RBS Looted Small Business Customers, Deliberately Driving Thousands in Bankruptcy, While Under Government Ownership

BuzzFeed and BBC Newsnight, building on the work of Ian Fraser in his book Shredded, who have been dogging the fraudulent activities of the Royal Bank of Scotland, have documented how a RBS loan workout unit, the Global Restructuring Group systematically seized assets from small business customers, including deliberately forcing them into bankruptcy, with the cooperation of senior levels of the bank. The opener:

The Royal Bank of Scotland killed or crippled thousands of businesses during the recession as a result of a deliberate plan to add billions of pounds to its balance sheet, according to a leaked cache of thousands of secret documents.

In the UK, bankruptcy means liquidation, and RBS would use its control over the auction process to make sure it would pick up assets at bargain prices and dispose of them for a tidy profit. Here are the main charges, from BuzzFeed’s overview:

  • RBS managers encouraged employees to hunt for ways to boost their bonuses by forcing customers into loan restructuring in order to extract heavy fees as part of a profit drive nicknamed “Project Dash for Cash”.
  • Firms that had never missed a loan payment were pushed into GRG under the bank’s secret policies for reasons that had nothing to do with financial distress, including for telling RBS they wanted to leave the bank, falling out with managers, or threatening to sue over mistreatment.
  • Once in GRG, firms were hit with crippling fees, fines, and interest rate hikes that could run into seven figures, helping to net the restructuring unit a profit of more than a billion pounds in a single year.
  • Contrary to claims by the bank, there were no Chinese walls between GRG and West Register bosses, who sat together on both the controlling committee that held sway over which businesses were transferred into the restructuring unit and the property acquisition committee that signed off the bank’s bids for their distressed assets. Auditors repeatedly warned about perceived conflicts of interest in GRG.
  • The property division, which amassed assets worth £3.3 billion during the crisis, was passed information that was not available to other bidders when it wanted to acquire properties from businesses in GRG. In contrast to what RBS executives told parliament, properties could be sold to West Register without being advertised on the open market.
  • Staff were told to conceal conflicts of interest from customers when demanding cheap shares in their businesses or stakes in their properties.

I’ve never seen such a cynical, large scale exercise in orchestrated pilfering at a regulated financial institution before. GRG dealt with over 16,000 companies, and the article states it put thousands of them under, many of them for profit rather than out of necessity. I strongly urge you to read the entire article in full.

Even in the mortgage crisis, where banks put millions of people into foreclosure when in many cases, mortgage modifications would have kept them in their home and reduced losses for investors, servicers nevertheless foreclosed because servicing agreements paid them to foreclose, not to modify mortgages. To them, what happened to the house was of no interest, as demonstrated by the fact that servicers regularly neglected foreclosed properties. For them, it was just collateral damage.

Mind you, these allegations aren’t new. In 2013, Lawrence Tomlinson provided the Treasury Select Committee with his report on how banks handled small businesses in the wake of the crisis. The bulk of his document described “very concerning patterns of behaviour leading to the destruction of good and viable UK businesses” by RBS. This in turn led RBS to go on the defensive, including hiring “Magic Circle” law firm Clifford Chance to issue a clean bill of health. Even that was sus, with the Treasury Select Committee questioning the narrow focus of the report and Clifford Chance’s conflicts of interest

What allowed this abuse to occur? The breakdown in controls (assuming this was a breakdown, as opposed to supervision theater) was the exact same one that we called out at Wells Fargo and JP Morgan in its London Whale scandal. The audit function, which is tasked with making sure that profit centers don’t run roughshod over laws, regulations, and accounting rules, reported to the head of GRG, as opposed to the most senior levels of the bank. This was the most glaring control failure, but far from the only one. Again from BuzzFeed:

The white-haired restructuring boss [Derek Sach] emerges from the documents as an all-powerful puppet master, simultaneously heading the management committee that held sway over which businesses were transferred into GRG, the West Register committees that decided which assets the property division should acquire, the asset purchase committees that signed off its major bids, and the risk and audit committee that scrutinised the restructuring division’s work. Repeated warnings from RBS’s external auditors about the “reputational risk” arising from this apparent conflict of interest were ignored.

Should we be surprised to learn that Sach comes our of private equity?

RBS has tried justifying its actions by arguing the losses on its total small business portfolio exceeded its recoveries though the asset-stripping operations at GRG, as if that somehow proved that it has not moved healthy businesses into GRG for the sole purpose of pilfering them. The article notes:

A cornerstone of RBS’s denial that it systematically destroyed small businesses has been the insistence that it had no reason to push good customers into difficulty. But the files reveal how government pressure to reduce its loan exposures, coupled with the opportunity to raid the cashequity, and assets of businesses going under, gave the bank a powerful incentive to pull the plug on thousands of its customers.

The government and regulators pushed RBS to achieve three main goals after the bailout. First, they pressed the bank to reduce its exposure to property loans, which were a main cause of the financial crisis. Then they required RBS to increase its capital reserves as a buffer against losses. Finally, they pushed for the bank to make more money overall, so that it could increase its lending to new businesses to aid the economic recovery, and so the government could sell its ownership stake at a profit. RBS devised a strategy to do just that.

The plan – which bosses told staff the government had “endorsed and agreed” – was to offload tens of billions of pounds’ worth of business loans that the bank had deemed “non-core”. It was widely hailed as an essential move to shore up the bank’s finances after the crash and protect the taxpayer’s investment.

But the RBS Files now reveal GRG played a central role in the delivery of that plan, acting as a clearinghouse for many of those “non-core” businesses as the bank pushed them towards the exit door: generating bumper revenues by extracting massive fees and fines, clawing back loans secured against property, seizing chunks of their equity, and offloading their assets. Through West Register, the bank could acquire their prime properties at fire-sale prices, converting them from risky loan exposures into owned assets that the bank planned to sell off later for a capital gain. And, by quarantining the properties in a network of subsidiaries owned by West Register, the bank substantially reduced the amount of capital it had to freeze on its balance sheet as a regulatory buffer against potential losses, freeing up extra cash.

And if a customer sued the bank, transfer to GRG was mandatory.

Again, I suggest you read the entire story, which is an amazing job of reporting. It describes the origins of the looting strategy in 2009, and how the bank used often bogus internal appraisals to take the position that customers had breached covenants of property loan agreements to force them to take new loans with punitive terms. It also includes detailed accounts of how GRG destroyed successful companies but people’s lives.

RBS would have succeeded in burying this appalling tale if it weren’t for a whistleblower throwing documents to the press that provided compelling evidence of RBS’s staggering theft. If you are in the UK, I hope you will call or write your MP and demand that action be taken against the relevant RBS executives, most importantly Derek Sach. This story, in combination with the revelations of Wells Fargo’s abuse of retail customers , confirms what foreclosure victims have long known: no one is safe if he stands between banksters and their profits.

Print Friendly, PDF & Email


  1. m-ga

    RBS used a similar strategy in the 1990s. The modus operandi was to persuade small businesses to expand via a loan, and then reduce the size of the loan without warning, and/or attach usurious rates to the loan. Both were done in a way that was absent from the initial agreement. The move would usually be made at a time which would maximum cause cashflow difficulties (e.g. payment of wages) for the business.

    The aim was for the business to fail, and RBS to collect the assets for a song.

    I saw it happen first hand, to my parents. In this case, my father personally covered the shortfall in company expenses. He ended up losing a house which would now have been worth £1m. He was very stupid to sign over personal guarantees to keep a business running. However, he didn’t believe at the time the bank was deliberately trying to make his business fail. Indeed, he was taking advice on them for how to make his business a success.

    It’s not much of a surprise to find RBS following similar tactics in the late 2000s. I’d guess the story has come up again because of the “government owned” angle. There were efforts to get something similar moving in the late 1990s though. I don’t have reference to hand, because a lot of this was before it was very easy to get hold of information on the internet. I also don’t particularly want to revisit the period. However, I do remember at the time, that I concluded it was a total dead end to try to do anything about it. Other people had tried, and it was clear the UK government had no appetite at all for tackling RBS. I expect this will be even more the case now that the UK government owns most of RBS. I could be wrong though – here’s hoping.

    1. Richard Smith

      See Chapter 3 of Ian Fraser’s “Shredded”. The 1990s version of the RBS unit that later became GRG was called SLS (Specialised Lending Services). To run it, back then, RBS hired a specialist from 3i, who was still working at the bank 20 years later. His name was Derek Sach.

      1. Skippy

        Very much… send evaluaters in and low ball the asset price so the margin is high, fees et al out the wazoo, and then owner goes boom, bank then takes asset and reevaluates it up higher to pad balance sheet.

        Disheveled Marsupial…. Heaps of stuff down under got the treatment post GFC due to shocks and impairment on previously healthy business…. sweet gravy….

  2. paul

    Indeed, he was taking advice on them for how to make his business a success.

    It always amazes me that well salaried, private sector bureaucrats feel they had any expertise or authority in running businesses.

    I’m sure they all get a 5 minute powerpoint

    “Grow your market share”
    “drive down costs”

    but most important:

    “sign here”

    1. Lary

      Yves could speak with first hand experience, but look at the entire consulting industry. You have high prestige firms that higher kids straight out of degree programs with little to no practical experience soon advising large businesses on how to stream line operations. I had a conversation a while back with a former MIT Ph.D. student who studied microbiology and then left academia and into McKinsey. He marveled that he was now advising agricultural firms on their business. Just throw smart credentialed people at problems and watch the magic happen!

      1. Yves Smith Post author

        In fairness to McKinsey, the teams at the firms hated doing those cost reduction studies and did everything they could not to be assigned to them, and even the partners weren’t too keen, since they involve firing people and that creates enemies in Corporate America. But the clients want them since they like someone else doing the dirty work, and it does take a bit of extra manpower to do these projects.

        All McKinsey or the hatchman does is help the client organize their own cost cutting ideas and score them. So they are managing a process. That’s why not very expert people can do it. McKinsey had a big playbook of how to do these studies.

    2. TheCatSaid

      I must admit that on one occasion in particular I received very good business advice from a banker. They had a perspective different from the semi-state bodies that are designed to encourage businesses to scale and to export. Unfortunately, by the time I got this advice I wasn’t able to act on it in that particular situation, but I never forgot it.

      There are wise and principled individuals in the banking sector. The industry as a whole, however, is set up for different purposes.

  3. ToivoS

    Is it considered perjury to lie to a committee of the British parliament? It does look like Sach and Sullivan lied to those MPs.

    1. Clive

      Yes (not perjury, but a serious offence), and RBS already has a rap sheet on this one. They talked their way out of it, and were — disgracefully — let off the hook.

      1. Clive

        The specific offence (being in contempt of Parliament) is explained here http://news.bbc.co.uk/1/hi/uk_politics/82017.stm but unlike other countries, the British parliament has a near millennia-long history of not wanting the judiciary involved in Parliament (fundamentally a good thing, but this is where it has some negative consequences for the rule of law) so the law and how it could be applied to RBS in respect of their potentially false testimony is a bit murky.

  4. Praedor

    Nothing will happen beyond a slap on the wrist and strong words. The UK LOVES their banksters more than even the US does. The UK govt, over decades, has gone all-in on making their economy ENTIRELY dependent on looter banks and looter big finance. Hell, the UK is THE tax evasion/offshore banking center of the universe. The UK government, unless taken over by Corbyn and his followers, is owned and operated by banksters for banksters.

    1. rich

      I’ve been reading about this for at least eight years, not least in Ian Fraser’s superb, astonishingly detailed book, yet for some reason now it seems to be allowed to be discussed in the wider press. @Praedor is absolutely right – nothing will happen.

  5. DJG

    Wow. The article details behavior that would have made the mafia proud. The treatment of Architect Gibbs and Farmer Riddoch is almost irrationally greedy, as if RBS can’t control its criminality.

    And this:
    “Most startlingly, the trigger list reveals that if the customer came up with “any proposed exit strategy” – meaning they told the bank they wanted to take their business elsewhere – they could be pushed into restructuring.

    “The files reveal that one Lincolnshire care home business, United Health, was put into GRG “mostly due to strained relations”. The relationship had suffered because RBS had sold the company an interest rate hedging product as a condition of its loan – one of the notorious “swaps” that promised to protect businesses if rates went up, but generated crippling fees when rates plummeted after the financial crash. United Health had “threatened to take legal action against the bank in this regard”, the memo said, and that was why it was in GRG.”

    Question: How extensive are U.S. operations? For some reason, I thought that RBS owned / owns ABN AMRO, the Dutch conglomerate, which was active in the U.S. of A. for a while.

  6. RabidGandhi

    The common denominator between this RBS case, the Wells Fargo debacle and JPM’s London Whale is the bonus system, which will be absent from any kayfabe that might ensue. Basing employee pay on having stellar numbers is the absolute best way to ensure that customers are defrauded on some or every level.

    But let’s say, best case scenario, FCA has a sudden epiphany and goes hard after UBS. First excuse, well it was some bad apples in GRG. If that doesn’t work, then well it was controls what done it, more bad apples scapegoated. But let’s say the sauce gets really thick and a few board members have to take a fall and commensurate fines are levied and victims duly compensated (na ga happen). Even still, all the scapegoats having failed, this would be done as a last-ditch sacrifice to preserve the bonus system which (eg, see today’s CalPERS post) is the raison d’être for the wealth slurping FIRE sector. If you eliminate performance-based bonuses, not only does the primary motive for fraud vanish, but you also no longer have any reason whatsoever for a CEO to make 350x what her employees make.

    Bonus… Performance…. the sacred mantras of the neoliberal religion that must be spared from all doubts.

    1. TheCatSaid

      Thanks for highlighting this. Personal greed–or just being willing to sell oneself for a salary and hopefully job security–is at the heart of much of our societies’ most pressing problems. The bonus system is a crucial part of the structure. If we want different results as a society, then we have to rethink the components making up the structure.

      1. RabidGandhi

        I agree, the wage system is not desirable nor is it set in stone. But just to point out, you can have a salary system and personal greed without making everything performance based. If everyone from CEO down was paid a fixed yearly salary with modest raises, 95% of the fraud would be eliminated de facto because there would be no motive for employees to goose the numbers to get more money. And the notion that these bonuses necessarily lead to better real performance is a religious axiom that sorely needs to be challenged.

        1. TheCatSaid

          The idea that money is necessary for civilization is another idea that will have to go. It is holding us back from more natural kinds of interchange.

          The next major collapse may force us into learning this.

          My prediction: it will be surprisingly easy for people to learn that survival depends on community, relationships and creativity. Money gets in the way of those things–it has become an end in itself and through this a distorting influence on many aspects of our supposedly civilized world.

  7. Down2long

    JPMorgan did the same thing here in the US with the $40 billion dollar loan portfolio the FDIC threw I. when Chase “bought” WaMu. Right after the London. Whale debacle hit, Chase started “elective” foreclosure proceedings on my former WaMu loan on which I had been current for more than two years following a chapter 11 workout.

    Within two months as they ramped up they systematically fired all the WaMu special! Services (distressed mortgage) prop, filed notice of default, continued to accept payments (which were never returned), put a receiver in place, and went to auction. Their lawyer bragged to me he had developed a system “to take buildings fast.”

    I fought him in court, having reopened my Chapter 11 case when Wells Fargo and Ocwen refused to accept my court ordered payments on two other properties.(The Wells battle continues to this day, 7 years post bk confirmation.) The judge magically decided the case while demanding motion after expensive motion from me, while Chase never filed anything. All I could ever figure out was that the judge and Chase’s lawyer must go to the same synagogue.

    Anyhow, all that money from that portfolio – which by rights should have gone to WaMu stakeholders -was used by Sliimin’ Simon to fill the massive ho!e in his balance sheet caused by the London Whale debacle, magically not reporting a loss that quarter (as I recall.)

    Http Obama’s favorite banker.

    Anyhow, sounds very similar to this RBS scandal. But nothing will happen, as we all know. Maybe a knighthood or two is all.

  8. Wisdom Seeker

    “Nothing will happen”? Maybe not.

    True, the corporate crime spree will not change due to government intervention, since the regulators and law enforcement agencies are captured in revolving-door cronyism.

    But workers, consumers and small businesses CAN take action – and not just at the ballot box. Although the “unions on strike” approach is losing power, there is still one all-powerful approach to destroying a corporation: destroy their revenue and profits through consumer boycotts.

    It’s time to Keep Calm and Boycott the Banks.

    1. BecauseTradition

      t’s time to Keep Calm and Boycott the Banks. Wisdom Seeker

      How? By using physical fiat, aka “cash”? That’s not practical. By using credit unions? Those are just banks where one must own at least one share of their stock.

      We need a Postal Savings Service or equivalent that makes no loans in order to truly boycott the banks.

      1. Wisdom Seeker

        1) Prioritize targets. Boycott the large, demonstrably criminal banks that are capable of destroying the economy and millions of lives all at once.

        2) Minimize your contribution to bank balance sheets generally. Use cash instead of debit/credit wherever you can. Pay bills immediately to minimize total system credit. Never borrow money except maybe for a house – and pay the mortgage off immediately.

        3) Invest in corporations and bond funds that do NOT contribute to the banking system. For bonds and money market funds, invest only in Treasury funds, not “prime” funds or “corporate” bond funds, where nearly all the “investment” is feeding the banks. Avoid owning bank stocks, and demand IRA/401K fund choices that do the same. (Better yet, ditch the 401K system, and demand that the tax benefit to feed the banks be eliminated in favor of a better system.)

        Given the fragility of the bank business model and balance sheet structures, it doesn’t take that much to make an impact.

        1. BecauseTradition

          You might conceivably hurt a big bank or two but so what? Smaller banks and credit unions systematically oppress the poorer in favor of the richer too.

    1. animalogic

      It quite amazes me, should I occasionally suffer a bout of reflection, how…”normalised” such crime and corruption has become. It’s as if we have a “South Seas Scandal” or a Watergate every few weeks. A few billion dollars here, a hundred billion there. A million lives destroyed here, a few thousand there. And so on.
      And of course we want some “reform”. Please, a prison sentence for him, a fine, a law change there, and an Inquiry/ Royal Commission here… Well, I guess it’s better than nothing….Except that, as a culture we are corrupt down into our DNA. Nothing short of a complete reset & a new “operating system” will alter our trajectory…but no one wants to be discomforted, which I can understand too….

      1. BecauseTradition

        but no one wants to be discomforted, which I can understand too….

        Reform could be accomplished rather painlessly if done correctly and with a good bit of private debt abolition without disadvantaging non-debtors. It’s lack of reform that’s more likely to cause discomfort.

        Oh well, it may take a bit more heat before enough see the light.

Comments are closed.