in from customers. Nothing wrong with that you might say and I might even agree but why then pretend otherwise for years and years? Why also deny it to the customers?
The second objective of GRG is either disingenuous or hogwash depending on who is reading. To a lay person, you might think being “at the leading edge of the wider rescue culture” sounds like a worthy objective. To a cynical hack from the insolvency industry, I know that the “wider rescue culture” is how to get back as much as possible for the bank. In fact, the methods of GRG of screwing down debtors into Property Participation Agreements and Equity Participation Agreements have propagated through the “wider rescue” community. GRG was at the forefront of establishing and enhancing unethical and unfair “rescue” practices for the insolvency industry. All the banks tried to copy GRG. HBOS Reading developed their own version of it and they were just too greedy. If they had stolen just a little bit less, like GRG, then they would have got away scot-free. Remember that this insolvency department now called GRG was previously called “Specialised Lending Services” for which you could not get a more Orwellian title if you tried. I always laughed “Specialised Lending” is asking for your money back – but it was not a joke. It’s like the CIA’s use of euphemisms and the point about using euphemisms is that they do successfully hide the reality of what you are doing. The use of the word “pacification” when you are bombing and “rescue” when you mean gouging come from the same guidebook.
Alternatively, and taking it at face value i.e. if we give the words what might be their true meaning, then it is absolute drivel. SLS was never about helping customers or easing their difficulties and GRG was an intensification of the same department. GRG was about recovering from borrowers and in the 1990s and 2000s they discovered that by using a default to trigger all the powers in their documents, they could sweep all the value out of business into their own coffers. Who else behaved like this? Michael Milken and Ivan Boesky the crooked financiers in the USA who developed the “loan to own” model using defaults on bonds, that’s who.
Paragraph 2.3 is so gentle one might think it adds nothing. In fact, however, this is damning of the Senior Management of the Bank. It might be considered unfair to expect the GRG staff themselves to see the “bigger picture” as to how their strategic objectives might cause conflicts with the bank’s treatment of its customers but it should (and let’s not be mealy mouthed about this “they did”) have been very obvious to the management above GRG.
In fact, I am pretty sure everyone in banks, right the way up to the Board of directors, knows that the “recoveries” section is a frightening place for customers to end up. I have heard very senior regional and local area managers from banks, and Relationship Managers, talk in hushed tones and with fear about “What goes on in Recoveries”. Of course this is the case. Most of the bank is about positivity and booming businesses; it is about getting money out of the door and everyone doing well. “Recoveries” is all about what happens to you if it all goes wrong.
What has happened historically is that banks’ managements, right up to board level, have tended to ignore the recoveries departments in the same way we try to ignore sewage workers. This does not, however, excuse them from their negligence in setting up and managing these sections of their businesses.
A bit of history:
Recoveries Departments at banks might not have been “profit centres” for decades until the late 1990s, the turn of the century and the particularly in the “noughties”.
Because the law was different back in the day and how banks acted was different they really were about just trying to get the bank’s money back when lending went bad or so it appears.
In the 1980s and 1990s a few things happened that changed the landscape of the insolvency sector.
The upshot off all the changes was that banks discovered that not only was there no need to lose money when customer went bust, but that you could actually make money – a lot of money.
Along with this they also realised that if they bought the assets, particularly property assets, from their bust customers at “fire sale” values and then sell them a few years later when property prices had gone up, they were able to make even more money. The real trick was that no one could really object because if the bank was owed enough money, ostensibly no one was affected by the price paid notionally for the asset. Insolvency Practitioners are specifically banned from buying assets from the cases they work in this way for precisely the same reasons that West Register should never have been allowed to buy assets from its own customers in GRG. The conflicts of interest are just too large and too obvious.
In these recoveries departments, the staff also found a way to scam better bonuses out of their banks.
It works like this. When the customer transfers to GRG you make the largest provision you possibly can – may be ask one of your valuer colleagues to provide a very pessimistic valuation – and so the bank “writes off” a great deal of debt owed by the customer. [Don’t forget that the “write off” does not have any benefit for the customer – he still owes the full amount.] This loss on the lending is put through the Profit & Loss account of the bank but in GRG you do not care because that loss is shared with everyone in the bank so only costs you pennies.
What happens now in GRG is that the actual recovery from the customer is more than the provision. And so, abracadabra, you have made a profit and all that profit is what you in GRG have done. And so GRG are given bonuses because they have done really well.
It was and remains obvious to everyone involved that there are enormous problems of Conflicts of Interest arising from a customer passing from “good bank” to “bad bank”.
To use the phrase, at 2.4, “There was a need for careful balance of focus in the management…[to make it fair]” and then to just leave it there is disingenuous. It suggests that something will be done and yet leaves the criticism as mild as possible.
This paragraph should say something like:
“It is appalling and disgraceful that senior management with all their risk management skills, MBAs and pay packets chose to ignore the blatant inequities going on right under their noses. There is no excuse that senior management and board level for this lack of oversight and complacency. These people should have no place in a financial institution since, quite simply, they cannot be trusted”.
Governance and oversight
Sadly, paragraph 2.5 basically states that if something is not regulated then bankers will run amok. In spite of there being “fit and proper person” requirements for working in the financial services industry and similar corporate rules applicable for banks, it is clear that in regard to actual conduct, all of this stuff “goes out the window”. May be the level of ethics and morality is so low in the financial industry, that expectations of what actually happens in unregulated areas is also so low. The test of an industry ought to be not about its compliance in regulated areas, but rather how it behaves in the unregulated part of the industry.
GRG actions “had the potential to exacerbate the already difficult circumstances” is so mealy mouthed it is an insult to the victims arising from this mistreatment. It is such a mild rebuke for such behaviour as, for example, significantly increasing interest payments on loans and overdrafts precisely when the customer was having cash flow problems; or levying exorbitant fees against people already struggling to pay their debts. Such behaviours did not have the “potential” to exacerbate the problems, they always did exacerbate the problems. Basically, it is “kicking a man when he is down” and in fact this is the fundamental issue in this report.
When a customer defaults, the terms and conditions of the bank’s lending are so one-sided and so draconian that the bank has the power to sweep away all the value of a business to itself. When this power is mixed with lack of oversight, conflicts of interest, incentives to abuse and zero transparency it is only natural that those involved gradually lose their ethical and moral compasses. It actually makes little difference whether the customer is tiny, an SME or a large customer, the banking industry and all those in it, now accept the standard terms and conditions of bank lending as if they are largely unnegotiable. The only reason we hear little about defaulting lending to large corporates is that the directors themselves have rarely given Personal Guarantees and accordingly are not so badly dealt with when their corporates collapse. Also the sums are often so large that amounts owed to ordinary creditors are considered insignificant. As long as the directors of these corporates do not complain along the way – about their bankers sweeping away most of the value in the business – they can be assured they will be able to head up another large corporate in the future.
The rest of paragraph 2.6 b to e, essentially sets out some factors as to why we should feel sorry for RBS.
RBS and GRG were aware of the “potential for harm to customers” and they just did not care. Being in the insolvency industry does harden you to sob stories and it is not difficult to become complacent and hard-hearted to the ordinary circumstance of your job. Surgeons might “joke” about their patients. The point is that it is senior managements’ role to keep everyone in a business to focus on doing the right thing. It is also the case that individuals must also take some responsibility for their conduct – this is why there have been leaks by whistleblowers.
At 2.7 “GRG needed a framework of systems and controls to ensure that key risks to customers are identified, managed and appropriately mitigated”. Almost every word of that statement should be emphasised. This shows systemic and systematic failure of senior management and the board at RBS. It is also completely unacceptable and disingenuous for RBS to suggest it never realised all this was going on. In the same way it is disingenuous and is now being revealed as lying then Lloyds/HBOS states that it had no idea about what went on at HBOS Reading – they knew; they buried it; they tried to cover up; and now they are trying to ridicule, delay and obfuscate.
It is almost funny that the only “crime” that the FCA can nail onto RBS is the failure to implement the Treating Customers Fairly (TCF) initiative. It is funny like in a “W1A” way except the consequences for thousands of people have been dire. Again, each incident of failure outlined in this report should have a case study alongside it. Only then would the words have some meaning.
At 2.7 g , again it is illustrative of senior management failure. It can almost be forgiven if an organisation fails to comply with outside regulation or rules etc. because collectively it just might not understand/know/appreciate it; Still bad but, sort of understandable as institutional incompetence. When, however, there are institutionalised breaches of its own policies and procedures, then it is not a set of mistakes – it is both systemic and systematic – because it means the management do know about it and are deliberately allowing it or facilitating it. You can bet that if RBS had been losing money through any lack of following internal compliance, then people would have been held accountable and sacked.
Again in these paragraphs it is the opaque language that is used that is the problem. “The independent review noted a tone and emphasis … which placed financial objectives first…”. The use of “tone and emphasis” potentially hides so much. And at 2.10 “incremental income” was used as the measure of staff performance. These terms are such a mild rebuke for what actually went on. What there paragraphs mean is that the GRG staff were incentivised to gouge the customers and sod the consequence to those customers.
Incentivising staff to improve the bottom line is a genuine and justifiable modus operandi but (1) do not then pretend these staff are there to help customers (2) do not deny the fact by lying to a Parliamentary Committee; (3) take care that the incentives do not enable those staff to seriously mistreat customers; and (4) do not expect society to leave you with the power to set the terms and conditions of contracts with those people nor to allow you to abuse those powers when problems are encountered.
The language of paragraph 2.11, again, hides the horror of the implications of what is stated. The language throughout his report is mealy mouthed.
Transfers to GRG
Paragraph 2.13 starts “The criteria for transfer of a customer to GRG were widely-drawn and gave significant discretion to RBS staff” and it goes on to suggest “a need for checks and balances”. What this omits to say is that
because the staff were incentivised; and
because there were conflicts of interest (i.e. staff benefitted); and
because there was lack of ethical management oversight; and
because there was lack of transparency; and
because there was a lack of integrity or common decency; and
because there was typical insolvency industry contempt for debtors and creditors;
that the wide discretion afforded to GRG staff was bound to be abused and in fact was on many occasions.
In paragraph 2.15, what is the word “general” doing there? Was there a practice at all of targeting businesses based on their value to GRG? This paragraph is like an apology as if “There were quite a few instances but not that many”. Like, Fred West hardly murdered anyone when compared with the number of people in Gloucester.
Paragraph 2.16 demonstrates another way that RBS has been able to frame the terms of reference for this report. Somehow RBS was allowed to set the sample in such a way that “almost all customers” transferred during the sample period “exhibited” signs of financial difficulties”. Well, I would suggest this has a lot to do with the fact that EVERY BUSINESS in 2008 was probably exhibiting such signs but also because this ignores the involvement of RBS itself in (1) creating the circumstances leading to that distress and (2) specifically causing the financial distress by fraudulently selling or pressurising these customers into toxic Interest Rate Hedging Products.
To say at 2.17 that RBS “failed to recognise” the conflicts of interest inherent in the GRG model is to try to completely let RBS off the hook. I would suggest that they did not fail to recognise anything. They saw it and they knew about it but they decided to ignore the problem as it made them too much money. The wrongdoings are hidden and, statistically speaking, a small percentage of their bank’s happy customers – so all the whinging must be just anomalies, right? In addition, the industry that is meant to police it (i.e. regulated professionals like Insolvency Practitioners, solicitors and RICS valuers) is captured because of all the, again, obvious and inherent conflicts of interest. These professionals make so much money from banks that, of course, they are not going to police them. We know that liquidator and administrators will bend over backwards to avoid suing a bank. The few small firms where there are exceptions prove the point.
To be honest, the lack of communications outlined in 2.18 was the least of these customers’ problems. To even discuss the lack of decent communications could be seen as a ploy to pad out this report and it gives RBS the ability to say something like “We are happy to implement many of the recommendations of the report even though we do not agree with all of them” and by saying this it sounds like all will be well in the future.
These paragraphs are disingenuous as GRG made insufficient money out of helping businesses and their owners to financially survive and so “of course” they did not place any emphasis on “turnaround”.
This whole section is damning and should be enough to have RBS wound up as a danger to society. The Summary at 2.27 shows what a disgrace the senior management are and were for ignoring the maltreatment for years. Hundreds of peoples’ live were ruined and for each business that RBS ruined, it would have had a “domino effect” on others so you can bet (and I know this for a fact anyway) that as RBS pulled the plug on one business they would have known where the effects would be felt amongst their own client base and they would be ready to reap the further benefits of their handiwork as the next customer was pushed into default.
Has RBS in this section, again, pulled off a great deception? I am not a banker nor a banking accountant but something peculiar happens when banks lend to customers and it’s not at all obvious.
This report, again influenced by RBS, allows the assumption that “when a customer gets into difficulties, the bank is subject to increased risk” to remain un-challenged. I think it is time to challenge this analysis.
Let’s compare this with something. Let’s look at betting on a horse race.
When you place a bet on a horse before the start of the race, you take your money and you look at the odds of the horses; you decide where to place you bet and you accept the odds you are given. Odds are a bit like an interest rate because they represent someone’s assessment of the likely outcome of the race.
You have placed your bet and then the race starts. During the race the odds do not change and neither has any risk because you have already placed your bet and you bet on the odds (i.e. the risk) at the outset. What IS changing during the race is the likelihood of the outcome of the race but not the initial risk of the race itself.
So, when money is lent, it is a bit like betting on a race. Some businesses are riskier than others so you charge them more. You hope that all your “horses” will come home and repay their loans. The costs of the ones that do not, are already factored into the “price” of the loan at the very beginning. What changes during the period of the loan is the outcome. To allow a bank to change the interest rate during the period of the loan is a bit like a punter asking for his money back during the race.
Banks will talk about the “costs of funds” etc. in response to this challenge and may be this is a point but that is not what bankers talk about in GRG; they talk about “increased risk” when they have already lent the money. You can talk about “increased risk” before a loan is made, because that is when the “risky” decision is made. After the loan is made, then the “bet” is down and the risk is accepted and priced in.
There is another point in this part of the report where there is a kind of “credibility gap”.
Each year thousands of businesses do run into trouble and so just by the “law of averages” RBS should get its share of businesses that should be transferred into GRG. These would be uncontroversial. So, in other words, there ought to be a majority of cases that went into GRG that are not controversial. So, in this report where the Independent Reviewers excuse RBS/GRG behaviour on the grounds that they hardly ever, statistically, gouged businesses inappropriately it really is unacceptable. In fact, it is dangerously complacent and like telling RBS how to do the same in the future, only this time, to get away with it.
Basically, what you do is only gouge 5% of your SMEs that get into trouble and it will disappear in the fog of the numbers. From famous sociological studies of Longshoreman and Bread delivery men , this is like classic “white-collar” and indeed “blue-collar” theft from your employer - “Do not be greedy, and we will all do very nicely, thank you”.
Hiding your crimes amongst a majority of legitimate transactions and not being too greedy, is the chosen modus operandi of thousands of crooks.
Therefore, we should be very suspicious of the cases in GRG where there was mistreatment and it is not acceptable to dismiss them as anomalies. Each case of a ruined business matters in exactly the same way as each murder by Fred West mattered.
So whenever the report says “no widespread” or “no systematic” practice of wrongdoing was found, the question must be asked “Ah Yes! But what instances of the wrongdoing DID you find?”
Up until very recently the finance industry was of the opinion that once a facility (i.e. loan or overdraft) was in default (i.e. one of the terms or conditions had been triggered) then under the contract the lender was able to specify whatever interest rate and to levy whatever charges it wanted to. This is because the terms and conditions in the loan agreements and overdraft agreements basically say this.
So, for my whole career, and probably for all time before, bankers have arbitrarily applied interest increases and penalty fees – described in all sorts of different ways – to their customers in difficulties. And believe me, it is largely arbitrary because I have been in meetings where such decisions have been made. Insofar as there is any “calculation” applied in the decision making process, it is more linked to what the poor SME can bear and little to do with any perceived risk or time-cost justification. The interest rates are increased because “the bank has an increased risk” (I have addressed this issue above) and the fees charged are chosen on the basis of “just not looking too stupidly high”. When I did my secondment in RBS/SLS in the late 1990s, there was a tiny degree of embarrassment amongst the managers about these decisions. It appears to me that since then that embarrassment has largely disappeared and was replaced with audacity because there was no oversight, no transparency, the insolvency industry professionals colluded and the victims were silenced by (1) lack of funds to do anything; and (2) inability to find anyone to challenge the practices because every law firm with any banking/insolvency capability had been “captured” by the Banks.
A recent case , however, has looked at this issue and it suggests that the contractual discretion in the agreements should not be exercised capriciously. It is quite incredible that in 2017 this is even an issue. This case does not, at all, solve the problem, it just tells banks to be a bit more careful about how they “invent” their charges.
At 2.46 the report talks about RBS finally, in 2011, giving its GRG staff some guidance to start to roll back some of the more disgraceful fee-charging behaviours, but since we are not privy this guidance we cannot judge whether it is more about covering-up and getting better at the gouging than actually preventing abuses. And then latter at paragraph 2.49 we are told that the guidance had to be revised in 2013 to prevent the more “egregious” practices. This use of the word “egregious” is the first time in the report where a strongly critical word is used. “Egregious” is a funny word, though, because it has two means – (1) outstandingly bad and (2) outstandingly good [go look it up if you do not believe me]. Of all the words to use then this is absolutely perfect. Whether the gouging of clients was an outstandingly good thing or bad thing depends entirely on your point of view. The Bank thought the gouging for profits outstandingly good whilst the rest of us think it was outstandingly bad.
Another point to remind ourselves at this point in the report and touched on above, is that Mazars, accountants and insolvency practitioners, undertook much of the investigation and reporting in this review. Therefore, where at paragraph 2.50 it states that “The independent review was required to form a view about the appropriateness of costs …” it is misleading because we keep reading that word “independent”. Mazars cannot properly be described as independent in this regard.
Mazars are part of the “insolvency industry” which has colluded with the banks for generations. It was R3 (in its previous guise of SPI) that managed to keep banks in the insolvency “driving seat” when in 2002 they, along with BBA (British Banking Association) managed to get the Enterprise Act amended. All the Mazars insolvency and restructuring partners have industry connections and none of them are known champions of cleaning up the grubby insolvency profession. And like all professionals they charge (like me) eye-watering hourly rates -£200 - £300 - £400 per hour, if they can, and so they are unlikely to be particularly critical about the “appropriateness of costs” incurred in insolvency related circumstances.
The report states that 57% 57%! of customers in the sample received inappropriate treatment relating to pricing and this is explained as mainly through lack of recording and explaining the rationale for the prices.
The findings on Pricing decisions at paragraph 2.51 a to k are damning. A couple of examples are illustrative and important.
See again at 2.51 a, the use of passivity-inferring language, “GRG… sought” to impose price increases. By using the word “sought” it suggests the victims had some reasonable or realistic choice in the matter which is complete fantasy. “Sought” is used in the same way that a mugger “seeks” to impose a mugging. This sentence should be “GRG imposed on customers a wide range of pricing increases and charges”. Not least because the bank just takes money from the bank account – they are in control of it after all. An SME not only has no choice, they cannot stop it even if they try.
At paragraph 2.51 i there is a strong suggestion that the bank was acting as shadow director. This is not the first mention of the concept in the report, there are others. An ethical bank would ask for these cases to be identified and seek to look into them. Were the actual directors disqualified as director by the Insolvency Service? What impact on other creditors did this have? The liquidators of these businesses should be contacted and told of this finding so that if any action should be taken against in the bank then it can be undertaken. Of course, RBS is not going to do this. So has the Insolvency Service read this report and are they asking for details of these findings to allow them to address either the miscarriages of justice that might have occurred or to allow liquidators to make claims against the bank? Has HMRC read this report? Most often the instruction from the bank that we are discussing here is “Don’t bother paying HMRC”. How do I know this? Because I have been in those meetings where those instructions have been given is how.
At paragraph 2.51 k – prices were still increased even when the exposure was reduced. This behaviour is not ok and puts paid to the RBS nonsense that their prices reflect risk management considerations. These are all “after the event” excuses and explanations.
Let’s talk about valuations. Valuations are incredibly important in default and insolvency situations. And because they are so important, great care ought to be taken in that regard.
Firstly, any valuation undertaken should be done by someone without any hint of a conflict of interest. That RBS had its own in-house valuers and used their valuations as the basis for life-changing decisions, enabling it to purchase assets at “knock down” prices and later to make large profits when asset values recovered is, again, indicative of the attitude in the bank of “We can do what we like”. It should also be said, though, that like the insolvency professionals are largely “captured” by the Banks, so are the large firms of valuers. Paragraph 2.55 is damning but is mealy mouthed as usual and paragraph 2.56 includes an underwhelming recommendation which underestimates the extent of the problem. Valuations obtained for banks from firms that do work for banks cannot be entirely trusted.
To be honest it is insulting and disingenuous in this report to even mention the concepts of TCF (Treat Customers Fairly) since it clearly was irrelevant to how RBS managed its recoveries business. Mind you, it’s a nonsense concept in any case and that the FCA had to try to impose such in initiative on the industry says everything. Any industry that has to be told “treat customers fairly” needs a major shake up.
Something should be done specifically about the eight cases identified in paragraph 2.60 where RBS was found to be a shadow director. Something should be done by the RBS itself, by the FCA and by the Insolvency Service. It is not acceptable for these cases to remain unexamined because there could be significant miscarriages of justice. Where is the follow up on this?
Considering it is a regulatory requirement that complaints are handled properly, the FCA is remarkably sanguine about this aspect.
It was clearly RBS’s attitude that complaints from this section just related to the pain that people feel when their business collapses and therefore could safely be ignored.
It is comic that in order to comply with the bank’s policy of “zero justifiable complaints” (commendable in a kind of “Macdonalds” way), GRG practiced a policy of not reporting complaints at all. The senior risk management of RBS should have identified that GRG was bound to be an area of particular complaint generation because of the unfortunate circumstances but also that because of that, it would not be difficult for genuine and justifiable complaints to get lost amongst the general “noise” of those customers that went bust. Risk management at RBS should have targeted this department for careful examination.
GRG learnt no lessons from complaints because the management and staff did not care enough.
Not only should GRG have been aware of the “potential conflict” as set out in paragraph 2.68 – in fact it is obvious to anyone with half-a-brain that they would have known about this conflict of interest – but we now know that secondees, for they are what we are talking about here, regularly exploited their inside knowledge to further the gains for their respective firms. This was covered in a story by James Hurley in The Times on 8th November . Is anyone really surprised by this. Derrr! The reason why firms send in their secondees is to gain work from RBS. When I was seconded it was just at the beginning of this particular meal ticket and clearly it became more audacious. Andrew Quoi has written a long and detailed note to both RBS and the FCA about this specific abuse in his own case involving PWC. Again, it is incredible that instead of accepting the complaint, all the relevant organisations go into “deny mode”. Stupidly they do this before they have had a chance to consider it which illustrates that investigation of the issue is closed down from the outset.
Customers exiting from GRG
“There was only limited evidence of customers being kept in GRG for reasons that were inappropriate …”. Oh well, that’s alright then. As long as they only abused a few people and wrecked a few families lives its fine.
This whole section is another indictment and I am sure that the next stage of the investigation will reveal even more about the inequities and abuses in this set up.
That no one senior in the bank saw fit to look into what was going on, to question the proprietary of what was being done and to raise issues at board level merely illustrates again what a shower the senior management was.
West Register institutionalised the abuse of businesses and it should be noted that so far we have only been made aware in this report of the abuses of SMEs. There is much to be revealed when investigators look at what was done to larger corporates.
I will write again and more about West Register because it deserves a great deal of attention.
That there was a part of GRG called the “Strategic Investment Group” is illustrative that the bank was institutionally set up to take advantage of customers who were in trouble.
It ought to be the case that if the bank thought something was worth a “strategic investment” then it should have offered support through lending and/or a bit of forbearance.
The problem was that because of all the issues set out earlier in the report, of course it was only going to follow that the SIG staff executed their roles in complete congruence with the rest of GRG and RBS – they took advantage of their position to cherry-pick assets and advantage from customers who had problems. [n.b. I should mention, however, that I have been told by many victims that they had not defaulted at all. Further work needs to be undertaken on this issue. It is probably the case that most customers do not realise that under a bank’s standard terms and conditions they are probably “technically” and legally in default as soon as the ink is dry on an agreement and accordingly are then vulnerable to the bank’s whim as to when to act upon that default. This is because the standard terms and conditions are deliberately written in this way. ]
As I have said elsewhere, because of the global financial collapse, property prices absolutely plummeted in 2008. Almost all facilities where they are secured on property will include a default trigger when the value of the property falls below a certain level. Accordingly, in 2008 probably all lending on property was in default and as set out above, this gave the banks the ability to foreclose/enforce on any customer they wanted to.
If the Government in 2007/2008 had taken any advice from anyone other than bankers and accountants and lawyers who were all on the banking side of industry, they might have been advised to make it a condition, of bailing out the banks, that the banks must exercise the same forbearance to their customers as had been shown to them. The Government did not do this and there is the suggestion and rumour around the market that in fact the Government told the banks they had a free reign to grab money from wherever they could.
The Government had, of course, become a shareholder and accordingly it was in the Government’s interests to allow this to happen.
This illustrates a pressing problem in our economy involving the banks. As they lend to everyone and whole sectors and industries, the terms and conditions under which they lend enable them to take advantage of a sector downturn or a “shock”. They are enabled to enforce their security during the downturn, buy the assets at knockdown prices and then take the benefit of the recovery in that sector or industry. In this way banks can harvest the whole economy over about a 20 year period as every sector and industry will suffer either a shock or a downturn. Society creates value in each sector by hard work and the banks harvest it for the benefit of a few very rich individuals.
What is needed is a law creating a “Sector moratorium” a bit like the moratorium that applies in an Administration under the Insolvency Act 1986. When a “shock” happens in a market or a sector, a senior court should be allowed to make a “sector administration order” to protect all businesses in that sector from banks taking advantage of a temporary downturn.
The authors of the report decided that since about a third of the businesses that were transferred into GRG were, what they call unviable, that there was no need to worry about or investigate how they were mistreated. This is wrong and in fact dangerously wrong.
Just because a company is bust does not mean that the abuses of a bank are less harmful. When the bank helps itself to the assets of a business, as it is allowed to do under its security, and there is only a compliant and colluding Liquidator to watch, it is allowed to extract even more value than it might do when the pesky owners are still in charge.
A liquidator will tend to encourage the bank not to be too greedy but generally, who wants to bite the hand that feeds them? And of course the quid pro quo (literally) is that the bank can vote to approve the liquidator’s fees using the unsecured part of its claim against the company. Hazzah! Everyone is happy except the creditors who have got no idea any of this went on and are repeatedly told the liquidator is there to look after their interests and the owners who (having lost everything) no longer have, what we lawyers call, locus standi, i.e. standing to challenge anything.
The statistics in paragraph 3.4 are appalling as are the findings paragraph 3.5.
What is truly shameful is that many of us did not need this report because we have known about these abuses for years. Not only that, hundreds of SME victims have been telling the FCA and just about everyone else in any kind of powerful position, that this was all going on.
This is the end of the main part of the Interim Summary report. I look forward to receiving the full Section 166 report in due course.
ã James Nicholls 2017
 See “Part-time Crime” by Jason Ditton (Macmillan 1977) and “An Anthropological study of Longshoremen and … [industrial relations in Canada]”, G. Mars, 1972 London University.
 BHL v Leumi  EWHC 1871 (QB)
 The Times, online, 8 November 2017 “Advisers told their firms Global Restructuring Group’s secrets” .
If you have been affected by mis-treatment from Banks (RBS GRG, HBoS Reading and other so called business support units) Please send the notice from th APPG On Fair Business Banking below to your MP and ask them to support this motion by contacting Heather Buchanan by 12pm tomorrow!
The treatment of SMEs by RBS' GRG and how does the current system fail to
That this House is appalled at the conduct that has recently been exposed
concerning the treatment of small and medium-sized enterprises (SMEs) by the
Global Restructuring Group (GRG) unit of the Royal Bank of Scotland (RBS);
notes that there are wider allegations of malpractice in financial services
and related industries; believes that this indicates a systemic failure to
effectively protect businesses, which has resulted in financial scandals
costing tens of billions of pounds; believes that the solution requires the
collective and collaborative effort of regulators, parliament and
government; and calls for an independent inquiry into practices in respect
of the treatment of SMEs and the protections afforded them, and the rapid
establishment of a tribunal system to effectively deal with financial
disputes for businesses.
Director of Policy and Strategy
APPG on Fair Business Banking
Update on the FCA’s review of RBS’s treatment of SME customers referred to its Global Restructuring Group
he Financial Conduct Authority (FCA) today publishes an interim summary of the independent review of Royal Bank of Scotland’s (RBS) treatment of small and medium-sized enterprise (SME) customers transferred to its Global Restructuring Group (GRG).
In November 2013 Dr Lawrence Tomlinson published a report Banks’ Lending Practices: Treatment of Businesses in distress. This made serious allegations against RBS over the treatment of SME customers transferred to GRG.
In January 2014, the FCA appointed Promontory as a Skilled Person under section 166 of the Financial Services and Markets Act 2000 (FSMA) to conduct an independent review of RBS’s treatment of SME customers transferred to GRG between 2008 and 2013. Promontory, with the assistance of its sub-contractor Mazars, provided its final report to the FCA in September 2016 (the Skilled Person’s Report). In November 2016 we published a high level summary of the main findings and the key conclusions of the Skilled Person’s Report.
Andrew Bailey, FCA Chief Executive commented:
“Commercial lending activity is largely unregulated in the UK but given the seriousness of the allegations against RBS it was appropriate for us to look at their treatment of SME customers.
“As we reported in November 2016, while the most serious allegations were not upheld by the Skilled Person, the report did identify other concerns about the treatment of SME customers. RBS has accepted that it did not meet the standards it set for itself which impacted on how it treated some of its SME customers. RBS has since taken voluntary steps, such as its proactive review of complex fees, and setting up a complaints scheme for eligible SME customers, overseen by an independent monitor, Sir William Blackburne. Having considered documents and cases highlighted by the Skilled Person we agreed that RBS’s proposals, including to establish a complaints scheme, were appropriate steps.
“We are investigating the matters arising from the Skilled Person’s Report and are focussing on whether there is any basis for further action within our powers. We cannot comment any further on this."
Publication of Skilled Persons’ reports
Skilled Persons’ reports are commissioned by the FCA to diagnose and monitor issues in firms and are therefore subject to conditions of confidentiality. The contents of such reports are subject to a wide prohibition on disclosure in the legislation which governs the FCA’s activities. In effect, this means that Skilled Persons’ reports are not published.
However, recognising the public interest in this case, the FCA has prepared this interim summary of the findings and conclusions of the Skilled Person’s Report.
The interim summary has been validated by independent Counsel as a fair and balanced representation of the Skilled Person’s Report.
Publication of a Skilled Person’s Report by the FCA would only be possible with the consent of institutions and individuals covered by the report. We have obtained the consent of RBS and Promontory to publication of the interim summary. However, publication of the Skilled Person’s Report itself is still not possible. We have not sought consent from the individuals or groups of individuals who are identified in the Skilled Person’s Report as that would necessitate consulting each individual and considering any comments they made on the text that affected them. Our experience of previous reviews carried out by the regulators is that that would be a complex and lengthy process and, where consents were not forthcoming, would likely result in only a heavily redacted version of the Skilled Persons’ Report being publishable.
Following consultation with the Treasury Select Committee (TSC) the FCA has provided Counsel appointed by the TSC with the Skilled Person’s Report and other documents. TSC’s Counsel will assess whether the interim summary published today is a fair and balanced summary of the Skilled Person’s Report. Following that assessment the FCA will publish a final version of the account making clear anything that has changed as a result of the TSC’s Counsel’s review.
The interim summary does not reproduce any individual documents the Skilled Person drew to the FCA’s attention, or extracts from the Skilled Person’s individual case assessments. This is because they contain information subject to the wide restriction on disclosure referred to above as well as personal data, and some of them may be relevant to the ongoing investigation work.
Notes to Editors
1. The interim summary can be found here: https://www.fca.org.uk/publication/corporate/interim-summary-independent-review-rbs-grg.pdf
2. Details of RBS’s complaints process and refund of complex fees for SME customers in GRG can be found here: https://www.rbs.com/rbs/news/2016/11/GRG.html
3. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
4.The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers
5. Find out more information about the FCA.
Press: 020 7066 3232
Outside office hours: 07795 351 956
We know several people filmed the panel debating members questions and we hope to be able to put some live footage up very soon. There were some very thought-provoking comments from the panel – here’s some of my favourites:
George Kerevan announced he will be applying for the job of top dog at the FCA – Yeah!!!! I’m sure he’ll get huge support from the SME sector – not so sure the major banks will be quite so keen although that is exactly what our banking sector needs – a regulator who isn’t intimidated by banks!
Anthony Stansfeld read the replies he got from Sir Jeremy Heyward, the cabinet secretary, who, having said he would meet with Anthony to discuss his concerns about the banking sector, then decided he wouldn’t meet and, apparently, would not give any explanation why. As Anthony said this is extraordinary behaviour. Anthony also said he believes HBOS must have known about the HBOS Reading fraud since 2008 – a fact Paul and I concur with as we’d been sending them evidence since 2007.
Noel was both very serious and very entertaining – he has a way with words. In particular his conclusion that Antonio Horta-Osorio is either a shit banker or a liar was a point appreciated by everyone in the audience and a point well made. If Mr HO didn’t know about the HBOS fraud, he’s not very good at his job and if he did know, he’s been lying ever since.
While Jonathan was the least inflammatory of the panel and very much the calm voice of reason, his final statements shocked us all. He reminded us that historically the penalty for senior Chinese bankers who allowed their banks to fail was beheading!!
Andy Verity was such a brilliant Chairman we decided to let the Q&A session run on for extra time and it probably would have gone on longer but for the unexpected arrival of the Shadow Minister for small business, Bill Esterson MP who came straight from the Labour Party Conference to talk to members.
Of course, the real stars of the show were our members and supporters who travelled from all over the Country to be with us yesterday. Thank you all so much for attending and many thanks also for the donations we received at the event – they are very, very welcome. For those who asked us for our bank details so they can donate online, our account details are on this link: http://www.smealliance.org/join-us.html
Again thanks to all for making it a fantastic event.
Andrew Bailey, CEO
The Financial Conduct Authority
25, The North Colonnade,
Canary Wharf, London E14 5HS
29th August 2017
Dear Mr Bailey,
S166 Report re RBS.GRG
This letter is a request on behalf of SME Alliance members who have been adversely affected by the GRG department of RBS. It has been widely announced in the press that the FCA report into RBS GRG has been leaked and the BBC has had sight of the entire report. We understand the FCA report found many businesses were badly mistreated by the GRG division which is something many of our members have long alleged and which the Bank has repeatedly denied.
It is reasonable and in fact obvious that, had victims of GRG had sight of your report prior to going through any redress scheme, complaints to the FOS and/or and most importantly, through costly court cases, your findings would have lent considerable weight to the outcomes. Therefore the secrecy the FCA has adopted (undoubtedly attributable to Section 348) will have been materially detrimental to victims and may have resulted in any Court being seriously mislead by the Banks highly remunerated legal teams. In short, withholding the S166 report may have caused multiple miscarriages of justice.
We note your three operational objectives are: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers. We fail to understand how withholding the report into RBS GRG will support any of the objectives or why it has not already been made available to help secure protection for consumers, which all business owners who secured loans with personal assets, are.
As you may already know, the conduct of some GRG staff has resulted in depression, destitution and sadly even tragedy for those victims who chose suicide rather than a seemingly futile opposition to RBS/GRG’s aggressive actions. We would therefore be grateful if you would advise us as to when the full report will be publicly available before yet more damage is done? Failure to release it can only result in further miscarriages of justice and those withholding crucial information will be perverting the course of justice.
Finally, you have commented in the press to say much of the work done by the GRG division is unregulated and therefore the FCA’s powers may be limited. If this is the case, we would question why the FCA undertook its review in the first place? We also ask if RBS and all its divisions are immune from the FCA Principles for Business because it is clear none of the findings meet the criteria of any of the 11 Principles, in particular Principles 1, 6, 9 and 10. We are very concerned that while the FCA may discipline RBS for breach of its Principles (with a hefty fine which will be paid by its shareholders – predominantly the tax payer) it may feel such an ineffectual penalty will suffice.
Our members and thousands of other business owners would be devastated should this be the case so we need your assurance this systemic fraud will not be swept under the carpet leaving yet more SMEs to face misery and penury. This is not a game of the smartest lawyers win – this is about people’s lives and we hope the FCA, under your direction, will now see fit to release a report which may make it easier for victims of RBS GRG (known internally as the slaughter house) to get justice.
Thank you for your attention to the above and we look forward to hearing from you as a matter of urgency.
Nikki Turner and Nick Gould
Directors, SME Alliance Ltd (a not for profit organisation)
On behalf of SME Alliance members.
SME Alliance Ltd. Company No. 09280003. Registered address: 3 Morley's Place, Sawston, Cambridge, CB22 3TG www.smealliance.org firstname.lastname@example.org
We spent 4 years being defrauded by HBOS employees and associates and a further 10 years trying to expose what the Bank did to our and others’ businesses. For the first three of the ten years it was pretty much the case no one wanted to know and many people, including HBOS executives, were keen to portray my husband Paul and I either as nut cases (what do you mean bankers have committed fraud?) or as whinging business owners who didn’t want to repay their loans. Of course they also repeatedly put us through eviction hearings in their attempts to silence us but that didn’t work out either.
Which is why we have spent years gathering indisputable evidence of the fraud. As a consequence of a collective refusal by bankers and the authorities to believe what we were saying, even when we produced the evidence to support our allegations including in the many Court hearings, we are very aware who knew what and who was complicit in a massive cover up to hide the fraud, a cover up that goes all the way to the top of the Bank.
Nevertheless we did eventually, with the help of many other victims and with the hard work of Thames Valley Police, see bankers and their chums arrested, prosecuted and jailed. That process took over six years from the start of the police investigation. It wouldn’t have taken that long had the Bank been as co-operative as they like to say they were.
Despite the best efforts of many for it not to happen, Lynden Scourfield and Mark Dobson, both senior HBOS bankers, and David Mills, owner of Quayside Corporate Services and his team (including his wife), have gone to jail for a total of 47 years between them. So it is fair to say we and others have been vindicated and finally, albeit kicking and screaming, Lloyds Banking Group did agree to compensate all those defrauded.
It's now five months since the criminal trial finished and eleven months since Lynden Scourfield (and therefore the Bank) pleaded guilty to various fraudulent scenarios. Despite statements, press releases and comments from the CEO of Lloyds Banking Group and despite a letter to Paul and I from Lord Blackwell saying he hoped that how the Bank would deal with this would restore trust in the Bank, only one person (according to the Bank) has been compensated and a further six (according to the Bank) have received offers.
I have no idea who these people are? No one I have spoken to - I’ve been speaking to victims of HBOS Reading since mid-2007 and the list of names is quite comprehensive – none of them have been compensated.
A representative of the Bank has been quoted in various newspapers saying the Bank are disappointed the compensation process is taking so long because they had a deadline of 30th June 2017. The Bank say the cause of the delay is because victims want more time to present their information. Or to put it another way, the problem is the victims!!!
Victims I have spoken to are also disappointed. They are disappointed the Bank’s chosen method of resolution is via a ‘review’ scheme that seems to be remarkably similar to the failed IRHP scheme or RBS GRG failed compensation scheme. The person running the Lloyds Banking Group ‘independent’ review is Professor Griggs, who I don’t doubt is an intelligent and honourable man. However, he is also someone who has done consultancy work for Lloyds Banking Group and he has been a director of a company where one of the main shareholders was connected to David Mills of Quayside Corporate Services, who was sent to jail for 15 years for his role in the fraud and corruption.
Then there is the way the review is being run. A member of SME Alliance who has met with Professor Griggs, has told us (and we are grateful for the information):
I’m not sure if the Bank consider they should make additional payments for forensic accountants. I do think they should cover this cost because, let’s face it, some people may find it difficult to calculate losses going back more than 10 years. Additionally, I wonder how many hours the Bank’s lawyers have spent on each victim’s case? I’m guessing it’s far more than 20 hours per case, which hardly seems equitable. For example, Paul and I are not in the review but Professor Griggs does seem to know a lot about our case and it would take far more than 20 hours to go through the copious correspondence between us and HBOS/LBG/ Dentons/Walker Morris and others over the last 10 years. And I wonder what the hourly rate is for the Bank’s lawyers? I know how much one day of fees for Denton Wilde Sapte (now Dentons) costs because I apparently paid a fortune for a senior solicitor representing the Bank’s Board, to attend 6 of our 22 eviction hearings. Will the Bank pay such exorbitant fees to the victim’s advisers? I think not and I am now aware the Bank are challenging the adviser’s fees.
I wonder what will happen if the Bank, having dragged this whole sorry affair out for so long, decide they won’t pay the costs for the victim’s advisers? In theory either the victims themselves will have to pay (so goodbye to the recent ex-gratia payments) or the advisers will just have to stop working.
Conclusion (of the review). Professor Griggs, who may be a very nice man, is not the obvious choice as an ‘independent reviewer” as he has worked for the Bank and had a connection with David Mills through a Company of which he was an Officer. And let’s not forget any money Mills invested in shares or any shares he received as remuneration, came from tainted money or proceeds of crime.
There is absolutely no transparency regarding the review’s methodology – you cannot know how the Professor or anyone else plans to assess your life. If you do enter the review you will not know who the faceless panel are who assess your compensation but you do know their word is final – there is no appeal, debate or discussion. Take it - or leave it and find mega bucks to take the Bank to Court.
Paul and I are not part of the review but I don’t think we are the two people mentioned in the press last week because those people are going down the litigation route. As I know victims who are going down that route and as we are also not in the review, I think someone in the Bank’s press office was slightly confused when they said only two people weren’t participating in the review. Not least because I know of others who, like us, have agreed with the Bank we do not have to take part in it.
Then there’s the number of victims. I’ve been looking at the details of our investigation, which was by no means comprehensive but I don’t understand where the figure of 67 comes from? I can only assume the list doesn’t include shareholders or creditors. I would have thought HMRC would have complained bitterly about that as they are a multiple creditor – not to mention many local Councils.
The biggest disappointment for me (other than the long drawn out time scales, the lack of transparency and the bizarre pretence victims would find the review process acceptable) is the fact this whole situation has been premised on a lie.
I’m not going to go into detail on why I know this is a fact and a huge problem. However, I would just point out to Lloyds Banking Group that, had they done what Lord Blackwell told Paul and I the Bank would do and if they had swiftly, appropriately and generously compensated the victims (Lord B didn’t use the word generously but I’m throwing it into the mix because I believe that’s what he meant), there would have been no delay in compensation and there would not have been endless media articles about Lloyds Banking Group’s extremely disappointing conduct and lack of integrity.
Sorting out this shameful episode was/is not rocket science. All the victims have advisers or legal representation or can get it (there’s no shortage of lawyers offering to help victims). If the Bank had put forward 11 of their best advisers and given them 6 cases each and if the Bank’s advisers had liaised directly with the victim’s representatives, I’m guessing the whole process would have been over and done within a matter of 6 to 10 weeks. I fail to understand why that option wasn’t considered? Why does it have to be so tortuous?
To be clear Lord Blackwell, Mr Horta-Osorio and Mr Colombas, what the victims want is their lives back or as much as we can get back. That won’t happen until they have compensation and closure. I’m guessing the way things are going, the Bank’s major shareholders would also like to see some closure on HBOS Reading before more damaging information about Lloyds is exposed in the press.
It is possible much of what is happening now is designed to wear victims down so that if and when offers of compensation come, the victims will accept anything because they are just tired of fighting. That and the fact many victims are no longer spring chickens and don’t have the time for another prolonged battle. Worse still - some have cancer or other serious conditions.
Of course I can’t prove that theory (it’s not as easy as proving the fraud) but 10 years of dealing with the senior management of Lloyds Banking Group including Sir Win Bischoff, Eric Daniels, Harry Baines, Philip Grant, Antonio Horta-Osorio, Juan Colombas and, more recently, Lord Blackwell, has not instilled any confidence and even if I would like to believe what Lord Blackwell wrote in his letter, I am now struggling.
Where are we now? I have no idea. I’m not actually sure the Bank’s senior management knows but they probably do and this is all by design. Hopefully we will all know a bit more soon but and in the meantime, 30th June 2017 has come and gone and I can confirm the victims are far more disappointed than the Bank or its representatives.
Personally I am disappointed Lord Blackwell has either been insincere in his letter to Paul and I or, less likely, those in the Bank dealing with this matter are not inclined to listen to the Chairman.
Nikki Turner 10th July 2017
Last week we sent an e-mail to all members about a meeting on 12th July at the Metro Bank Holborn. This meeting is in part for an AGM although we have very little house keeping at this early stage of the organisation and only have two resolutions. It has come to our attention some members have not received the e-mail. If you haven't, please check your spam book for June 27th 2017. If it is not there, please contact us asap.
On 31st May 2017 three members of SME Alliance gave a talk at Cranfield University. Not surprisingly, the three speeches were to raise awareness of the appalling and stalemate situation between some Banks and their SME clients - both historically and in their current inadequate way of dealing with legacy issues.
I think it would be fair to say that many people in the audience were shocked - and rightly so.
The speeches from Nick Gould (Chairman of SME Alliance) and Clive May and Nikki Turner (founder members and Directors of SME Alliance) are posted below as separate blogs in the order they were given. Starting with Nick's.
We are very grateful to Professor Ruth Bender and her staff at Cranfield for inviting us to speak and for their excellent hospitality.
Nick Gould (Chairman of SME Alliance) talk at Cranfield University – 31st May ,2017.
Good evening ladies and gentlemen, what a five-star introduction from Ruth. I hope the three of us can live up to it.
Last month I was invited to give a talk at an FT Conference on Banking Standards. I started by saying that I felt rather like Daniel in the lion’s den as the majority of attendees were bankers, regulators and those who are meant to advise on bank strategy. Actually, the talk went much better than I had hoped. Let’s see what happens this evening.
My talk will build on the one I gave the other week. Before I start, I want to say thanks very much to Cranfield and to Ruth Bender for inviting us to talk about and discuss these issues with you. As Gillian Tett of the FT put it, silo breaking is important. I sometimes worry that too many academic institutions do their research without much regard for real life facts. If you don’t leave here tonight without some understanding of those facts, the three of us have not done what we came to do.
As you now know, my name is Nick Gould. I am corporate law partner at gunnercooke. I am also Chairman and a co-founder of SME Alliance and it is only in that role that I am speaking here today. I am certainly not here to comment in any way on the legal profession.
Ruth also mentioned a bit about SME Alliance. It is currently a sole purpose lobby group formed less than three years ago—but seems to be creating rather a lot of noise at the moment. It is made up mostly of owners of Small and Medium sized businesses who have in some way been damaged by certain action of certain people at certain banks. I have recently been using the word “evil” to describe the actions of some of those people. I will let you decide whether words such as “amoral” and “lacking in emotional intelligence”, are more appropriate. As well as trying to help members however we can, we act as a knowledge sharing group and we have an excellent group of outside advisors who do all they can to help our members, generally on a pro bono basis.
I will start by giving an overview of the impacts of bank behaviour on some of our members—I hope that will set the overall framework for our discussions. Clive May (aka Clive the builder) will speak about his own personal experiences in dealing with RBS and make one or two robust comments about the legal profession and its regulators. Nikki Turner will discuss matters relating to HBOS and Lloyds and what is known as the HBOS Reading fraud. Because, as you may have read, there are on-going negotiations with Lloyds, we will not be discussing anything which has a direct bearing on those negotiations but don’t worry; the 15 or so years that Nikki and Paul Turner have spent exposing the initial fraud and the years of bank and regulator denial and cover up, will give you more than enough to take away with you.
I have divided my brief talk into three parts.
First, some examples from SME Alliance members of the effects of poor governance and rules which are too complex, unenforceable and unenforced.
Next, to give an insight into how some banks got themselves their current awful reputation. Finally, I’d like to end on a positive note; what might be done to improve banks’ culture – and why that would benefit everyone.
We would very much welcome thoughts and questions which we will do our best to answer after Nikki’s talk.
I should note that my comments are addressed mainly to two major UK banks RBS and Lloyds/HBOS and various regulators. The other financial institutions are not directly within these discussions—but also should be interested.
SME Alliance is, I think, wrongly perceived as a bank bashing organisation – we aren’t, but look at it from where the owners of the SMEs we try and help, sit. They feel beaten up, destroyed, not listened to and not heard, so they fight back in numerous ways. They feel also they have been defrauded by the banks and the banking system, and I am using the word fraud in a non-legal/ non-technical sense here. No one wants a war, but that’s what it feels like and that is what SME Alliance, as an organisation would like to try and get away from.
I asked some SME Alliance members a couple of questions about their views of RBS and HBOS. We have posted the replies on an anonymised basis on our website www.smealliance.org , here are some of them.
Q1. If you had a claim against a bank today would you be treated any differently?
Everyone said no—examples;
” No, I don't think I would be treated any differently. I think that my bank and its lawyers are arrogant and believe they are invincible and they know that I have no money and can take no action against them.”
“No because banks and bankers now think it’s part of the game to extract every penny they can with no moral compass or a thought for right or wrong.”
“No because bank culture has not changed.”
“No difference now because the fundamental relationship between Banker and Customer and the insolvency industry has not changed one jot. Banks take security and it gives them total power – this is the problem.”
Q2. Has there been any improvement in your treatment by your bank over last few years?
“Personally, worse; no interaction with the bank is possible. Imagine the school bully holding you at arm's length while he eats your sweets; but without the faint hope of a teacher coming to the rescue.”
“I have seen no improvements since the recession. The Bankers maintain their arrogant standing! As they could not run a business how are they able to dictate to Small Businesses what they should or should not be doing!”
“Worse. There is no fairness being demonstrated in any dealings.”
Q3. Would you say the people you have been dealing with have treated you with high ethical, professional and business standards; please provide examples.
“Recently one person has been really good professional polite and courteous although his hands are tied he cannot even sneeze in front of you without the approval of the legal team. In the early days, it was all about intimidation and power to batter you down into submission you are made to feel alone and a failure.”
“No definitely not! At Mediation, they were intimidating to say the least. The bankers continue to lie through their Solicitors they have no morals or standards. They most of the time are trying to cover their backs for bad behaviour from the past.”
Q4. If you could wave a magic wand and improve one thing in the overall conduct of your bank in its dealings with you, what would that one thing be?
“Truth honesty and decency along with large helping of self-reflection.”
“Honesty, transparency and genuine file disclosures. The banks need to stop fabricating central files and file documents to cover up their misbehaviour and dishonesty, there will be a substantial cost to this but ‘the rules are the rules’!”
And finally, this is from Nigel Henderson. You might want to watch his talk at last year’s Cambridge Symposium on Economic Crime, which you can find on YouTube. It is shockingly honest and should (but won’t), make the board of RBS, the taxpayers’ bank, and UKFI, its majority shareholder, cringe.
“The mainstay of any business relationship is trust in the ethics, commercial morality and basic honesty of the people you are dealing with. Banks have shown themselves to be devoid of all of the above, putting personal and commercial avarice ahead of any other consideration towards their customers. Recent court cases have demonstrated that those at the very top of the banks persist in ignoring the conduct of the bank and covering up such wrongdoing.”
I believe Nigel’s comments sum up much that is wrong with the banks and it mentions words—ethics, morals and honesty- which too many senior bankers continue to ignore, while playing lip service to these ideas.
So how did UK banks, so highly regulated, get into this position? A couple of thoughts and several questions. It seems to most outsiders that senior bankers live in a bunker mentality, the boards have their spades and just keep on digging. They can’t or won’t listen – why, is it seen as a sign of weakness? Or is that what they are “told” to do? Have bankers ever thought how ridiculous it is that they need a regulation called “Treating Customers Fairly”? Why not just do it as a matter of course and not look for wriggle room to get out of such a basic idea?
Where are the regulators needed to ensure rules are effectively enforceable and enforced? Why do they allow bullying of whistle-blowers, doctoring of transcripts between bank and customer, or a vendetta against certain bank customers? Does the Banking Standards Board ever talk to those affected directly? Why would a bank spend (say) double the amount on professional fees that it need spends to settle a claim? Why is there apparently such a fear factor within these banks? Who actually decides on the banks’ strategy when it comes to the thousands of potential claimants who have been subject to such appalling behaviour? How did RBS (the 73% taxpayer owned bank) spend over £125 million in legal fees to defend shareholders’ actions.
The Banking Standards Board attended the FT Conference I mentioned, as did members of the FCA. They haven’t really rushed to follow up with us despite making all the right noises at the time. What message does that send out to the thousands of people affected by these matters?
And please take this next comment away with you—it is the core of my talk.
Ethics, morals and relationships—they are, but shouldn’t be, merely words to many senior executives. And because they are seen as merely words and because of action or inaction, arrogance or inability of certain directors and senior executives to hear the real effects of those words, we know people who have committed suicide, have died prematurely, are dying of cancer and have had nervous breakdowns. These are real people with real lives—not numbers or units. Bankers want all this stuff to be anonymised. They won’t deal with the real-life impacts of their appalling behaviour.
And you know what-- it would actually be in the banks and everyone else’s interest for them to behave morally and ethically, to build real relationships and to be effectively regulated. I assume no one wants to be spoken to like this. I also know very well, generalisations are odious. 99% or more of those working in banks are good and fair people. Sadly, the bad guys and girls are the ones sitting on top of the heap.
So, where next?
This is from Nikki.
“Reality check - Most of all (and here's the 'world peace' line) I would like to see senior management having some real consideration for the society we all live in. Some senior bankers may believe the importance of the financial sector means they are indeed 'masters of the universe' but that is ultimately a delusional view. I know many bankers who are good decent people but sadly, over the last ten years, the term banker has become synonymous with the most disparaging of descriptions previously reserved for unsavoury characters. It is a fact the only people not badly affected by the so called 'credit crunch' are the senior bankers who oversaw the disaster. Society has not forgotten this fact and it has tainted the entire sector. Given that nothing has changed for the better, society is becoming more and more frustrated by what can only be perceived as a culture of greed, arrogance and disdain for the very people who bailed banks out and allowed senior management to continue to receive telephone number sized bonuses. It is not a healthy or sustainable situation and the only people who can change this perception or this dark culture are senior bankers.”
We need bank directors to stop digging and to start acknowledging the real wrongs; start talking to us and others like us. Stop being just legalistic—be something more. Stop relying on your lawyers and other advisers. You get paid enough, take some responsibility. Read the comments from the boss of Thomas Cook who in connection with the death of two children in Corfu some 10 years ago, said recently “you have all kinds of advisors….but you have to make the decision…. you have the responsibility.” He also said “…probably the company did wrong everything they could do wrong until I decided to talk not about the family but with the family.” Maybe he should join a board of a UK bank.
Be human, be moral and recognise what happened to those on the other side of the table. If I worked in an industry and read some of these comments, I would be ashamed. Why not be part of a change for something positive. Paul Turner who knows more about these defects in banks than most, suggested something such as a truth and reconciliation commission, why not?
Clive May Speech at Cranfield University 31st May 2017.
Good evening My name is Clive May.
Thank you for your time in listening to our experiences.
The failure to listen by the banks has in part led us to where we are now. They failed to listen they failed to hear and see what we were telling them about their wrong doing.
That failure led to the cover ups being seen played out in HBOS Reading and RBS mistreatment of SME’s and many other instances of bank fraud. And here I am using the work “ fraud “ in a non-technical sense.
I used to own a company called C May Brickwork Ltd but it is fair to say that company was destroyed by the actions of employees / senior managers of RBS. My story isn't unique thousands of SMEs have been destroyed in a similar way- through economic crime in its widest sense.. It is important that people listen to these stories and hear what we are saying. They involve real people, with real families and real lives. losing real jobs and sometimes sadly killing themselves. SMEalliance has been a great help to many of us , it means we aren't alone and neither were we the failures that the banks had made us feel. We were just conned by bankers helped by lawyers and accountants -- people who we should have been able to trust.
We are almost over-whelmed by the resources that banks like RBS are throwing at us to stop us claiming fair redress. You only have to look at the latest shareholders’ case to see over £125m being expended only to scramble at the last minute desperate to settle. Sad to say, much of the nasty bits of our stories involve too many parts of the legal profession -- these include law firms, partners in those firms, the SRA and the Law Society. The regulator apparently doesn't want to understand and so can't regulate effectively. The Law Society doesn't seem to have any interest in how its members come across to people like me. I know about all this from very direct and personal experience. So this is the chance for us to get a small part of our message across.
I’m the lead campaigner in the Enterprise Finance Guarantee scheme mis-selling that RBS was forced to admit back in 2015 as a result of our campaign . The EFG was supposed to enable SME’s suffering in the downturn obtain funding that was otherwise unavailable from lenders. The government covered 75% of the loan to the lender in the event of default, RBS sold it on the basis that the 75% guarantee was for the borrower paid for by an insurance policy covering the liability RBS sold it to SME’s on the basis that personal liability would be 25%. This turned out not to be the case RBS totally mis represented the facts.
How can a loan to an SME lead to its demise?
As a result of the financial crash banks were required to be well capitalised incase of further crisis’s. Banking regulation required banks to provide provisions for debt lending to SME’s which were considered risky. The higher the risk the greater the provision.
RBS found out they could use the EFG to convert existing lending on overdrafts therefore obtaining the 75% guarantee on existing debt in many cases without lending any new money.
Not only did they get the 75% guarantee they also found that because govt guarantees are AAA backed any previous provisions would be returned to the banks helping their liquidity. Remember RBS “lent” nearly a billion pounds using this scheme many SME’s didn’t want or need the EFG they wanted to keep their overdraft facilities inplace RBS had other ideas.
Not content with this RBS pulled remaining pledged overdraft facilities post EFG’s possibly in order to collect upon the guarantee at the company’s demise?
Remember it’s not profit that sends a company under, its cashflow once the ability to service costs goes the business will follow it soon after.
It’s one thing to mis-sell a product but to do it in a potentially fraudulent manner as in my case sets a new low for this particular bank.
Whether it is a true fraud remains to be seen as North Wales Police are still investigating staff at RBS at the moment.
There are four key points I want to make very quickly. All show the barriers we face in our quest for justice?
1. The regulatory bodies
In the case of the EFG review that RBS announced after publicly admitting mis selling, the BIS FCA & British Business Bank all stated the relevant review would be an independent review. RBS set up an internal review team comprising of ex GRG staff to review selected customer files. How on earth can this be independent when it’s the same people at the bank? With this being allowed by the regulatory bodies it’s no wonder they think they are too big to fail
2.. The law firms colluding with the banks
The SRA doesn’t want to know. I told them in a formal complaint that a major law firm had ignored key information from me and several other witnesses relating to damaging allegations against SME’s. Those people had run companies which had been ruined by RBS. The SRA said this wasn't a matter of public interest.
I have made complaints about several law firms; it is a total waste of time . It seems that the SRA is there to protect law firms alone.
The Law Society say they don't get involved in matters of regulation. They are in some ways even worse than the SRA, as they are meant to be the face of the legal industry. They have turned their backs on the victims of economic crime like us. If the Law Society President would like to reply to my letters to him, I would be very happy indeed.
3 The barriers to finance to obtain justice
The cost of fighting the banks with their unlimited amounts of resources (RBS has spent more than £125 million on legal fees on one case alone recently ) is almost impossible. Is this another form of financial crime by the banks? They have too much power, how can we ever obtain a level playing field...
We have so much law in this country -- huge amounts. But, and this is the point , if there is no fair process to allow me and others to be heard in Court then there is something wrong with the system and we victims of economic crime can never have fair redress.
4 The unwillingness to put things right
If banks started at least to have sensible discussions about these matters instead of trying to bully people like me into submission we could probably do a fair deal and move on. If anyone doubts those committing the economic crimes don't come over too well from a PR point of view, the fact the world's major banks have been fined hundreds of billions of dollars says a lot. Banks try and pretend in the media they are in some way trying to fix things. Sadly, the truth is entirely different. We, the victims of economic crime remain in limbo and something needs to change to give us back our lives.
Nikki Turner Speech At Cranfield University 31st May 2017
HBOS Reading – Bankers are not too big to jail.
Hello, I’m Nikki Turner and like Nick and Clive, I am a director and co-founder of SME Alliance. I suspect (in fact I’m sure) that but for the now infamous HBOS Reading scandal, I would never even have thought about bank fraud let alone co-founded an organisation to combat it. Therefore, and not that I would wish on anyone what we’ve been through for approaching 14 years because of the fraud, I can’t help feeling it was fortuitous, in a bizarre way, that Paul and I were involved. Firstly, because one of the positive results of our experience has been the formation of SME Alliance which has and continues to support many SMEs battling against banks - and secondly because, as it turns out, we are strangely adept at exposing fraud. Which is rather odd because we have both been in the music business all our adult lives except for the last ten years when we have been forced to become sleuths – or in Paul’s case ‘super sleuth’. The alternative was to lose our home and our sanity on top of losing our business.
For those who know nothing about HBOS Reading, I should explain it is what Thames Valley Police have described as “the biggest bank fraud in British history”. Despite repeated reports in the press about bank losses of £245M, I can assure you that the HBOS Reading fraud caused losses in the region of £1BN to HBOS / Lloyds and hundreds of millions of pounds in losses to the banks business clients, their shareholders and their creditors. Worse than that the HBOS Reading fraud ruined many lives and that’s what I want to talk about because it was so catastrophic and so unnecessary.
Unnecessary because HBOS rumbled what was going on in mid 2006 and we had uncovered the main points of the fraud by September 2007. There was no reason for the victims to suffer for ten years. Catastrophic because at least five victims I know of, have died before seeing justice done.
If I was writing a fictitious book about Bank fraud and I used HBOS Reading as a storyline, I suspect I would never find a publisher on the grounds the story was too outrageous – not to mention pornographic. We weren’t just alleging crooks were being put into BoS clients companies by our bank manager, we were also alleging the crooks were being given full control of these companies and the bank were funnelling millions of pounds into them so they, the bank manager and his chums, could live luxury lifestyles. This included the services of prostitutes paid for by the client companies.
We made these allegations after the Bank closed our business accounts on erroneous grounds. I’m not going to go into detail but our business was closed down in April 07, reopened in May 07 when the Bank were on a fishing trip to see what we knew, which was relatively little back then, and then definitively closed down in July 2007 which is when we really started investigating.
I am reliably informed by a contact at Thames Valley Police, that the most successful frauds are the most simple and if you peel back the trimmings from this one, it was very simple. It took us approximately six weeks to uncover the basics of the fraud. We did it by following the directorships of David Mills and Michael Bancroft, the key men in Quayside Corporate Services – the Bank’s preferred ‘turnaround’ consultants. Almost all of their directorships were in companies owned or previously owned by HBOS clients. Almost all of the companies were given huge increases in funding the moment Mills and/or Bancroft became directors and all of them ended in administration or liquidation leaving the original owners with massive debts which were subject to personal guarantees.
I should point out that while some companies did go into administration and were pre-packed into new companies owned by the Quayside consultants while Lynden Scourfield was still at the Bank, the majority of them were pulled down after he left. It seems to have been a deliberate tactic by HBOS to distance the Bank from what happened at Reading. Directors of Companies in administration have very limited scope to make claims against creditors (which the bank was in every case) – as usually only the administrators or liquidators can bring such an action. So, even where directors made generous offers to buy companies out of administration, the bank (or rather the administrators) repeatedly sold companies for a fraction of the directors offers to connected third parties. In this way, no victim of HBOS Reading could bring a case against the bank on behalf of their company. And at the same time, the Bank pursued those same company officers under personal guarantees for the short falls caused by the Bank employee’s and consultants, which resulted in many business owners losing their family homes.
Of course, what made HBOS Reading particularly news worthy when it did finally result in a five-month criminal trial 10 years after the Bank uncovered it and nine years after we uncovered it, was the luxury life style it facilitated for the defendants. Again, if I was writing a fictitious book, this would have been a ripping yarn. Bank managers and the consultants using money syphoned from customer’s accounts for the kind of perks usually reserved for rock stars and footballers. Luxury properties, private jets, superyachts, exotic holidays and lots of bling. As for the sex and the drugs – well Paul and I have been in the music business all our adult lives. Paul’s previous company, Zenith Lighting, did lighting and production for the tours of people like Bob Marley, Led Zeppelin, Thin Lizzy, Bruce Springsteen, Fleetwood Mac, the Jam and Paul Weller amongst others. I did work for Paul’s company years ago (yes, I did eventually marry the boss) but I lived in Italy and Hungary for many years and worked for big European bands. Rock bands, particularly 70’s and 80’s heavy metal bands, were not known for limiting excess but neither Paul nor I have ever heard anything quite so disturbing as the excesses of Lynden and co. Bear in mind we’re talking about our middle-aged bank manager and the consultants he imposed on his clients.
Here’s a quote from the witness statement of one of the prostitutes. This quote didn’t make it into the press and was probably considered too racy even for the Sun! These are the people who were given full fiduciary control of the businesses of a High St Banks clients.
On the second occasion it was Suzie, me and another girl called Starr. We met near the flat and one of the men met us and we walked to the flat. Once again we chatted and had drinks. I spent quite a bit of the time in the kitchen with the fat bald man talking. We girls then got changed and we did a girl/girl show again. I was aware that Suzie then went into the bedroom with the fat bald man. She later told me on the way home that she had given the man oral sex, it didn’t last more than 10 minutes and she was paid extra for the sex. Myself and Starr stayed in the lounge with the other two men. We were bouncing around on some plastic balls. I was aware that the men took their cocks out and were masturbating. I do not recall ejaculation. I just ignored them and did our thing. We then left. I have a recollection of getting some extra money on one of the occasions, which was shared out. Both meetings I was paid about £700/800.
I have nothing against those practising the oldest profession in the world and it’s not a crime in this Country to consort with prostitutes but oddly, I think it was a definitive moment for the defendants when the girl’s statements were read out in Court. I was watching the jury and their faces went from confused to shocked to totally disgusted hearing this. Understandably, after they had heard this, it was quite hard for the jury to look at these men as the kind of people who should be trusted to run other people’s companies. Like so many before them, these so called ‘professionals’ were foiled by the old ‘trouser dilemma’.
After just a few weeks of investigation back in 2007, we had discovered all the perks including the sex (although fortunately we didn’t have the more taboo details) and we told the entire Board of HBOS. Not just by e-mail but also by registered letter to each individual director including Sir Dennis Stevenson, the Chairman and Andy Hornby the CEO. That all happened in 2007. The Banks reaction to our allegations in 2007 was to start trying to evict us from our family home in an attempt to stop our investigations. In total we had 22 hearings between January 2007 and August 2010 and the Bank’s Board’s legal costs were paid from a false account in the name of our company.
Even now, I find it absurd and more than that, illogical, that senior bankers, paid telephone number remuneration to run their banks efficiently and professionally, could deny facts they knew to be true. And not just them, their lawyers did the same on behalf of the Bank to the point the Deputy Chairman of a 600 strong London law firm felt able to put in writing on 27th May 2008 that our allegations were “ill-founded and misconceived.” HBOS also felt able to tell both Cambridge and Thames Valley Police at the beginning of 2008, they did not want the police to investigate HBOS Reading because nothing had happened and there was no fraud. Ten years later when the criminal trial finally started, it was confirmed by various senior HBOS bankers they started investigating Lynden Scourfield and Reading in July 2006 and the Bank’s Crime Prevention Unit had done 3 investigations when they told the police there was nothing to investigate.
Please take a moment to think about that. A major Bank, realising something has gone seriously wrong in one of their branches, starts investigating in July 2006; gets rid of the Bank manager; gets rid of the consultants who have caused hundreds of millions of pounds of losses to the bank and its clients; even gets rid of any client business unwittingly involved by closing them down and putting them into administration (thus ruining many good companies and many lives) and then tells the police, nothing happened and tells their shareholders everything is so rosy in the garden they should all invest in a £4BN Rights Issue. Sometime later they did accept there was a problem at Reading but they put it down to one man, Lynden Scourfield, who had been a regular Robin Hood figure who had been over generous to some of his customers. Those same customers who were now penniless, with no businesses, no livelihood, in some cases no home and massive debts. As Robin Hood figures go, I’d say Lynden failed miserably.
More bizarre still is the fact the police, the financial regulators, senior members of the Bank Of England, the Treasury Select Committee and even the Prime Minister and the Chancellor of the Exchequer, all accepted the Banks explanation back then. There was no fraud. Therefore, it didn’t matter what we uncovered about losses to the bank or its clients or what stories of drug abuse and prostitution came out because no one would believe us or do anything about it anyway. Even when our MP, Sir James Paice, along with seven other MPs, instigated a Debate in Parliament in June 2009 on the subject of HBOS Reading, where he also alleged potential criminal conduct, the Bank was able to completely ignore the MPs and the constituents they represented. Of course, we now know a lot was happening in the background. There were endless reports and reviews into HBOS Reading starting in 2006 and continuing even now.
When documented, all of that makes for outrageous reading about outrageous conduct. But it’s not so easy to document the consequences. It’s not easy to document the emotions of people who lose everything; people whose marriages split up because of the extreme pressure families live under when the Bank, chasing personal guarantees, take people’s homes after destroying their businesses; it’s hard to explain what it’s like when you have to accept packages from food banks because you can’t feed your family despite years of hard work. Most of all it’s not easy to explain the emotional state that leads to suicidal thoughts and which, in some cases, is fatal because – banks have not only been too big to fail and bankers have not only been too big to jail, the authorities have been wilfully blind to the epidemic of fraud some banks have been perpetrating. The feeling of impotency when you realise none of the authorities you relied on to protect you from criminals will act when you allege the criminals are bankers, is shattering. For some it was simply too much.
To lose everything because of a gambling habit or a drug or alcohol addiction or even because you were simply very bad at business, would be devastating but it’s self-inflicted and probably inevitable. But when you’ve done nothing wrong and you lose everything because of the conduct or policies of bankers and those professionals that surround and protect them, it is criminal and should be treated as such. Sadly, in the majority of cases, it isn’t. In the name of ‘Brand Protection’ and in order to protect the reputation of our financial sector in International markets, banks have been allowed to rape and pillage small businesses for years. It started before the credit crunch and it continues now. Even where there is indisputable evidence of misconduct and criminality, banks and bankers have been able to avoid any culpability by getting their shareholders to pay massive fines or persuading the authorities to rename fraud and theft as ‘mis-selling.’
I am hoping HBOS Reading will start to turn the tide and bankers will start to consider the possibility they too are subject to the common law that put Lynden Scourfield and his pals in jail for years. SME Alliance is working closely with the All Party Parliamentary Group on Fair banking to push for a more level playing field for SMEs abused by Corporate organisations because and as things stand - SMEs are not protected by inadequate regulators and for most, the cost of the Civil Court means it is not an option. We are also talking with Anthony Stansfeld, the Police and Crime Commissioner for Thames Valley who is pushing for our police forces to have bigger budgets that will allow them to investigate and prosecute allegations of economic crime. Ironically, the result of the credit crunch and the bank bailouts reduced police budgets and severely curtailed their ability to investigate bank fraud. Catch 22 – the Country was too impoverished to investigate the root cause of the austerity.
Post HBOS Reading and after years of struggling to get any real scrutiny of bank behaviour in the press, we now have any number of journalists eagerly asking for information. But of course, the only thing that will really stop the HBOS Readings, RBS GRG and the other Bank BSU’s experience, is for change inside the banks under the guidance of the kind of management that genuinely wants to restore proper corporate governance and re-establish faith and trust.
Personally I am not convinced RBS will ever be turned away from the dark side. Many SME Alliance members have very strong cases against RBS for their treatment in the bank’s Global Restructuring Group but even where regulators have told the bank to compensate victims, the process has been slow, biased to the bank and miserly in its outcomes. Their conduct is disappointing and immoral and this is a bank that was saved by the public purse and is still predominantly owned by the public.
Lloyds banking Group have said they are going to compensate the victims of HBOS Reading swiftly and appropriately. Lloyds CEO, Antonio Horta-Osorio, has repeatedly confirmed this will happen; Paul and I have had a letter from Lord Blackwell assuring us this will happen. Do I think it will?
I can only say I sincerely hope so. Not only from a victim’s point of view – we are very tired of life on the breadline – but also because if Lloyds were to lead the way on positive resolution for serious legacy issues, I think other banks would find it hard not to follow suit. I may not agree with some of the processes the bank has decided on but ultimately, I believe Lloyds Banking Group will take this opportunity to start regaining public trust. It would be a terrible waste if it didn’t.
The HBOS Reading story is far from finished and I’m reliably informed further investigations will commence or have already commenced. And there is another related criminal trial in November this year. I imagine it would be wise for Lloyds to avoid additional bad publicity for not compensating the victims. But I also think Lloyds will do the right thing because whereas other banks (and particularly RBS) are persistent in saying black is white and seem to have no empathy at all with their victims, Lloyds do seem sincere when saying they are going to take responsibility for HBOS and that their priority is assisting the victims.
To say this and not do it, would be a disaster for the bank and a disaster for the victims. The banking world has had enough disasters in recent times and any bank that can turn the face of banking around, even a tiny bit, will be a step in the right direction.
It would be good to know the HBOS Reading saga has caused positive change. For Paul and I it would be good to know the ten years we’ve spent investigating HBOS Reading were years well spent even if they have felt like ten years of wading through glue somewhere in downtown hell! While we take no personal pleasure in the fact our bank manager, Lynden Scourfield and his associates have gone to jail for a very long time, we are pleased the point has been made. Banks may still be too big to fail and I hope our next government will start recognising that as the major problem it is, but bankers are not too big to jail.
Many thanks to our good friend Ruth Bender and to Cranfield University for inviting my colleagues and I here this evening and many thanks for coming to hear us.
Nikki Turner for SME Alliance 31st May 2017.
Mr McEwan I would like you to consider one simple question;
Do you understand the Principle of TCF – Treating Customers Fairly? If so why does your Bank’s behaviour remain inherently dishonest and why is its bad behaviour getting worse under your control?
I will explain why I ask and give you an example of such behaviour;
One of your customers, we will call him Mr. X, was 10 years ago mis-sold an Interest Rate SWAP when the Bank salesmen dishonestly told him that the Bank expected interest rates to increase. The reality is your Bank and every Bank out there knew with certainty at that time that rates would decrease.
When the SWAP was sold 2 banks in your Group acting in tandem NatWest and RBS, set up a credit facility of £300k without his knowledge, to cover the expected losses on the SWAP and secured that against his properties again without his knowledge. They also sold him a commercial loan on his new home instead of a mortgage in their greed for a larger SWAP sale.
Three years later when rates decreased they confirmed to him that following interest rate reductions, the SWAP credit facility he had not signed for and knew nothing about, had now reached £500k and his manager then told him he was now in breach of his Loan to on his facilities and he would have to go into GRG!
In the subsequent years in full knowledge that he had been mis-sold both the SWAP and the mortgage, GRG then attempted to extort fees for fabricated consulting work and tried to asset strip him with a PPFA for such ‘continued support’.
This was before you were in charge.
Since you have been in charge the Bank has admitted both mis-selling the SWAP and the mortgage however, they would only offer him compensation if he accepted a proportion of his money under a rigged ‘full and final settlement’ in the SWAP Review?
Unwilling to sign up to an unlawfully imposed settlement, he had no choice but to sue the Bank and before doing so, several subject access requests were undertaken to analyse the banks credit files and applications. Your central credit files from the RMP system showed that the bank manager 10 years ago acted incompetently and a claim was initiated.
In discovery however, those alleged same credit files when received contained almost 5 extra pages setting out never before seen facts, that evidenced the bank manager had it would seem, undertaken substantial due diligence before offering the loan, the new version of the credit application contained an additional 1,877 words not seen in the original credit file.
So, we have 2 options, either;
1. The bank 2 years ago withheld crucial information Mr X was entitled to, in an information request to unfairly and unlawfully gain an advantage, or;
2. The Bank is rewriting its central credit files, doctoring the RMPS files now, to cheat him out of justice!
Either way this Bank is spending substantial amounts of money on its lawyers defending previous dishonesty and crooked behaviour.
Some would say that the Bank behaves in this manner because it can, because it has deep pockets however, I would say that this Bank does not have deep pockets; in fact it has no pockets at all and it is using tax payers’ money, our money, to ruin customers it has already mistreat over many years.
This is happening on your watch.
You may attempt to deny knowledge of such behaviour however, put plainly as many of us know having dealt with Batt, Hughes, McDonald etc. there is no area in this Bank that one is less likely to get a straight answer, than from than your own executive response team, why is that!
This bank will never repay the tax payers or return monies to its shareholders, whilst this culture of dishonesty prevails.
I will give you one such example of your executive team’s behaviour;
A man is in danger of losing his home in Cheshire, I will call him Mr. Y. Following a Court Case at which your bank again introduced bogus central files to win the case, Mr. Y went to his MP for help, and he gave them documents supporting his allegations. The MP’s office then without Mr. Y’s authority or knowledge gave those documents straight to your Ms. Macdonald and, this was the subsequent e-mail interchange;
Yes – and I thought it was all over! I have just had a rather long phone call from him asking me to forward everything to the bank. I told him that Mr Osborne cannot be involved any further and he has to contact you himself. I did not tell him that I have forwarded the emails to you.
The phone will be on answerphone for the rest of the day!
Ms Macdonald replied;
And we had such a quiet period there!
Hope all is well and I agree, please don’t respond and the team here will investigate. If we need to arrange a response, we will certainly copy or blind copy you in.
Jane the responded;
For your information, today I have received these 2 emails (below and attached) from Mr Y. I will not be replying to him.
Just who do these people think they are, that is your personal Business manager instructing the then Chancellor George Osborne’s office, to ignore his constituent and do as the Bank instructs, in control of an MP complaint.
This is appalling behaviour.
I am here today with an ex member of RBS staff Mark Wright, Mark whistle blew in your bank and paid the price losing his career and health for doing so. He is however, now prepared along with his colleagues to tell the truth about what is happening in your Bank, right under your nose.
In the first instance, Mark and his colleagues have a key piece of advice for yourself and Sir Howard, if you are prepared to put your signature on letters to MP’s please ensure you actually know the facts held on your central system, before approving misleading statements.
Mark unfortunately found that he could trust neither your Bank nor the regulator when reporting RBS Misbehaviour and therefore he is setting up a forum for whistle-blowers from all banks called Bank Confidential. He will be in touch shortly, with this Bank’s Board, along with all other major Banks, to ask for support and sponsorship to help provide a safe environment in which staff can speak out, and I hope the Board will be supportive of this forum.
However, the facts remain Mr. McEwan, that either you know about the misbehaviours of your Bank or you don’t, in which case you are possibly the only person in the UK not privy to one of the financial arenas worst kept secrets.
So, I will ask my question again;
Why is this Banks behaviour getting worse under your control?
Will you offer financial support to the new Whistleblower forum BankConfidential?
Mr Chairman, I am here today wearing two hats; Firstly, as a shareholder I am head of SME Alliance in Scotland and am representing them. I would just reassure you that contrary to any perception there may be, this is not a bank bashing organisation as our chairman was at pains to point out at the FT Conference on Banking Standards two weeks ago. Ross McEwan, I believe that you shared the platform as a speaker.
At that event our chairman said he was there because he felt that bank customers who had lost out through poor governance, lack of regulation and lack of being “treated fairly” in the banking system, needed to be heard.
SME Alliance is not necessarily a single issue organisation, but inevitably most of the current membership was drawn to it because they all felt there was no other way of expressing their helplessness at being contemptuously dismissed by their banks. The members are drawn from customers of all the banks, however, mindful of the very recently published report concerning the number of complaints made about banks in general, RBS having by far the highest number of complaints, it is therefore inevitable that our membership is representative of that figure, with a high proportion being RBS customers.
SME Alliance would prefer if the membership could bring their complaints to you and receive a conciliatory response, however you persist in making this virtually impossible with your adversarial and confrontational attitude, which I must say was not helped one little bit by a recent newspaper article attributed to one of your most senior directors, labelling some small business owners as “CHANCERS WHO HAD PUT THEIR LIVES INTO FAILED BUSINESSES AND WERE NOW LOOKING FOR A BAILOUT” This was followed by the further comment “LET THEM SUE. WE’LL SEE THEM IN COURT”
Irrespective of who that senior director is, it is you, Ross McEwan, as Chief Executive who bears responsibility for what emanates from your bank, therefore I address you directly.
You make public announcements claiming engagement with your customers and earning their trust. I ask you this; do you earn trust by insulting customers who have genuine grievances that you refuse to address? Do you not realise that this is about real people and real lives, not just about numbers and units?
It is little wonder that you are repeatedly forced to respond that allegations have caused, and continue to cause, huge reputational damage to the bank, when there is such arrogant and contemptuous dismissal of customers’ legitimate and genuine complaints. Is it any wonder that there are so many very vocal customers and ex-customers of this bank, victims of financial vandalism, who are now incensed at being branded as CHANCERS SEEKING A PAYDAY? It’s little wonder that one of the financial advisers to SME Alliance perceptively noted; - banking is where integrity is just the name of a racehorse.
The Tomlinson exposures, and, last October the revelations from BBC Newsnight and BuzzFeed of the Dash for Cash, followed by the disclosure of the victory emails sent by the GRG division when yet another hapless victim was financially massacred, just serve as a direct counter to your repeated assertions. Frankly Ross, I question your grasp of honesty, integrity, trust and ethics, when dismissing these allegations. You publicly acknowledge legacy issues but clearly make no attempt at addressing illegality within the bank.
Capitulating last week in the Hockins’ case, agreeing a settlement to their long running dispute surely served as an example of how confrontation could have been avoided, had you chosen to address them constructively with the conciliatory approach.
Ross, there is a deluge of complaints from some very vocal victims which you simply and contemptuously dismiss by denying their legitimacy. The Hockins are just but one example and through SME Alliance I can tell you that for all Hockins, for all the Clive May’s, for all the Andy Keats, for all the Mike Wilson’s, and for all the Andy Quoi’s, to name but a very few, there are many more victims like me standing behind with exactly the same stories of illegal conduct. It is wholly inconceivable that we are all wrong when we have any amount of evidence examined by legal and financial experts verifying the claims as being legitimate and in most instances clearly identifying that fraud is the common theme running through each and every case.
Can I direct you to look very closely at the recent example set by another Chief Executive of a public company, Thomas Cook? Peter Frankhauser, whose shining example of corporate governance and leadership, demonstrates to the public a very encouraging and enlightened attitude from a company boss who finally saw the light and took personal responsibility for so many failings within Thomas Cook.
Of specific note is his admission that the company spent ten years talking about their customer and not talking with their customer. He ditched his advisers and spoke directly with the customer thereby achieving a solution that could have been reached so much sooner had common sense and understanding prevailed.
I really wish to take issue with you Ross when you regularly appear before the media saying that all allegations of criminality have been investigated with no evidence being found, and earnestly asking customers to trust the Bank as it has set aside the past, and dealt with legacy issues.
Well Ross, I think you have been imbibing in far too much of Scotland’s best known export, believing your own sound bites and ignoring a welter of evidence provided by a multitude of exposures that appear with regularity in all the media. Should you take time to consider your false statements and the effect they may have on the general public, I think even the simplest of minds would understand that internal self examination and reporting will never reveal the truth.
Please Ross, cease with the insults, drop the crooks, the connivers, and the cover up brigade within the bank; stop being cloth eared and be like Peter Frankhauser, take on board what he plainly and honestly stated, and realise you cannot win when confronted by thousands of complaints which are similar in nature and revolve around one division within the bank.
Actions speak louder than words and perhaps, just perhaps, with deed instead of words, our membership and the wider number of aggrieved customers will start to believe you, and give you a chance of retrieving the trust you have destroyed and of repairing the huge gulf separating you from millions of customers, because very evidently you and the bank, are widely perceived as a disgrace.
Many at SME Alliance have been forced to pursue the bank through the courts and I know that you are well aware of an impending action against you with multiple claimants of which I am one. It would seem quite clear to those advising that there is clear and irrefutable evidence to bring these claims successfully and therefore my comments above may, I hope, give you cause for reflection, particularly when you consider the Hockins case and your capitulation when faced with evidence for instance of your staff telling them that they had not suffered enough.
Wearing my second hat, I am here as an ex customer. Ross, two weeks ago you are quoted as saying at the FT Conference on Banking Standards: - Call me old fashioned but I want customers to pay us back.
I was so bemused reading this that I had to read it again and check with my fellow SME Alliance colleagues who were present at the Conference for confirmation that those were your words. For avoidance of doubt and for the benefit of the audience, are those your words? Thank you, Ross and on that basis I am going to publicly challenge you on that statement.
Do you know why? Well let me tell you:-
In July 1997 I borrowed £800K to expand our business. 16 months later, in November 1998, I deposited more than £800K with the bank and sought to repay the debt but RBS stopped me from doing so. I was an old fashioned borrower who wanted to minimise debt as much as possible as quickly as possible, but instead of accepting my cash at that time, the bank moved our accounts under the control of your Jackboot division latterly known as GRG and drove us into bankruptcy with all the attendant misery and personal anguish which has ensued.
For years I could never understand why and it is thanks to the dedication and expertise of financial, legal and banking investigators and advisers that I now know the answer as to why RBS effectively stole our money; stole our hotel business; stole our house and every other asset we owned and drove us to bankruptcy.
My impression of old fashioned bankers is of people in whom you could have complete trust, who had ethics, integrity and honesty. So Ross before you trot out the usual response from the bank, I do accept that we have been through the court process and made a complaint to the Ombudsman. However, the issues I am asking you to personally examine and which have now been shown to demonstrate illegality by RBS were never ventilated in court. I ask you please Ross; set aside your prejudice and as an old fashioned banker look at this with a fresh pair of eyes and a clear mind. I am offering an olive branch for the final time here, and ask you to note down the following points.
So here is my public challenge to you Ross:-
1) Personally investigate the dealings I had with RBS starting from May 1997 when I was introduced to the bank and spent hours discussing and negotiating the proposal of moving our business accounts to RBS
2) I was old fashioned enough in wanting to repay the loans I was asking for, as quickly as possible and if you read the file notes of that time you ought to see that I explicitly requested the structure of the loans to allow for full repayment as soon as possible within the term time suggested by the Relationship Manager I negotiated with. The notes also ought to say that I was assured that early redemption would cost me three months interest penalty as it was projected they would be residential mortgage type loans.
3) You ought to read that I agreed to move our accounts to RBS on this specific assurance and became a customer of RBS in July 1997.
4) Move on 16 months to November 1998 when I deposited money with the bank.
5) Specifically ask to see file notes of the meeting held in Dundee with the Relationship Manager when the issue of full loan repayment was discussed. You ought to read that I asked for the figure outstanding on the loans so that I could authorise full repayment from cash which was held on deposit and which on 6th November 1998 was more than sufficient to expunge the loans in their entirety. Also note that there was a witness to that meeting who will corroborate the fact that the main item for discussion was full repayment.
Having investigated my files Ross perhaps you can then tell me why the bank, having extended loans totalling £800K in July 1997, refused to accept full repayment from me in November 1998 from the amount on deposit that was in excess of the outstanding £760K or thereby at that time?
So, come on Ross, be a man, be the old fashioned banker you purport to be, ditch the screen of lawyers and other advisers you hide behind, and just this once, engage with me, the customer, by accepting my challenge to you of personally investigating my complaint and acknowledge the evidence identified by others of illegality. As a banker, meet with me face to face, look me in the eye, and tell me why the bank stopped me repaying the loans in November 1998.
Maybe you will choose to ignore my request and dismiss the olive branch I have extended; either way it will make no difference to me as I can and will continue with the legal claim mentioned before.
It’s over to you Ross.
Nigel K Henderson
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