Royal Bank of Scotland is facing allegations of “unscrupulous” treatment of small businesses in a report claiming the lender drove firms to collapse to buy back their assets at rock-bottom prices.
Businessman Lawrence Tomlinson, who is entrepreneur in residence at the UK Department for Business, Innovation and Skills, said he had uncovered a dossier of evidence alleging that taxpayer-backed RBS has deliberately forced companies into default to seize their properties.
His report into small business lending practices across the sector contains explosive accusations against RBS, which have now been passed to the City watchdogs by Business Secretary Vince Cable.
The bank says is has hired a law firm to investigate the claims.
Mr Tomlinson, who has been compiling the report independently for the past six months, focuses allegations on the turnaround division at RBS – its Global Restructuring Group (GRG).
The division handles loans classed as being risky and is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.
But the report alleges that firms not necessarily in immediate financial distress are “engineered” into GRG, sometimes through small technical breaches of loan terms, such as late filing of minor financial information.
They are then hit with exorbitant rates and fees, which in some cases cause them to collapse, allowing RBS to buy their property and assets on the cheap for the benefit of its West Register property arm, according to Mr Tomlinson.
His report claims that fees charged by GRG can run into hundreds of thousands of pounds.
One business that submitted evidence to Mr Tomlinson said that it forked out £256,000 (€306,000) in fees alone while in GRG.
Another said that RBS made them pay an immediate sum of £40,000 (€47,900) to continue borrowing terms with the group.
Mr Tomlinson said he was calling for “immediate action to stop this unscrupulous treatment of businesses”.
He added: “From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price.”
The report found a “disproportionately high” number of complaints against RBS, but also found examples of similar practice at other banks.
Fellow part-nationalised player Lloyds Banking Group is also criticised for concentrating on short-term gain at the expense of its business customers.
The report said Santander UK was among a few banks that were praised by small business customers for their treatment.
Mr Cable confirmed yesterday that evidence against RBS in the report had been referred to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
He said: “Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken.
“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.”
Mr Cable added he had passed the report to Sir Andrew Large – the former deputy governor of the Bank of England, who is also publishing his full review into small business lending at RBS today.
Sir Andrew, who was commissioned by the bank alongside management consultant Oliver Wyman, released initial findings and recommendations earlier this month that raised concerns over ”serious” allegations of poor treatment by firms in financial distress.
He also said RBS had failed to meet even the bank’s own lending targets or the expectations of its customers.
RBS said it was “already committed” to an inquiry on how it treats small firms, following recommendations by Sir Andrew.
A spokesman said that GRG’s role was key to helping the bank face up to its commercial property “mistakes” made in the run up to the financial crisis.
He said: “In the boom years leading up to the financial crisis, the over-heated 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.”
He added: “GRG successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved.”
Mr Tomlinson was handed further evidence for his report from The Sunday Times after a two-month investigation by the newspaper also alleged worrying practices within GRG.
The Sunday Times probe claimed that RBS pulled finance for many small businesses that had not missed loan repayments and were trading through the recession.
Mr Tomlinson owns a string of businesses from care homes to motorsport through his LNT Group, which employs more than 2,000 people.
A spokeswoman for RBS – 80% owned by the taxpayer – confirmed that it had now hired law firm Clifford Chance to look into the claims. Details are set out in a letter from the banking group’s new chief executive Ross McEwan.