The Royal Bank of Scotland’s global restructuring group (GRG) stripped down companies in order to improve RBS’s capital position, according to an investigation from a national newspaper.
The national newspaper states that the purpose of GRG was to help ailing businesses in terms of minimising losses, business restructuring and ultimate return to profitability. Instead, The Times revealed that the bank “ trained hundreds of frontline GRG staff in how to assess the small and mid-sized companies they were restructuring in terms of their impact on the bank’s capital ratio.”
The SMEs were then ‘‘subjected to excessive fees and charges and to questionable revaluations of the assets their loans were secured against,” causing many businesses to fail.’’
Banks have to ensure they have enough capital to absorb any potential losses they may incur when they lend. Businesses that are smaller require more capital because they are higher risk, and according to The Times, this was the incentive for RBS to expedite the removal of high risk assets. The newspaper states this practice would allow the bank to pass stress tests and improve its capital position.
The Times also revealed that the Serious Fraud Office is observing the events unfolding at GRG.
“Following the reckless lending leading up to the financial crisis, many of our customers and their businesses ended up in serious financial difficulty. GRG helped minimise losses where it could and successfully restructured a significant number of businesses it worked with, advancing over £100 million of new lending and safeguarding hundreds of thousands of jobs,” a RBS spokesman told The Times.