RBS to compensate squeezed firms

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Royal Bank of Scotland is to compensate up to 12,000 small business customers that it allegedly mistreated in the wake of the financial crisis.

The bank has announced a fund of £400m for affected firms. Its Global Restructuring Group (GRG) had been accused of buying assets cheaply from failing firms it claimed to be helping. However, regulators found RBS did not “artificially engineer” the transfer of customers to GRG. Last month, RBS said it had let some small business customers down in the past but denied it had deliberately caused them to fail.

‘Very sorry’

On Tuesday, RBS chief executive Ross McEwan said: “We have acknowledged for some time that mistakes were made. Some of our customers went through what was a traumatic and painful experience as a result of the crisis. “I am very sorry that we did not provide the level of service and understanding we should have done.” The bank will automatically refund complex fees paid by about 4,000 small business GRG customers between 2008 and 2013, and will set up a new complaints process. The process will be overseen by retired High Court judge Sir William Blackburne. Complaints will initially be dealt with by the bank, and any that are not resolved will then be considered by the third party. Customers who feel they have lost out may have to fight for redress through the courts.Mr McEwan told the BBC: “It would be fair to say that consequential loss needs to go to the court at the end of the day, because it will be up to a court process in most of these situations for them to determine whether… those businesses were going to be viable, and be a very successful business going forward.” In the case of businesses that have gone bust but are due compensation, it will be up to administrators to decide whether to reconstitute the firm, said RBS regulatory affairs officer, Jon Pain. t may be the case that only creditors of a dissolved firm will benefit from any compensation, rather than the business owner, he said.

Poor support

In 2014, the FCA commissioned a review of the work of GRG. On Tuesday, the FCA said it found there was no widespread practice of transferring customers to GRG for their value, or requesting cash injections when the bank had no intention of supporting the business. Small businesses that were transferred to GRG “were exhibiting clear signs of financial difficulty,” the FCA said. However, the bank did fail to support businesses “in a manner consistent with good turnaround practice”, including “placing an undue focus on pricing increases and debt reduction without due consideration to the longer term viability of customers”. RBS’s announcement coincides with the appearance before the Treasury Select Committee of Andrew Bailey, FCA chief executive. A report three years ago by the government’s then entrepreneur in residence, Lawrence Tomlinson, accused the taxpayer-owned bank of deliberately putting viable businesses on a path to destruction while aiming to pick up their assets on the cheap. The allegations were supported by a cache of documents, passed by a whistleblower to BuzzFeed News and BBC Newsnight last month. The documents confirmed that bank staff were rewarded with higher bonuses based on fees collected for “restructuring” business customers’ debts – cutting the size of their loans and getting cash or other assets from the customer.

‘Customers let down’

In what was described by an RBS executive as “Project Dash for Cash”, staff were asked to search for companies that could be restructured, or have their interest rates bumped up. Last month, the bank told Newsnight: “RBS has been very clear that GRG’s role was to protect the bank’s position… In the aftermath of the financial crisis we did not always meet our own high standards and we let some of our SME customers down. “Since that time, RBS has become a different bank and significant structural and cultural changes have been put in place, including how we deal with customers in financial distress.”

BBC News



Taxpayer bailouts for banks ‘too big to fail’ to end by 2022

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The UK’s banks should no longer be “too big to fail”, under revised rules announced by the Bank of England. The regulations will force banks to hold enough money from their investors to absorb losses without help from the taxpayer. If any bank does face collapse, the funds will be spent to finance an orderly wind-down. The Bank’s governor, Mark Carney, said the new rules were a “significant milestone”. “The implementation of [the rules] will ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way, without recourse to public funds, and whilst allowing households and businesses to continue to access the services they need,” he said. About 400 banks and building societies will have to hold a collective cushion of £223bn, raised by selling bonds (glorified IOUs) to investors, but the current shortfall is estimated at only £20bn.

Banking crisis

The new rules were first suggested in the aftermath of the 2008-2009 banking crisis when the UK government had to spend £115bn to rescue the Lloyds Banking Group and the Royal Bank of Scotland from imminent collapse. The then chancellor, Alistair Darling, said at the time that RBS had been within just a couple of days of having to shut down its ATM machines because it was about to run out of cash. At one point, the direct government subsidy to the entire UK banking industry reached more than £1tn, according to the National Audit Office. If an insolvent bank does have to be rescued by being sold off or broken up, the investors’ funds will be used to keep it going in the interim without taxpayers being asked to dip into their pockets. International rules already require the world’s biggest banks, some of which are based in the UK, to have similar financial cushions in place by 2019. The new UK rules will widen the requirements to all UK banking institutions and will be introduced in two stages: interim requirements by 2020 and then final rules by 2022. The final date represents a two-year extension by the Bank from its original proposals, which have been the subject of consultation with the banking industry. “Banks are now required to hold several times more loss-absorbing resources than they did before the crisis, while annual stress tests check firms’ resilience to severe but plausible shocks,” the Bank said. “Banks are now also structured in a way that supports resolution. “The Bank of England now has the legal powers necessary to manage the failure of a bank, and significant progress has been made to ensure there is coordination between national authorities should a large international bank fail,” it added.

‘Too big to fail’

The size of the financial cushion will be decided individually for each bank. However smaller banks, building societies and investment firms – those with fewer than 80,000 accounts – whose collapse would not disrupt the banking system, will not have to raise fresh cash. They will simply have to continue covering savers under the requirements of the Financial Services Compensation Scheme (FSCS). The 2008-2009 banking crisis triggered a short but deep recession which led to a big cut in living standards for millions of people in the UK. The sight of some of the most highly paid individuals in the country being rescued from a problem produced by their own reckless behaviour, produced widespread anger. The financial authorities in the UK and internationally decided that taxpayers should not be on the hook for failed banks in the future. “During the financial crisis, governments were forced to bail out failing banks, rather than risk the damage that a disorderly failure would have had on the wider economy and financial system,” the Bank said. “Some banks were too big to be allowed to fail,” it pointed out.

By Ian Pollock Business reporter, BBC News


RBS facing £400m bill to compensate small business customers

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Bank apologises for poor treatment during financial crisis and will automatically refund fees.

Royal Bank of Scotland has apologised to 12,000 small business customers after admitting it faced a £400m bill to compensate them for poor treatment during the banking crisis. After at least three years of complaining of bad service from the bailed-out bank, small businesses will automatically receive refunds of the fees charged and allowed to make fresh complaints about their treatment between 2008 and 2013. Ross McEwan, the chief executive of RBS, said: “We have acknowledged for some time that mistakes were made. Some of our customers went through what was a traumatic and painful experience as a result of the crisis. I am very sorry that we did not provide the level of service and understanding we should have done.” Confirmation of the compensation for small businesses came as Andrew Bailey, the chief executive of the Financial Conduct Authority, prepared to appear before the Treasury select committee. Ahead of Bailey’s evidence, the FCA produced an update on a much-delayed report into what went wrong in RBS’s now-defunct global restructuring group (GRG) but did not publish the long-delayed report.

Allegations surfaced in 2013 when Lawrence Tomlinson, a businessman who was an adviser to the then business secretary, Sir Vince Cable, compiled a dossier of allegations that RBS was deliberately wrecking small businesses to make profits for itself. At the time, Tomlinson said he been approached by businesses which had ended up in GRG and had their properties sold to the bank’s specialist property arm, West Register. John Mann, a Labour MP who sits on the committee, said: “A £400m compensation scheme simply isn’t enough, we the taxpayers and part owners of RBS along with their customers need to know why this was allowed to happen.” The FCA said that “isolated examples of poor practice were identified” at RBS but dismissed the most damning allegations that the bank deliberately drove small business to the brink to make a profit.

Of the 12,000 customers put into GRG, around 4,000 were not viable, the FCA said. “Of the potentially viable [small business] customers transferred to GRG, the report concluded that most of them experienced some form of inappropriate action by RBS. However, the report also concluded that, in a significant majority of cases, it was likely that inappropriate actions did not result in material financial distress to these customers,” the FCA said. The regulator, which first promised to publish the report in December 2015, said it had been involved in developing the RBS compensation scheme. A new complaints process will be overseen by Sir William Blackburne, a retired high court judge, while complex fees paid by small businesses in the UK and Republic of Ireland will automatically be refunded. McEwan said: “Although the FCA review into the historical operation of GRG continues, we believe that now is the right time to deal with the areas where we accept some customers were let down in the past. “The culture, structure and way RBS operates today is fundamentally different from the period under review. We have made significant changes to deal with the issues of the past, so that the bank can better support SME [small and medium enterprise] customers in financial difficulty whilst also protecting the bank’s capital.” He has repeatedly defended the bank against claims that it deliberately tried to profit from small business customers and RBS repeated on Tuesday that it had lost more than £2bn in lending to small business.

While the FCA published the findings of the report – commissioned from legal experts Promontory and Mazars – it cautioned that the activities carried out by GRG were largely unregulated. “Therefore, the FCA’s powers are limited in this area,” the FCA said. However, it does not necessarily indicate the bank will escape financial sanction from the regulator. “The FCA is currently assessing what further work may be needed given the findings in the report. The FCA will provide a further update on this matter when it is in a position to do so,” the City regulator added. It said Promontory examined 207 cases and covered a six-year period, analysing 323 gigabytes of data – approximately 1.5m pages and 270,000 emails. Gary Greenwood, analyst at Shore Capital, said the compensation bill was “not as big as feared and may also take some heat out of the situation”. A review of the Tomlinson allegations commissioned by RBS from Clifford Chance in 2014 had highlighted the issues of poorly structured fees. McEwan said the situation could not be tackled until now as the FCA review was on-going.

Jill Treanor

Williams & Glyn sell off sparks watchdog’s attention

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Royal Bank of Scotland’s (RBS) potential sale of Williams & Glyn to challenger Clydesdale & Yorkshire Bank (CYBG) has sparked the attention of the banking watchdog.

RBS was told to divest of Williams & Glyn, and its network of more than 300 branches, by 2017 as part of its £45bn state bailout deal. CYBG revealed it was in talks to possibly snap up the bank last month. Now, The Sunday Telegraph has reported the Prudential Regulation Authority (PRA) is appointing investment bankers to advise on whether integrating Williams & Glyn’s computer systems could wobble the challenger bank. Offloading Williams & Glyn has been a a tricky journey for RBS. Efforts to sell to Santander in 2012, which were nicknamed Project Rainbow, fell through because of IT problems, and, earlier this year, another bid from the bank collapsed over concerns on the price. RBS had once aimed to spin off and float Williams & Glyn, but revealed that plan had been scrapped in its interim results in August. The bank also warned in its most recent quarterly results that it was unlikely it could divest of Williams & Glyn by the 2017 deadline it had been given. RBS reported a loss of £469m for its third quarter of 2016, as litigation and restructuring costs of nearly £900m took their toll.

The PRA, RBS and CYBG all declined to comment.

Hayley Kirton


Barclays card glitch: Customers charged twice in bank’s latest debit card error

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A customer said that Barlcays had inadvertently taken a £4,000 payment twice!

Barclays customers face being charged twice as the high street lender tries to fix a debit card payment glitch. However, by Monday afternoon the bank said the problem had been fixed, and all customers had been refunded. Some customers vented their anger on Twitter in the morning saying the system error has left them overdrawn. Theresa Worthington tweeted: “I had a text today to say I’m overdrawn I have been charged twice for two things I’ve purchased over the weekend why”. Barclays said: “We detected a small number of duplicated debit card payments this morning.”

“We are working to fix this and refund customers as soon as possible. We apologise for any inconvenience caused and affected customers will not be out of pocket.” Customers are advised to check their statements to make sure any potential duplicate payments are refunded. This is the latest issues affecting Barclays debit card payments. In April, Barclays customers complained that they were unable to make payments from their accounts, an issue for which the bank later apologised and attributed to a routine systems update. While in October last year, Barclays customers had trouble getting cash from their accounts after the bank was hit by a system glitch as the clocks changed to Greenwich Mean Time.Barclays’s payment glitch follows a similar problem with card payments at Asda over the weekend. The problem left thousands of customers facing long queues at the store’s checkouts across the UK.

Zlata Rodionova

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