Treasury agency had role in controversial RBS unit GRG

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Evidence has emerged of a government agency’s role in the Royal Bank of Scotland’s (RBS) controversial Global Restructuring Group (GRG).

The Asset Protection Agency influenced GRG’s strategy including decisions that determined business customers’ fortunes, the BBC has learnt.

Separate court evidence suggests the agency told RBS to withdraw customer support, when the bank did not want to.

RBS said it disagreed with the claims while the Treasury declined to comment.

More than 16,000 small business customers were transferred to RBS’s Global Restructuring Group. In what MPs have referred to as the worst scandal since the financial crash, GRG was found in a leaked official report for the Financial Conduct Authority to have mistreated thousands of business customers. Many of them were ruined and others lost not only their livelihoods but their marriages and their physical and mental health.

Oliver Morley Estates, an industrial warehousing company based in the north west of England, which is taking legal action against RBS, suggested GRG relationship managers rejected a proposal to re-finance much of the business because of the Asset Protection Agency’s (APA) views.

Emails quoted in court reveal that RBS wanted to support the rescue proposal, arranged by founder Oliver Morley to re-finance more than £70m of loans to his property group with the help of another bank, believing it to be “the best option for the bank”.

However, the Treasury’s Asset Protection Agency blocked the bank from doing so, according to evidence disclosed in court. Instead it wanted the property to be sold to RBS’s own property division, West Register.

‘Craziest decision yet’

The court heard RBS managers saw the APA’s view as “certainly their craziest decision yet”. Yet RBS staff thought “the APA’s views are clear and unlikely to change.”

Under the Asset Protection Scheme, part of the government bailout in the financial crisis, loans worth £282bn were insured against default by taxpayers, limiting the potential losses to which RBS was exposed.

Between 2009 and 2012 the Asset Protection Agency staff were in charge of overseeing the scheme. Its stated goal was “to maximize the value of the assets in the scheme and reduce the probability of payouts”.

Hugh Sims QC, for the former GRG customer, Oliver Morley, told the High Court that internal bank emails disclosed as part of civil proceedings also suggested that within GRG “things had become increasingly personal.”

In one internal email exchange discussing Mr Morley’s attempts to hold on to his business, GRG staff say “the borrower is toast”. In another they are looking forward to “the Morley massacre” the following Tuesday.

In another email discussing their proposal to force him to sell his properties to the banks’ own property division, GRG staff say if he disagrees “it’s his head on a spike”, the court heard.

RBS said it “fundamentally disagrees with Mr Morley’s claims and does not believe they have any merit”.

“It is contesting them vigorously in court. The bank incurred around £30m of losses on the £75m it lent Mr Morley, who was a sophisticated customer in receipt of extensive professional advice.”

However, it added: “The language used in these internal communications from 2009 was clearly unacceptable and would have no place in the bank we are today. These communications did not reflect or lead to customer detriment.”

APA influence

Separately from the court hearing, the extent of Treasury influence is underlined by previously unnoticed Asset Protection Agency (APA) documents showing the Treasury agency influenced GRG’s strategy and its approach to customers’ loans.

Official APA documents unearthed from public sources also suggest the bank was prohibited from releasing GRG customers from secured loans without its approval, giving the Treasury an effective veto on any re-financing by business customers wanting to exit GRG.

While GRG told customers it was there to help them turn around the fortunes of their business, the report, leaked to the BBC in 2017, found the bank was seeking to make profits from distressed businesses and had systematically broken rules on fair treatment of customers.

The BBC research adds to little-noticed comments given by GRG boss Derek Sach, who told MPs in 2014 that it could be in the interest of the bank’s finances to destroy a business customer and that the Treasury agency, the APA, was encouraging the bank to withdraw more business customers’ loans.

Asked before the Treasury select committee if it might be in the commercial interests of RBS to destroy a customer so as to strengthen its balance sheet, Mr Sach said:

“That is absolutely right and, as you will know, the Asset Protection Agency came into being in 2010 and they were always pushing us to go for more foreclosure for exactly that reason, which is something I robustly resisted throughout the period. There is quite a bit of correspondent between me and them of threats and counter threats and not being prepared to do that.”

The report leaked to the BBC found inappropriate treatment of business customers in GRG was widespread, systematic and intentional. More than nine in ten customers suffered some form of mistreatment and only a small fraction returned to normal banking with their business intact.

Promontory, the consultants who authored the leaked report, told MPs on the Treasury select committee they were expecting to conduct a further review on which individual culpability would have been examined.

However, Financial Conduct Authority chief executive Andrew Bailey decided instead that the FCA would conduct its own inquiry. In the summer of 2018, he announced the FCA would not be taking its investigation further, prompting accusations from small business victims of GRG of a cover-up.

The evidence unearthed about the Asset Protect Agency’s role suggests the executives would have been able to point to government involvement, potentially exposing the Treasury to large compensation claims.

In the light of the new evidence, Oliver Morley Estates has given notice that it intends to sue Her Majesty’s Treasury for compensation for its role in dismantling its business.

The FCA said it would shortly be publishing a full report about the findings of an enforcement investigation into RBS’s GRG division.

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