Royal Bank of Scotland has been cleared of deliberately engineering the collapse of some of its business customers, but has decided to sell off the £3.2bn commercial property portfolio at the centre of the row.
The state-backed lender was accused last November in a report by a former government adviser, Lawrence Tomlinson, of putting some distressed commercial clients out of business in order to scoop up assets for its own West Register property business.
But Clifford Chance, the law firm commissioned by RBS to undertake an inquiry into the Tomlinson allegations, said there was "no evidence" of fraudulent activity, although it criticised other aspects of the bank's practices.
The 60-page report said: "We did not identify any files which fitted the description of the bank 'engineering' a default or 'artificially distressing' a customer."
Clifford Chance also dismissed allegations that RBS would undervalue property assets, causing customers to breach loan-to-value agreements.
It said: "We found no evidence that the bank 'low-balled' bids to customers in the hope or expectation of acquiring properties at a low price."
But the law firm did say that "both in relation to the handover process and the restructuring process more generally, some [RBS] customers complained that they experienced insensitive, rude or aggressive behaviour."
Clifford Chance said that the evidence on the files did not allow it to reach a conclusion as to customers' concerns about their interactions with the bank during the process, or the behaviour of any individual at the bank.
The report also explicitly criticised the bank for a lack of transparency on fees, which led to RBS promising to clarify them and remove interest payments for the first 90 days when a customer defaults.
Ross McEwan, chief executive of RBS, said the bank was making various changes in the light of the report, including the disposal of its West Register portfolio, to remove the perception that there was a conflict of interest.
The portfolio includes more than 1,300 UK residential properties and assets such as a Sunningdale home famous for once entertaining the Duke and Duchess of Windsor and a £2m house located in Sandbanks, Dorset.
McEwan welcomed the substance of the Clifford Chance report, which he believed would help lifting a cloud of distrust which was threatening the integrity of his bank.
"That trust was put at risk at RBS by the allegation of systematic abuse made in the Tomlinson report. I welcome the Clifford Chance findings, which show no evidence of the serious and damaging allegation that we had set out to deliberately defraud our business customers."
McEwan went on: "This allegation had a profound effect on the bank and on the work of a team that successfully turns round the vast majority of businesses that it works with. We could not let this allegation hang over us."
But Tomlinson hit back at Clifford Chance, saying he had never accused RBS of fraud and would look forward to a more independent assessment being done by a City regulator.
He added: "I am struggling, however, to understand headlines that the Clifford Chance report gives RBS a clean bill of health as their broader findings around the lack of fee transparency, lack of adherence to mandatory rules for internal valuations and need for an improvement in the business culture of [RBS's restructuring operation] tally with the central themes of the Tomlinson report and the patterns of behaviour I witnessed."
Vince Cable, the business secretary, said RBS, which is 81% state-owned since a financial bailout in 2008, had taken "the right step" in asking Clifford Chance to review the allegations but believed the lawyers' report also contained important lessons from which the bank must learn.
"The Financial Conduct Authority is still conducting its independent review of the allegations which, whatever the outcome, will enable RBS to begin to restore trust in their organisation and provide vital support to business customers," he added.
RBS acknowledged there was a damaging perception that the bank had a conflict of interest when it purchased a property as part of a restructuring process, despite the fact that West Register had only successfully bid for property owned by 166 small and medium-sized businesses in the past five years.
Because of this, the bank said it had taken the decision to "wind down and sell" any assets in West Register, which is part of its global restructuring group.
The bank's decision to change some of its working methods was welcomed by the main employer's group, the CBI.
Leo Ringer, the head of financial and fiscal policy at the CBI, said: "Businesses want long-term collaborative relationships with their banks, so moves by RBS to focus on putting customers front and centre are welcome."
Allegations that RBS had been aggressively forcing customers to liquidate their business since the banking crisis of 2008 contrast sharply with allegations elsewhere that the bank has been too lenient.
The Bank of England has often criticised Britain's largest lenders such as RBS for failing to write down the value of assets they own on loans to business customers which are unlikely to be recovered.
Just over a year ago, the then deputy governor of the Bank, Paul Tucker, said: "Banks [have to] have honest balance sheets …
This is a major issue for all top bankers; they have to look at their loan books and say: 'Well, what actually do we think the rate of recovery is going to be?'" This led to intense speculation that RBS would have to write down the value of its loans by tens of billions of pounds.
theguardian.com
The state-backed lender was accused last November in a report by a former government adviser, Lawrence Tomlinson, of putting some distressed commercial clients out of business in order to scoop up assets for its own West Register property business.
But Clifford Chance, the law firm commissioned by RBS to undertake an inquiry into the Tomlinson allegations, said there was "no evidence" of fraudulent activity, although it criticised other aspects of the bank's practices.
The 60-page report said: "We did not identify any files which fitted the description of the bank 'engineering' a default or 'artificially distressing' a customer."
Clifford Chance also dismissed allegations that RBS would undervalue property assets, causing customers to breach loan-to-value agreements.
It said: "We found no evidence that the bank 'low-balled' bids to customers in the hope or expectation of acquiring properties at a low price."
But the law firm did say that "both in relation to the handover process and the restructuring process more generally, some [RBS] customers complained that they experienced insensitive, rude or aggressive behaviour."
Clifford Chance said that the evidence on the files did not allow it to reach a conclusion as to customers' concerns about their interactions with the bank during the process, or the behaviour of any individual at the bank.
The report also explicitly criticised the bank for a lack of transparency on fees, which led to RBS promising to clarify them and remove interest payments for the first 90 days when a customer defaults.
Ross McEwan, chief executive of RBS, said the bank was making various changes in the light of the report, including the disposal of its West Register portfolio, to remove the perception that there was a conflict of interest.
The portfolio includes more than 1,300 UK residential properties and assets such as a Sunningdale home famous for once entertaining the Duke and Duchess of Windsor and a £2m house located in Sandbanks, Dorset.
McEwan welcomed the substance of the Clifford Chance report, which he believed would help lifting a cloud of distrust which was threatening the integrity of his bank.
"That trust was put at risk at RBS by the allegation of systematic abuse made in the Tomlinson report. I welcome the Clifford Chance findings, which show no evidence of the serious and damaging allegation that we had set out to deliberately defraud our business customers."
McEwan went on: "This allegation had a profound effect on the bank and on the work of a team that successfully turns round the vast majority of businesses that it works with. We could not let this allegation hang over us."
But Tomlinson hit back at Clifford Chance, saying he had never accused RBS of fraud and would look forward to a more independent assessment being done by a City regulator.
He added: "I am struggling, however, to understand headlines that the Clifford Chance report gives RBS a clean bill of health as their broader findings around the lack of fee transparency, lack of adherence to mandatory rules for internal valuations and need for an improvement in the business culture of [RBS's restructuring operation] tally with the central themes of the Tomlinson report and the patterns of behaviour I witnessed."
Vince Cable, the business secretary, said RBS, which is 81% state-owned since a financial bailout in 2008, had taken "the right step" in asking Clifford Chance to review the allegations but believed the lawyers' report also contained important lessons from which the bank must learn.
"The Financial Conduct Authority is still conducting its independent review of the allegations which, whatever the outcome, will enable RBS to begin to restore trust in their organisation and provide vital support to business customers," he added.
RBS acknowledged there was a damaging perception that the bank had a conflict of interest when it purchased a property as part of a restructuring process, despite the fact that West Register had only successfully bid for property owned by 166 small and medium-sized businesses in the past five years.
Because of this, the bank said it had taken the decision to "wind down and sell" any assets in West Register, which is part of its global restructuring group.
The bank's decision to change some of its working methods was welcomed by the main employer's group, the CBI.
Leo Ringer, the head of financial and fiscal policy at the CBI, said: "Businesses want long-term collaborative relationships with their banks, so moves by RBS to focus on putting customers front and centre are welcome."
Allegations that RBS had been aggressively forcing customers to liquidate their business since the banking crisis of 2008 contrast sharply with allegations elsewhere that the bank has been too lenient.
The Bank of England has often criticised Britain's largest lenders such as RBS for failing to write down the value of assets they own on loans to business customers which are unlikely to be recovered.
Just over a year ago, the then deputy governor of the Bank, Paul Tucker, said: "Banks [have to] have honest balance sheets …
This is a major issue for all top bankers; they have to look at their loan books and say: 'Well, what actually do we think the rate of recovery is going to be?'" This led to intense speculation that RBS would have to write down the value of its loans by tens of billions of pounds.
theguardian.com
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