Banking shares fell in early trading on Monday, after leaked documents appeared to show that Royal Bank of Scotland (RBS) was mired in another scandal.
The documents – passed to Buzzfeed News and BBC Newsnight –show that the beleaguered bank profited from struggling businesses by buying up assets cheaply. This has renewed fears among investors that RBS could face substantial compensation claims and hefty regulatory fines if its actions caused otherwise viable businesses to fail.
On the FTSE100 this morning RBS shares were the worst performing stock, falling by 2.25% in early trading to 177.80p. However, fears of further banking scandals dragged down the performance of other leading UK banks. Shares in Lloyds Banking Group (LLOY) were down by 2.06%, to 51.42p, while Barclays (BARC) fell by 1.84% to 170.40p.
Laith Khalaf, a senior analyst at Hargreaves Lansdown said: “The evidence now looks pretty damning against RBS, 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.
Mis-selling fines ‘threat’ to RBS
“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.
“It’s a sad fact that despite the spectre of the Payment Protection Insurance (PPI) scandal beginning to fade away conduct costs remain a material threat to the Royal Bank of Scotland.”
In 2014 the Financial Conduct Authority commissioned Promontory Financial Group and Mazars to investigate allegations against RBS by some of its business customers. This investigation has been concluded and the findings are with the regulator for further review.
RBS: ‘We Let Our Business Customers Down’
The leaked documents concern RBS’s controversial ‘Global Restructuring Group’ - which was set up to ‘turnaround’ struggling businesses. The activities of this division appear to have increased substantially following the financial crisis in 2008. These documents reveal that bank staff were rewarded with higher bonuses based on fees collected for ‘restructuring’ business customers’ debts – in other words cutting the size of their loans in exchange for cash or other assets, such as business premises or property. In these documents this was described by one RBS executive as “Project Dash for Cash”.
The question for regulator is whether these smaller businesses would have failed anyway, or whether the actions by RBS staff pushed them into administration.
In a statement RBS said: “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 business 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 customer in financial distress.” The bank said after a detailed review of its documents that there was no evidence that it artificially distressed otherwise viable SME businesses or deliberately caused then to fail.”
