RBS took advantage of businesses, according to leaked documents

Royal Bank of Scotland (RBS) has come under fire from leaked documents sent to the BBC and Buzzfeed alleging it exploited struggling businesses to rake in a profit.

The tax payer funded banks would target struggling businesses when restructuring their loans, ramping up interest rates, running the business into the ground, at which point the lender would swoop in and buy the leftover assets on the cheap.

The unscrupulous process, if true, might have helped the bank strengthen its balance sheet in the aftermath of the 2008 recession.

These practices were first picked up by former entrepreneur in residence Lawrence Tomlinson in 2013, when he released a report on the banks Global Restructuring Group (GRG), which is where the bank places these business accounts.

After the report was released, the bank paid law firm Clifford Chance to conduct an “independent investigation” that found “no evidence” of the claims in their report in 2014.

The financial conduct authority (FCA) announced that it would undertake an investigation; however, the process has been delayed with its chief executive Andrew Bailey refusing to name a date of publication.

According to the documents, the bank’s staff were offered higher bonuses to seek out firms that could be added to the GRG, under an operation called “Project dash for cash”.

Unrealistically low valuations were used to claim business customers had reached their borrowing limits, forcing them into the GRG unit. Customers that had a bad relationship with the bank were also targeted.

Staff would also try to “provoke a default” amongst viable businesses that had not defaulted on their loans, the reports said.

Over 12,000 companies were put into the group shortly after the recession, with over £65bn worth of loans issued to them between 2007 and 2012.

Business owners who fell victim to these practices said the loss of their livelihoods led to family break-ups and deteriorating physical and mental health while others have been made homeless or bankrupted.

The documents also showed that out of the 1,483 businesses transferred to GRG in 2012 only 452 were returned to normal banking, debunking the bank's rebuttal that the majority did not remain in GRG.

The bank told BBC 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.”

Despite this, the bank insisted that a detailed review of millions of pages of documents had found no evidence that "the bank artificially distressed otherwise viable SME businesses or deliberately caused them to fail."

In 2014, senior RBS executives in charge of GRG Derek Sach and Chris Sullivan claimed before MPs in in response to Tomlinson’s allegations that GRG was “not a profit centre”.

However, after repeating this 27 times, former RBS chairman Philip Hampton retracted their statement weeks later saying there had been a "lack of clarity" and it was "an honest mistake".

The documents showed that two years prior, GRG was said to be “a major contributor to the bank’s bottom line”, generating £1.2bn in 2011.

Sach was also simultaneously the head of GRG and the property arm of RBS West Register, that decided what customer assets to buy for the bank.

In the report, Clifford Chance denied Tomlinson’s accusation that West Register was deliberately targeting clients' assets.

However, the documents reportedly did show that West Register was being passed information about GRG customer properties even before the companies had agreed to sell them.

Tomlinson said: "These documents are massively significant in that they finally, for me, prove what was in my report. I think RBS should just come clean and say yes, GRG was a profit centre and it did act against the best interest of the UK as a whole."

Senior analyst at Hargreaves Lansdown Laith Khalaf said: “The evidence now looks pretty damning against Royal Bank of Scotland, yet the irony is the taxpayer is going to end up carrying most of the can for any misconduct costs, as the Exchequer still owns around three quarters of the bank.

RBS is already potentially facing a multi-billion dollar fine in the US for mis-selling in the run up to the credit crunch. These latest revelations suggest the financial crisis may not have brought an end to bad behaviour at the bank however, which looks to have continued while under government ownership.”

Andrew Tyrie MP, Chairman of the Treasury Committee, said: “On the basis of what has come out so far, this appears to be a shocking story, with many businesses at the wrong end of it, and who deserved better.The longer the delay in publication, the longer that many small firms may have to wait to receive any compensation.”

The share price fell 1.65% to 178.80p at 1517 BST on Monday.