Royal Bank of Scotland announced today that West Register, the division of the bank’s Global Restructuring Group (GRG) which buys and manages direct real estate, is to be wound up in response to the “damaging perception that the bank had a conflict of interest”.
The announcement dove-tailed with the publication of Clifford Chance’s review into allegations against the RBS’ lending practice in Dr Lawrence Tomlinson’s damming report published in November 2013.
In a statement published at midday today, RBS said: “Under the previous capital regime property purchases were a viable option when resolving some corporate restructures.
“Clifford Chance has found that the banks vehicle for bidding on property, known as West Register, operated largely in an open market process and with strict internal controls.
“However, RBS acknowledge there was a damaging perception that the bank had a conflict of interest when it purchased a property as part of a restructuring process, despite the fact that West Register has only successfully bid for property owned by 166 SMEs in the last five years.
“The bank has taken the decision to wind down and sell any assets in West Register.”
Clifford Chance’s review, which was commissioned by RBS, found no evidence that the bank systematically set out to defraud its business customers.
The Tomlinson Report – entitled Banks’ Lending Practices: Treatment of Businesses in distress – alleged that RBS was, through GRG, guilty of “systematic and institutional” behaviour in artificially distressing otherwise viable businesses, putting its customers “on a journey towards administration, receivership and liquidation”.
In addition, The Tomlinson Report also alleged RBS operates a “process by which businesses are assessed for their potential value” in order to select viable SME customers as targets.
Furthermore, the bank’s actions “artificially distress” borrowers and even “engineer” loan defaults through the manipulation of property valuations, the withdrawal or failure to renew existing facilities.
Clifford Chance, in its review published on here on RBS’ website, reported no evidence of these charges save for cases identified where customers felt that the bank should not have withdrawn their overdraft.
The report found some cases where customers felt the bank’s fees lacked clarity and that although no evidence was found, a handful of customers made allegations around the behaviour of RBS staff. RBS is thoroughly investigating these cases and is clear that it will not tolerate such behaviour.
Whatever credence given to the RBS-commissioned review into the bank’s lending practices, time will tell.
Ian Fraser, whose book about RBS – entitled Shredded: Inside RBS the Bank that Broke Britain – will be published on June 6, said: “Clifford Chance was conflicted from the outset, and was therefore incapable of producing an objective report into this ongoing scandal.
“It should never have agreed to do this report, and RBS should never have asked it. It is likely that its exoneration of RBS will be disproven in subsequent court actions.
“The report also suffers because of the narrowness of the brief – RBS only asked the ‘Magic Circle’ firm to look at the ‘core’ allegation in the Tomlinson Report – that RBS and NatWest, through their Global Restructuring Group, were guilty of the ‘systematic and institutional’ destruction of businesses customers through ‘manufactured defaults’ and related shenanigans.
“However this was just one of several extremely damaging allegations about RBS contained in the Tomlinson report. Another reason that the report lacks credibility is that Clifford Chance appears to have focused almost exclusively on interviewing RBS insiders – not whistleblowers or directors of effected firms.”
“Finally, I would say if RBS has done nothing wrong why it is scrapping West Register and reviewing its policies in restructuring and recovery?”
News of the accelerated wind-up of West Register will be of huge interest to opportunistic investors, all seeking to deploy capital.
West Register, which was moved into the bank’s newly-launched Real Estate Asset Management division in June 2013, is still in the process of disposing of properties obtained during the slump in the market from 2008 to 2012.
Clifford Chance wrote: “Depending on the state of the property market at the point of sale, there is a possibility that the bank may make a profit on the properties currently held by West Register by comparison with the purchase price.
“However, it is much less likely that the bank will make an overall profit having regard to write-offs on the underlying loans and any other costs associated with acquiring and maintaining the properties.
“We were provided with the West Register profit and loss accounts for 2008-2013. These demonstrate that, when turnover and profit on disposals are offset against expenses and fair value adjustments on each property, West Register has made a cumulative loss of £111m.”