Belfast’s impressive new MAC theatre was packed with 120 angry bank customers last Wednesday. Some came to listen to the headline speaker, the once imprisoned ‘rogue trader’ Nick Leeson. But many were there to hear Dr Lawrence Tomlinson, an advisor to UK business secretary Vince Cable and a very successful care home and motor manufacturing entrepreneur.
In his own way, Tomlinson is making as many waves in the banking industry as did Leeson – whose unauthorised trades broke Barings Bank. Tomlinson’s report on the Royal Bank of Scotland and its subsidiary Ulster Bank has led to perhaps even more serious questions about how the UK banking industry operates.
The day after his presentation at the MAC, Tomlinson met with 40 Ulster Bank customers and ex-customers – many alleging Ulster Bank had forced them out of business. These are unproven allegations – but the suggestions are disturbingly consistent. A repeated claim is that solvent businesses were pushed into administration, receivership and then liquidation by Ulster Bank and by its parent, RBS.
The aim, it is claimed, was for a RBS subsidiary, the Global Restructuring Group, GRG, and its asset portfolio company, West Register, to get hold of business assets at below market value. Tomlinson’s report concluded that he found evidence to support these claims.
The allegations were raised in characteristically strident terms earlier this month by Ian Paisley junior MP in a hearing of the Northern Ireland Affairs Committee in the House of Commons. Questioning a witness from the UK’s new banking regulator, the Financial Conduct Authority, Paisley asked: “How does the authority view the actions of RBS and perhaps -I say ‘perhaps’ -the Ulster Bank, which has seemingly and deliberately forced and… defrauded SMEs out of businesses in order to seize their assets?”
Tomlinson’s report detailed the ways banks could put business borrowers into default. Where the value of business assets fell – as they did typically by about 50% in the case of property assets in Ireland, north and south, during the crash – this could lead to a change in the loan to value ratio and a breach of the loan covenant. Banks might also react to ‘technical breaches’ of a banking covenant, such as a short term dip in profitability, or a late submission of information.
A whistle-blower told Tomlinson that covenant breaches such as these could lead to debts with RBS being referred to its GRG unit. The assessment made by GRG on what to do next was based on whether it found the assets attractive to take over. “If GRG want to take it, and see some value from the business for the bank, it would then be passed directly to GRG and the relationship manager would be prevented from contacting the business at all going forward,” claimed the whistle-blower.
The vehicle for RBS and Ulster Bank to hold these assets is West Register. “There are multiple accounts of West Register buying properties later down the line when the business has gone into insolvency at cut prices,” Tomlinson reported. “When you look at the inaccuracy of the
valuations of many of these assets, there is a potential for easy profit to be made from the cheap
purchase of properties that later can be resold nearer the original valuation.”
Tomlinson has been contacted by a substantial number of Ulster Bank customers who claim they have suffered the same experience as detailed in his report, which mostly considered the experience of customers of the RBS parent. “The systems seem to be the same and the methodology seems to be pretty much identical,” he says.
“One of the key concerns over here is the dependence of Northern Ireland on Ulster Bank,” says Tomlinson. “That is a difference from mainland UK. While the choice [in GB] is limited there are other banks, but the choices here are minimal.”
RBS has engaged leading legal firm Clifford Chance to investigate the Tomlinson Report’s conclusions. Meanwhile, the Financial Conduct Authority has commissioned its own independent investigation, to be conducted by the Promontory Financial Group and accountancy firm Mazars.
But Ulster Bank says that while the allegations are serious “as of now no evidence has been produced that backs these claims of systemic fraud”. It argues that, on the contrary, it is committed to actively working to resolve problems with customers that have problems with their debts and loan repayments.
There is already some relief for RBS and Ulster Bank. A report produced last year for RBS by former Bank of England deputy governor Sir Andrew Large was critical of the bank’s lending practices, but did not find any evidence to support the Tomlinson findings. However, appearing before MPs at the House of Commons treasury select committee last week, Sir Andrew conceded that he had not looked for evidence as it was outside his remit.
Simon Hamilton, Northern Ireland’s finance minister, is taking the allegations seriously and he met with Tomlinson on Wednesday. Hamilton intends next to raise the issue in a meeting next month with Ross McEwan, chief executive of RBS, as well as with Ulster Bank’s senior management. He is also to discuss the allegations with UK government ministers in March at the Joint Ministerial Taskforce on Banking and Finance.
The claims against Ulster Bank and RBS go to the core of the banking industry’s ethics and working practices. There are even suggestions of a possible criminal investigation. This story has a long way to run – and angry bank customers are determined that we will hear much more about it.