LONDON – Royal Bank of Scotland, the British bank principally owned by the government, said on Monday that it had hired the law firm Clifford Chance to examine its lending practices after government reports that criticized its operations, including claims that it pushed some business clients into serious financial difficulties.
One report, published on Monday by the British businessman and government adviser Lawrence Tomlinson, claimed the bank had forced some business clients unnecessarily into default in order to charge certain fees and take over assets on the cheap.
The other report on Monday, by Andrew Large, a former Bank of England deputy governor, said the bank had made progress since the 2008 financial crisis but was not doing enough to lend to small and midsize businesses.
Ross M. McEwan, R.B.S.’s chief executive, said in a letter on Monday that the review by Clifford Chance is expected to conclude early next year.“It is clear from your report that we have overcorrected for the reckless lending practices that broke this bank five years ago,” Mr. McEwan wrote in response to Mr. Large’s 95-page review.
“We can never return to those days again and your report recognizes the steps we have taken to re-balance and stabilize the bank,” he continued. “But in many cases the pendulum of risk aversion has swung too hard to one side.
As you have identified there are loans that we could, and should be making, but are not.” Mr. McEwan did not specifically address Mr. Tomlinson’s report in his letter on Monday, but the law firm’s review is expected to examine the issues raised.
The government, which is keen to sell its majority stake in the bank, passed along the findings of Mr. Tomlinson’s report to the Financial Conduct Authority and the Prudential Regulation Authority, two of Britain’s financial regulators.
“There are many devastating stories of how R.B.S. has wrecked good businesses and the ruinous impact this has on the lives of the business owners,” Mr. Tomlinson’s report said.
“It is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in the global restructuring group and subsequently take their assets” at a discounted price.
Mr. Tomlinson’s report grew out of his role as an adviser to Vince Cable, the British business secretary, in which Mr. Tomlinson reviewed why business growth was constricted in Britain.
In conducting his review over a six-month period, Mr. Tomlinson examined complaints he received from businesses about their access to financing and treatment in the years following the 2008 financial crisis.
The complaints, while not limited to R.B.S., were “disproportionately high” for the bank. As part of the review, businesses and, at least one former R.B.S. banker who acted as a whistle blower, were required to back up their claims to Mr. Tomlinson.
The report involved hundreds of loans, most of them from 2009 or after. R.B.S. on Monday admitted that it still faced legacy issues linked to the role it played in fueling the “overheated property development market,” which in 2008 “was one of the key drivers of our near collapse as valuations rapidly plummeted.”
The bank said that “facing up to these mistakes has been a difficult, but essential part of making R.B.S. a safe and strong bank once again.” The restructuring unit has been working “with customers at a time of significant stress in their lives,” R.B.S. added. “Not all businesses that encounter serious financial trouble can be saved.”
George Osborne, the chancellor of the Exchequer, said on an ITV television program that the report was “shocking” and that the government was “actively trying to seek out these problems. We are not trying to brush them under the carpet.”
The government bailout for R.B.S. totaled more than 45 billion pounds, or about $73 billion, and Mr. Osborne is eager to start selling the government’s 81 percent stake. R.B.S.’s global restructuring unit was set up to manage distressed loans and to try and work with clients to find remedies.
To speed up its turnaround after the government rescue in 2008, the bank announced last month that it would separate about £38 billion of troubled assets into a separate entity within the bank and create a so-called “internal bad bank.”
The report published by Mr. Large looked at R.B.S.’s lending to small and midsize companies and concluded that the bank had failed to meet its own lending volume targets and the expectations of its customers.
“A perception has arisen among some small and medium-size enterprise customers that R.B.S. is unwilling to lend,” the report said. The bank is struggling with “internal upheavals” and “operational challenges, particularly in the initial interaction with customers looking to borrow,” according to Mr. Large’s report.
That report also said R.B.S. had badly mishandled some relationships with distressed clients and that, even though it had made some changes to its procedures, “there is a risk that awareness of this will discourage some borrowers from approaching R.B.S. to discuss new borrowing needs.”
The reports raise questions about whether R.B.S. could face compensation claims from some customers. Any claims would add to R.B.S.’s current troubles, which also include the continuing investigation into manipulation of the foreign exchange market.
Mr. McEwan, who took over as chief executive of R.B.S. at the beginning of October, pledged to increase lending to small and midsize businesses. Reacting to an early summary of Mr. Large’s report on Nov. 1, Mr. McEwan said the bank had been proactively contacting 16,000 customers recently to show it was willing to lend.
nytimes.com
One report, published on Monday by the British businessman and government adviser Lawrence Tomlinson, claimed the bank had forced some business clients unnecessarily into default in order to charge certain fees and take over assets on the cheap.
The other report on Monday, by Andrew Large, a former Bank of England deputy governor, said the bank had made progress since the 2008 financial crisis but was not doing enough to lend to small and midsize businesses.
Ross M. McEwan, R.B.S.’s chief executive, said in a letter on Monday that the review by Clifford Chance is expected to conclude early next year.“It is clear from your report that we have overcorrected for the reckless lending practices that broke this bank five years ago,” Mr. McEwan wrote in response to Mr. Large’s 95-page review.
“We can never return to those days again and your report recognizes the steps we have taken to re-balance and stabilize the bank,” he continued. “But in many cases the pendulum of risk aversion has swung too hard to one side.
As you have identified there are loans that we could, and should be making, but are not.” Mr. McEwan did not specifically address Mr. Tomlinson’s report in his letter on Monday, but the law firm’s review is expected to examine the issues raised.
The government, which is keen to sell its majority stake in the bank, passed along the findings of Mr. Tomlinson’s report to the Financial Conduct Authority and the Prudential Regulation Authority, two of Britain’s financial regulators.
“There are many devastating stories of how R.B.S. has wrecked good businesses and the ruinous impact this has on the lives of the business owners,” Mr. Tomlinson’s report said.
“It is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in the global restructuring group and subsequently take their assets” at a discounted price.
Mr. Tomlinson’s report grew out of his role as an adviser to Vince Cable, the British business secretary, in which Mr. Tomlinson reviewed why business growth was constricted in Britain.
In conducting his review over a six-month period, Mr. Tomlinson examined complaints he received from businesses about their access to financing and treatment in the years following the 2008 financial crisis.
The complaints, while not limited to R.B.S., were “disproportionately high” for the bank. As part of the review, businesses and, at least one former R.B.S. banker who acted as a whistle blower, were required to back up their claims to Mr. Tomlinson.
The report involved hundreds of loans, most of them from 2009 or after. R.B.S. on Monday admitted that it still faced legacy issues linked to the role it played in fueling the “overheated property development market,” which in 2008 “was one of the key drivers of our near collapse as valuations rapidly plummeted.”
The bank said that “facing up to these mistakes has been a difficult, but essential part of making R.B.S. a safe and strong bank once again.” The restructuring unit has been working “with customers at a time of significant stress in their lives,” R.B.S. added. “Not all businesses that encounter serious financial trouble can be saved.”
George Osborne, the chancellor of the Exchequer, said on an ITV television program that the report was “shocking” and that the government was “actively trying to seek out these problems. We are not trying to brush them under the carpet.”
The government bailout for R.B.S. totaled more than 45 billion pounds, or about $73 billion, and Mr. Osborne is eager to start selling the government’s 81 percent stake. R.B.S.’s global restructuring unit was set up to manage distressed loans and to try and work with clients to find remedies.
To speed up its turnaround after the government rescue in 2008, the bank announced last month that it would separate about £38 billion of troubled assets into a separate entity within the bank and create a so-called “internal bad bank.”
The report published by Mr. Large looked at R.B.S.’s lending to small and midsize companies and concluded that the bank had failed to meet its own lending volume targets and the expectations of its customers.
“A perception has arisen among some small and medium-size enterprise customers that R.B.S. is unwilling to lend,” the report said. The bank is struggling with “internal upheavals” and “operational challenges, particularly in the initial interaction with customers looking to borrow,” according to Mr. Large’s report.
That report also said R.B.S. had badly mishandled some relationships with distressed clients and that, even though it had made some changes to its procedures, “there is a risk that awareness of this will discourage some borrowers from approaching R.B.S. to discuss new borrowing needs.”
The reports raise questions about whether R.B.S. could face compensation claims from some customers. Any claims would add to R.B.S.’s current troubles, which also include the continuing investigation into manipulation of the foreign exchange market.
Mr. McEwan, who took over as chief executive of R.B.S. at the beginning of October, pledged to increase lending to small and midsize businesses. Reacting to an early summary of Mr. Large’s report on Nov. 1, Mr. McEwan said the bank had been proactively contacting 16,000 customers recently to show it was willing to lend.
nytimes.com
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