2014 Banking Report ‘SME Banking: Towards a New Dystopia’, which uncovered misconduct within the SME lending landscape, further murky practices have been disclosed, and our banking disputes team delve even deeper in our soon to be released 2015 report.
Global Restructuring Group, or ‘GRG’ has been a focal point of discussion for us over the past few years, and in this years report we take a closer look at recent developments and what it could mean for the future of SME lending.
In the latter half of 2014 the Royal Bank of Scotland (RBS) announced that they were closing down GRG. This decision followed on from evidence provided to the Treasury Select Committee (TSC) to the effect that the group was not a profit-making operation. Both
Chris Sullivan and Derek Sachs subsequently accepted their evidence was incorrect and apologised for the imprecision and admitting that GRG was in fact an “internal profit centre”. Since then there has been plenty of press coverage on the conduct of GRG and
their claim that their activities had no benefit to RBS.
GRG Left SMEs in Financial distress
The very public exposure of GRG’s activities has no doubt led to the “white labelling” of those elements of RBS that survive the closure of GRG, in an effort to confer legitimacy upon their practices.. Berg has identified and highlighted a number of ways in
which GRG and RBS have left certain SMEs in financial distress. See below for a brief summary:
• Manufacturing a breach – RBS has been accused or manufacturing breaches of covenants as a method of justifying the placement of SMEs into GRG.
• Enlarged interest rates and fees – an SME placed into GRG is usually subjected to excessive fees for things such as security reviews, business reviews and valuations.
• Facility alterations – it has been suggested that RBS targeted SMEs on beneficial terms with an aim to penalise them into refinancing on terms more profitable to the Bank.
• PPAs/West Register – the bank has been accused of purposefully distressing a business so to allow West Register to buy the assets at a significantly lower rate. Either that or force them into a PPA so the bank can have a share of any profits.
• Sale of undervalued assets – Many SMEs have complained that GRG sold their assets, at a significantly lower price, to customers of the bank or related parties.
RBS Capital Resolution Division (“RCR”) – Legitimising the Actions of GRG ??
The very public exposure of GRG’s activities has no doubt led to the “white labelling” of those elements of RBS that survive the closure of GRG, in an effort to confer legitimacy upon their practices. RCR is a classic example of replacing changing the names
but keeping the overall substance.
RCR is an internal division of RBS in terms of it’s ‘bad bank’, set up in January 2014 to manage RBS’s capital intensive and high risk assets. It was also tasked with removing these from the balance sheet by the end of 2016. The aim of this operation is publicly
stated as being that of prudential management and avoiding illiquidity and managing balance sheet risk but having seen that premise behind GRG exposed as utterly false we question the true incentives behind the cessation of long term lending arrangements.
Berg Banking Report Out Soon!
Yet further wrongdoings by the banks in relation to RBS and GRG (as well as others) have been uncovered by Berg, including invoice factoring, relationships with IPs and ‘The Lloyds Effect’. Many shares and assets have also been sold to Cerberus Capital Management,
meaning SMEs are being placed under immense pressure and often forced into administration. The Berg Banking report investigates all of these matters further and uncovers what it could mean for the future of business banking.
Keep a look out for the Berg Banking Report 2015 – Launching July