RBS division accused of ruining firms for assets

RBSs Gogarburn HQ in the capital. Picture: Ian Rutherford

Lawrence Tomlinson, a Yorkshire businessman and entrepreneur in residence at the department for Business, Innovation and Skills, said yesterday that he has a dossier of evidence which shows how RBS forced companies to default, pushing them into selling the bank their assets on the cheap.

In a report, passed to regulators by Liberal Democrat Business Secretary Vince Cable, Mr Tomlinson said RBS – which is still majority-owned by the taxpayer – was using technical breaches to force firms into financial distress and then imposing extra charges and interest of anything from £25,000 to hundreds of thousands of pounds.

He said one company alone had calculated that it had faced extra payments worth £256,000 because it had been passed from local management by RBS to its Global Restructuring Group.

However, Mr Tomlinson’s most damaging claim was that the Edinburgh-based bank was deliberately undervaluing assets to force companies into difficulty and then using its West Register unit to buy property up at a discounted price. The RBS offshoot purchases problem properties from the mother bank, and is said to holds assets valued at more than £3 billion.

Mr Tomlinson has complained in the past of RBS trying to do the same to his company, the LNT Group.

He pointed out that RBS and Lloyds control 65 per cent of the small and medium enterprise (SME) loan market and said the only solution was to break them up into six banks with around 10 per cent of market share each.

He warned that if the two are put back into full private ownership in their current state, the British banking market will be returning to its 2003 shape, which led to the 2008 crash.

Mr Tomlinson, who has been compiling the independent report for the past six months, focuses allegations on the “turnaround division” at RBS – its Global Restructuring Group (GRG).

The division handles loans classed as risky and is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties. But the report alleges firms not necessarily in immediate financial distress are “engineered” into the GRG, sometimes via small technical breaches of loan terms, such as late filing of minor financial information.

Mr Tomlinson said he was calling for “immediate action to stop this unscrupulous treatment of businesses”.

He added: “From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price.

“There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners. I look forward to seeing how RBS proposes to take forward the forensic investigation into this part of the bank.”

The report found a “disproportionately high” number of complaints against RBS, though it also found examples of similar practice at other banks.

Fellow part-nationalised player Lloyds Banking Group is also criticised for concentrating on short-term gain at the expense of its business customers.

The report said Santander UK was among a few banks that were praised by small business customers for their treatment.

Mr Cable confirmed yesterday that evidence against RBS in the report had been referred to the Financial Conduct Authority and the Prudential Regulation Authority. He said: “Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken. I am, however, confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium-sized businesses.”

RBS said it was “already committed” to an inquiry into how it treats small firms.

A spokesman said GRG’s role was key to helping the bank face up to its commercial property “mistakes” made in the run-up to the financial crisis.

He said: “In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy. RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near-collapse as valuations rapidly plummeted.”

He added: “GRG successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved.”

John Allan, national chairman of the Federation of Small Businesses, said: “If these allegations are true then this is concerning for small businesses.”

Andrew Tyrie MP, Tory chairman of the Treasury committee, said that the report highlighted concerns MPs had with banking lending to small businesses.

He said: “The report makes clear that there is a fundamental cultural problem with RBS’ lending to, and treatment of, SMEs.

“This is unwelcome but not wholly surprising. It confirms what my Parliamentary colleagues and I have been hearing for a number of years and which was, at various times, vigorously rebutted by RBS. The actions and reputation of RBS have discouraged would-be customers and reduced SME activity. We have all lost out as a result.”

SNP Treasury spokesman Stewart Hosie said: “This is a very worrying report with profound implications if the allegations are true.”

Profile: Grammar school boy rose to be one of Britain’s richest people

Yorkshireman Lawrence Tomlinson, 49, appears in the 151st slot on the Sunday Times rich list with a company built on providing care homes.

The grammar school boy who studied engineering at university also has a passion for motor racing and was appointed entrepreneur in residence by Business Secretary Vince Cable last year.

His report into banks lending to small and medium-sized companies and the actions of RBS has its origins in a dispute he has with the Edinburgh-based bank and his LNT Group.

In September he revealed that an inquiry had been launched by Chris Sullivan, the chief executive of the UK Corporate Banking Division, into allegations around the conduct of two of RBS’s directors. He claimed RBS’s activities had “caused us a lot of issues” and had “affected our trading”.

Last year the company reported an £8.6 million loss, which Tomlinson claimed was linked to a refinancing package.