Shares in Royal Bank of Scotland dropped 2.8 per cent on Monday on the publication of leaked documents which show the bank set out to secretly profit from struggling businesses.
Confidential files leaked to BBC Newsnight and BuzzFeed News show RBS bought up assets from struggling businesses in a project codenamed “Dash for Cash” following the 2008/09 banking crisis.
The documents show RBS incentivised staff who identified companies which could be moved to its turnaround division, Global Restructuring Group (GRG).
More than 12,000 companies ended up in GRG, and between 2007 and 2012 and the total value of loans to customers in GRG unit rose five-fold to more than £65 billion.
The documents show RBS staff were awarded bonuses based on the fees collected from restructuring companies which ended up in GRG, and staff were also incentivised to find ways to “provoke a default” on customer debt.
RBS said a 2014 independent review of its GRG business, conducted by law firm Clifford Chance – who are also retained by RBS in other matters – found no evidence from the 138 cases it reviewed the bank has acted improperly.
The Clifford Chance review followed the publication of a report compiled by businessman Lawrence Tomlinson in 2013 which accused RBS of deliberately pushing some firms into insolvency in order to buy back their assets at rock-bottom prices.
Derek Sach, then global head of GRG, also sat on the committee of the RBS property division, West Register, which decided on which customer assets the bank would purchase.
The Clifford Chance report found no evidence West Register was deliberately targeting customer assets, however the leaked documents show information on properties held by customers in GRG was being passed to West Register.
Sach and deputy chief executive of GRG, Chris Sullivan, had made repeated claims to a committee of MPs in 2014 the GRG unit was “not a profit centre” only for Sullivan to then admit in a letter just weeks later GRG was in fact run as a profit centre.
RBS then chairman Sir Philip Hampton was forced to admit the executives had provided incorrect evidence to a Treasury Select Committee and agreed the definition of GRG as a profit centre in a report authored by Sir Andrew Large – commissioned by RBS to investigate the claims against GRG – was “reasonable and correct”.
The leaked documents also contradict claims made by RBS that most of the customers placed in GRG were returned to normal banking.
In the 2012 year alone 1,483 businesses were transferred to GRG from which just 452 were returned to normal banking.
RBS auditors Deloitte had also warned in 2011 the bank faced “reputational risk” as a result of “perceived conflicts of interest” in the GRG operation.
In 2013 the regulator the Financial Conduct Authority (FCA) was ordered to investigate the allegations in the Tomlinson report, and the FCA appointed Promontory and Mazars to carry out a review, which has since been completed and passed to the FCA.
FCA chief executive Andrew Bailey has yet to set a date for publication.
In a statement to BBC Newsnight, RBS said: “RBS has been very clear that GRG’s role was to protect the bank’s position… In the aftermath of the financial crisis we did not always meet our own high standards and we let some of our SME customers down.
“Since that time, RBS has become a different bank and significant structural and cultural changes have been put in place, including how we deal with customers in financial distress.”
Tomlinson said the leaked documents “are massively significant in that they finally, for me, prove what was in my report”.
He added: “I think RBS should just come clean and say yes, GRG was a profit centre and it did act against the best interest of the UK as a whole.”
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