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Vince Cable sends report on RBS conduct to regulators RBS asks Clifford Chance to probe small firm allegations
(about 3 hours later)
Business Secretary Vince Cable has sent a report into how RBS dealt with some small firms to City regulators. RBS has asked law firm Clifford Chance to investigate claims it forced firms to close so it could make a profit.
The report claims that the bank put some "good and viable" businesses into default so it could make more profit. Two reports published on Monday criticised the bank for its treatment of small firms, claims which Chancellor George Osborne described as "shocking".
Mr Cable told the BBC that the evidence against RBS, compiled by government adviser Lawrence Tomlinson, looked "solid". Clifford Chance will look into the allegations contained in reports by Sir Andrew Large and Lawrence Tomlinson.
The bank said that it was already committed to an investigation into customer treatment. RBS said in a letter to Sir Andrew that the bank had in many areas fallen short in its treatment of customers.
Separately, a report by Sir Andrew Large into RBS's lending to small businesses, said the bank should overhaul its practices and procedures in order to provide more help. Sir Andrew's report, commissioned by RBS, looked into the bank's lending to small businesses. It said that the bank must tackle some "serious allegations" by a small number of firms.
Mr Tomlinson's report, released on Monday, has been sent to the Financial Conduct Authority and the Prudential Regulation Authority. The Tomlinson report, set up by Business Secretary Vince Cable, said there was evidence that the bank deliberately put some "good and viable" businesses into default so it could make more profit.
The allegations centre on the bank's Global Restructuring Group (GRG) lending division, which specialises in handling loans seen as being more risky. Mr Cable has passed the Tomlinson report to City regulators, the Financial Conduct Authority and the Prudential Regulation Authority.
Ross McEwan, RBS chief executive, said in his letter to Sir Andrew that the report by the former Bank of England deputy governor had "been a tough read".
He said that RBS had already put in place new procedures to improve lending to small firms and halt "the reckless lending practices that broke this bank five years ago".
"Your report also highlights that when times are tough for our customers, some have said they were angry about the treatment they received," the letter said.
Although Mr McEwan did not refer directly to the Tomlinson report, the company added later that the allegations were not "something that Clifford Chance would ignore".
Mr Cable told the BBC that the evidence compiled by Mr Tomlinson looked "solid". In a television interview with ITV, Mr Osborne said the allegations were "shocking" and would not be "brushed under the carpet".
The Tomlinson allegations centre on the bank's Global Restructuring Group (GRG) lending division, which specialises in handling loans seen as being more risky.
The Tomlinson report says that putting a business into the GRG generated revenue for the bank through fees, increased profit margins and the purchase of devalued assets by their property division, West Register.The Tomlinson report says that putting a business into the GRG generated revenue for the bank through fees, increased profit margins and the purchase of devalued assets by their property division, West Register.
The practice of removing a bad debt from a bank's books is not an unreasonable one, particularly as major lenders have been trying to move away from riskier assets.The practice of removing a bad debt from a bank's books is not an unreasonable one, particularly as major lenders have been trying to move away from riskier assets.
But Mr Tomlinson told the BBC that there was a perception among small businesses that they were being "purposefully distressed" in order to get them into the GRG, which, even if wrong, should be addressed by RBS.But Mr Tomlinson told the BBC that there was a perception among small businesses that they were being "purposefully distressed" in order to get them into the GRG, which, even if wrong, should be addressed by RBS.
'Really disturbing'
Mr Cable said his department would not take the report at "face value", but added: "We are pretty confident that the evidence is solid."Mr Cable said his department would not take the report at "face value", but added: "We are pretty confident that the evidence is solid."
He said: "We want to be absolutely clear that this kind of thing is not going on today.He said: "We want to be absolutely clear that this kind of thing is not going on today.
"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.""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."
'Really disturbing'
Mr Tomlinson, an entrepreneur, acted independently of government in producing the report, and did not set out to look solely at RBS.Mr Tomlinson, an entrepreneur, acted independently of government in producing the report, and did not set out to look solely at RBS.
But he said what he had uncovered through talking to businesses had put RBS and its GRG into focus.But he said what he had uncovered through talking to businesses had put RBS and its GRG into focus.
He also said conversations with affected businesses had made a big impact on him.He also said conversations with affected businesses had made a big impact on him.
"I feel really sick sometimes. It is really disturbing," he said."I feel really sick sometimes. It is really disturbing," he said.
"It is ruining people's businesses for sure, and in some cases having a huge impact on their personal lives too, even leading to family breakdown.""It is ruining people's businesses for sure, and in some cases having a huge impact on their personal lives too, even leading to family breakdown."
He told the BBC later that he had uncovered some "horrific stories" suggesting that the conduct at RBS was "systematic and institutional".He told the BBC later that he had uncovered some "horrific stories" suggesting that the conduct at RBS was "systematic and institutional".
The report found:The report found:
'Mistakes' 'Distress'
The bank said in a statement: "In the boom years leading up to the financial crisis, the overheated property development market became a major threat to the UK economy.The bank said in a statement: "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."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.
"Facing up to these mistakes has been a difficult, but essential part of making RBS a safe and strong bank once again.""Facing up to these mistakes has been a difficult, but essential part of making RBS a safe and strong bank once again."
The shadow business secretary, Chuka Umunna, said: "The claims made by Lawrence Tomlinson against RBS' Global Restructuring Group are extremely serious indeed.The shadow business secretary, Chuka Umunna, said: "The claims made by Lawrence Tomlinson against RBS' Global Restructuring Group are extremely serious indeed.
"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 [Financial Conduct Authority] and PRA [Prudential Regulation Authority] look into the claims as a matter of urgency.""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 [Financial Conduct Authority] and PRA [Prudential Regulation Authority] look into the claims as a matter of urgency."
BBC business correspondent Joe Lynam says that if it is shown that RBS deliberately put viable companies out of business, it could open the bank to extensive legal action. Sir Andrew's report said there had been confusion over RBS's lending objectives and strategy.
The 81% state-owned bank's report into its own lending practices to small and medium-sized companies by the former Bank of England deputy Governor Sir Andrew Large will also be published on Monday.
RBS's new chief executive Ross McEwan has already said this report will make for uncomfortable reading, but promised to implement its findings in full.
'Much for RBS to do'
Meanwhile, Sir Andrew's report into lending to small firms, also published on Monday, said there had been confusion over lending objectives and strategy.
The bank must "ensure clear and simple lines of responsibility, and reduce organisational fragmentation," the report said. Currently, lending is split across several divisions.The bank must "ensure clear and simple lines of responsibility, and reduce organisational fragmentation," the report said. Currently, lending is split across several divisions.
The report also recommends that RBS conduct an inquiry into how it treated customers whose firms hit problems. RBS, 81%-owned by the government, is the UK's biggest lender to small firms. Mr McEwan pledged in his letter that RBS would write to thousands more businesses setting out how much more the bank was willing to lend them.
The report, which was commissioned by RBS, said: "There is much for RBS to do, and they have committed to undertake that." It had already offered £4bn in this way, and this would go up to £10bn, he said.