The Times James Hurley
Royal Bank of Scotland must explain to MPs whether it misled them over the activities of its global restructuring group, Andrew Tyrie said yesterday.
The most recent chairman of the Treasury select committee said that RBS should be recalled during the next parliament to explain the findings of an investigation by The Times into GRG, which found that RBS had used the division to squeeze businesses in order to shore up its balance sheet.
GRG was supposed to nurse troubled companies back to health, but it is accused instead of pushing them towards failure. RBS has insisted that it “would never get any advantage from destroying a customer”.
Derek Sach, the former head of GRG, told the committee last year that while “more foreclosure” in theory would boost the bank’s balance sheet, such “capital reduction” was never applied to small and medium-sized businesses. However, hundreds of frontline GRG staff were trained by the bank in 2011 how to reduce exposure to companies to improve the bank’s core tier-one capital, the measure of bank safety that is key for passing regulatory stress tests.
The division could also achieve a benefit to its balance sheet when defaulting certain high-risk but performing loans, an analysis conducted for The Times suggests.
RBS apologised for misleading MPs during the hearing over whether GRG was a “profit centre”.
Being forced to return for a second round of questioning would be highly embarrassing for the bank. Mr Tyrie said: “It would be extremely concerning if RBS had misled the Treasury select committee on this important issue, coming after their obtuse evidence in July last year.
“No doubt, whatever its composition is, the committee will want to return to this in the forthcoming parliament.” It is understood that Mr Tyrie, the Conservative candidate for Chichester, believes that Clifford Chance also should be called to explain why its report into GRG contained a misleading error on whether defaulting customers would improve or damage RBS’s balance sheet.
Clifford Chance was commissioned by RBS after allegations from Lawrence Tomlinson, an entrepreneur and former government adviser, that the division was “engineering defaults” of businesses. The law firm incorrectly said that a GRG customer who defaulted would “increase” the risk-weighted assets that banks must hold against their lending position, therefore making the business more expensive to support. In fact, defaulted loans attract no RWAs. The report was fact-checked by senior RBS executives before being published.
A spokeswoman for Clifford Chance said that it should have used the word “distressed” rather than “defaulted”. She denied that the error made the report misleading.
RBS declined to comment on whether there were circumstances in which a default would improve the bank’s capital position. A spokesman said: “GRG helped minimise losses where it could and successfully restructured a significant number of businesses it worked with, advancing over £100 million of new lending and safeguarding hundreds of thousands of jobs.”