LAWYERS from Clifford Chance will investigate claims RBS forced small firms into difficulties so the bank could strip them of assets, the lender’s chief executive Ross McEwan said yesterday.
Reports from Business Department adviser Lawrence Tomlinson and former Bank of England deputy governor Sir Andrew Large have both found claims of wrongdoing in RBS’ global restructuring group.
Sir Andrew called for the bank to “undertake a forensic investigation into these serious allegations.”
“To ensure our customers can have full confidence in our commitment to them I have asked the law firm, Clifford Chance, to conduct an inquiry into this matter, reporting back to me in the New Year,” McEwan wrote to Sir Andrew.
It came as Sir Andrew’s report found RBS poorly structured and inefficient, treating small business customers badly through a lack of modern systems and a fractured internal setup.
He called for the bank to scrap its separate units for small firms who use services like asset finance to streamline the bank.
And he said more training for local branch staff would make sure RBS misses fewer opportunities to make good loans.
“A thorough understanding of SMEs’ prospects, operations and trading potential needs local understanding and knowledge,” Sir Andrew told City A.M.
“If they can deploy that it will be to the benefit of the wider business.”
He added that the bank is failing to make money on many of its SME loans, which he said typically give a return on capital of between three per cent and seven per cent. That compares with a typical cost of capital for a bank of above 11 per cent.
The poor return comes despite the bank now charging more than the industry average for its loans to mid-sized firms, a turnaround from the period before 2010 when it was a relatively cheap lender.
SIR ANDREW’S REVIEW
1 RBS must investigate claims its global restructuring group has forced firms into difficulty – for instance by deliberately undervaluing assets – purely so it can then take those assets and make a bigger profit.
2 The bank must improve service offered to small firms, Sir Andrew said, including keeping their relationship manager instead of passing the firm round from department to department.
3 It should streamline its messy structure, with all SMEs in the same department, rather than split up by different product line.
4 More local decision-making would improve service and make sure the bank did not miss out on good opportunities to lend because regional differences are unknown to a central staff member.
5 RBS should be less cautious in its lending. Sir Andrew said new regulations have hit the amount the bank can lend to small firms, but that it has over-reacted and is unnecessarily constraining its own growth and that of the wider economy.
6 And he said RBS should modernise its communications and sales channels, making greater use of the internet to contact business customers and speed up the pace of transactions.