Bailed-Out RBS Systemically Forged Customer Signatures: Whistle-Blowers

Yves here. UK journalist Ian Fraser, who has sometimes worked with our Richard Smith, has been dogging scandals at RBS for years. As bad as bank misconduct in the US has been, RBS institutionalized larceny in a manner that is arguably unprecedented in a major institution. From a 2016 post, 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.

Now to the latest sighting of sordid RBS conduct….

By Don Quijones, of Spain, the UK, and Mexico, and editor at Wolf Street. Originally published at Wolf Street

The Royal Bank of Scotland, the UK mega-lender that has already cost British taxpayers over £90 billion in bailouts, losses, fines and legal fees, could be about to face its biggest scandal yet following allegations staff were routinely “trained” to forge customer signatures.

First, managers were taught how to fake the names on key customer documents, according to whistle-blowers at the bank, cited by the Scottish Mail on Sunday. Staff were then allegedly shown how to download authentic signatures from the bank’s online system, trace them on to new documents by holding them against a window and to photocopy the paperwork a number of times, to “obscure the image somewhat” and thus avoid detection — a blatantly criminal practice that allegedly became commonplace throughout the bank to speed up processing.

The latest allegations are further confirmation of just how poisoned a legacy the pre-crisis management team left behind at the bank. Obsessed with achieving rapid growth at just about any cost, executives “bred a culture of impunity that affected most aspects of [RBS’] business,” says British financial journalist Ian Fraser.

Fraser was one of the first journalists to expose how some of the bank’s employees edited minutes of telephone conversations with customers to avoid the bank having to shell out compensation for misselling insurance products. At one point as many as 1,000 employees at RBS’s investment banking division (nearly a tenth of its back-office staff) were solely engaged in data-clean up and reconciliation — i.e., doctoring or recreating documents, such as loan and derivatives contracts, in ways that suited the bank and often undermined the position of counterparties. 

It was small business customers that suffered most at RBS’ hands. The bank’s Global Restructuring Group, which was supposed to help turn compromised business customers around, did everything it could to push them over the edge in order to raise quick funds during the financial crisis. Two weeks ago, a government inquiry into the scandal published a tip sheet written by a GRG manager that included points such as “Rope: sometimes you just have to let customers hang themselves.”

The GRC deliberately “knee-capped” business customers they didn’t particularly like, through various techniques such as phony valuations or misselling them deadly interest rate swaps, so that the bank could pretend they were in breach of conduct, says Fraser. Then, as a favor to a larger company it valued much more, the group would sell it the smaller company or its remaining assets at a discount and pocket the change. In this manner the group is alleged to have wiped out thousands of smaller companies at the height of the financial crisis.

Top executives at the bank say they will “no longer fight” the conclusions and recommendations of the government’s “withering” independent review of mistreatment of small business customers by the bank, the FT reports today. In other words, the senior bankers finally admit that the bank defrauded its small business customers.

For the moment the same executives deny any systemic document tampering. But if irrefutable evidence emerges, they may be forced to walk back those denials, too. And a fresh new round of legal action can begin.

The latest allegations of fraud could turn out to be the tip of a very large and dangerous iceberg, Fraser warns. If the practice of forging signatures was as widespread as the whistle-blowers contend, there’s a risk, albeit small, that a court will decree all contracts between RBS and its customers null and void, which could tip the lender over the edge. Such an outcome may seem preposterous, but so too was the notion that a high street bank would systematically forge its customers’ signatures. Until today.

Arguably the biggest tragedy in all of this, besides all the small businesses wiped out by the bankers’ greed, is that the worse the RBS saga gets, the more expensive it becomes for British taxpayers, almost none of whom had anything to do with the bank’s fraudulent practices. Some taxpayers were even victims of the fraud yet still have to help fund the bank’s continued survival, which is getting more and more costly as time goes on.

The British State owns 81% of RBS. Since receiving a £45 billion bailout 10 years ago, at the very beginning of the financial crisis, the bank has racked up further losses of £58 billion. With taxpayers owning an 81% stake, their part of the losses amount to £47 billion — meaning that the total cost of its disastrous lending, over-paying for takeovers, fines and legal bills actually tops £90 billion. With little sign of RBS turning an annual profit any time soon, the accumulated losses are expected to continue to grow while doubts still remain about just how accurately RBS prices its assets.

RBS’ ongoing trials and tribulations are a stark reminder of just how little road has been traveled since the last financial crisis and how deeply vulnerable the UK’s banking system — and with it, the broader economy — remains to another downturn, just at a time that the potential warning signs of another crisis are beginning to flash. By Don Quijones.

“Not another Carillion,” said the UK government to soothe frazzled nerves, as an entire industry is teetering. Read… Crash of Outsourcing Giant with 70,000 Employees Globally Sparks New Panic