RBS faces probe over claims it drove firms to collapse

RBS said it was 'already committed' to an inquiry into how it deals with small companies. Picture: Getty

Business Secretary Vince Cable has passed allegations against RBS compiled by one of his advisers to City watchdogs.

The dossier accuses the Edinburgh-based company of “unscrupulous” practices, having levied “exorbitant” fees and charges upon firms, only to “profit from their distress”.

The allegations will be outlined in a report due to be published today by Lawrence Tomlinson, a businessman who acts as entrepreneur-in-residence at Mr Cable’s Department for Business, Innovation and Skills.

He said yesterday the alleged actions of RBS had “not only ruined thousands of lives” but “gravely hindered” Britain’s economic recovery.

RBS said it was “already committed” to an inquiry into how it deals with small companies, but politicians and business leaders in Scotland warned the claims against the bank would be “devastating” if proven.

Margo MacDonald, MSP, said: “I just hope that Mr Tomlinson has made some sort of mistake, because, if he hasn’t, this could be the finish for RBS in terms of public trust. If the claims are true, they will have a devastating effect.”

Colin Borland, head of external affairs at the Federation of Small Businesses Scotland, said: “I haven’t seen the report, but the headline accusation is an incredibly serious one that would fly in the face of what RBS have been telling us they have been trying to do.

“It’s a very serious claim facing RBS on an incredibly serious matter. If there is evidence, and it is implied that there is proof of it, then it should be made public.

“When stories like this emerge, it affects the relationship between all businesses and their bankers. If that trust is stretched or damaged, it is bad for business.”

This is the latest crisis to engulf RBS, which is 81 per cent owned by the taxpayer.

It is also facing serious charges following an investigation by a Sunday newspaper, which claims to have uncovered evidence of a “hit squad” within the bank that drove businesses into financial difficulty through punitive fees and charges before scooping up their property assets at rock-bottom prices.

Mr Tomlinson’s report focuses on the work of the bank’s Global Restructuring Group (GRG) lending division, which handles loans classed as risky.

The GRG is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.

The report alleges that companies not necessarily in immediate financial distress were “engineered” into the GRG, sometimes through small technical breaches of loan terms, such as the late filing of minor financial information.

One business that submitted evidence to Mr Tomlinson said it had spent £256,000 in fees alone while in GRG.

Another said RBS had made it pay an immediate sum of £40,000 to continue borrowing terms with the group.

The newspaper investigation, meanwhile, has examined transactions at West Register, RBS’s Edinburgh-based property division, claiming it purchased “distressed” properties for a fraction of their value. One luxury residential development valued at £54 million was allegedly bought for £16m.

Mr Tomlinson said: “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.”

Mr Cable confirmed yesterday that he had referred Mr Tomlinson’s report to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

It has also been sent to RBS and to Sir Andrew Large, a former deputy governor of the Bank of England who was appointed by the Edinburgh bank in July to head an independent review of its lending to small firms.

Mr Tomlinson is due to publish today his full, RBS-commissioned review into small business lending at the group.

Mr Cable 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.”

Shadow business secretary Chuka Umunna described Mr Tomlinson’s claims as “extremely serious indeed” and called on watchdogs to investigate.

He said: “To artificially distress otherwise successful businesses in order to seize their assets and profit would be utterly scandalous and deplorable.

“It’s right that the FCA and PRA look into the claims as a matter of urgency.”

An RBS spokesman said GRG’s role had been 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 overheated 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.”

The group said it was “already committed” to an inquiry into how it treats small companies, following recommendations made by Sir Andrew and laid out in an initial copy of his report earlier this month.