It's 'plausible' RBS tipped firms over the edge, says Sir Andrew Large
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Thursday 23 January 2014
"Extreme" allegations that Royal Bank of Scotland tipped viable businesses into bankruptcy were described as "plausible" because of its "flawed" structure by a former deputy governor of the Bank of England yesterday.
The incendiary claims, contained in a report by the government adviser Lawrence Tomlinson, are now the subject of a forensic investigation covering the operations of the bank's controversial Global Restructuring Group. It was ordered by the Financial Conduct Authority.
Appearing before MPs on the Treasury Select Committee, Sir Andrew Large said because "GRG has a responsibility for making a decision on an organisation being resolved and GRG is a profit centre, you can see why the assertions in the report sound plausible".
The situation was later likened by Conservative MP Jesse Norman to the bank "acting as judge and jury in its own court", a description Sir Andrew said he agreed with.
Sir Andrew, who wrote that RBS's small business lending had "failed" in his own report that was commissioned by the bank, went on: "Equally they [Tomlinson's allegations] are so strong and the behaviours are so extreme that one wants to feel they can't be true. That is why this forensic work is so important." Sir Andrew told MPs that he had personally found no evidence of the most serious malpractice alleged by Mr Tomlinson, but said this was because it was outside of the scope of his work.
"There will certainly be cases where SMEs [small and medium-sized enterprises] have been treated rather roughly. I very much hope there aren't any in the extreme category that may have been put out of business altogether.
"There is an element of plausibility in the assertions of Tomlinson by virtue of the governance structure. When one reads those assertions they can only shock you. Then you have to ask yourself the question: what were the reasons these complaints were made? Hence the forensic inquiry.
"When I did read them I wanted to look at organisation and governance and when Tomlinson published I was already clear [that there was an issue]."
GRG was set up in the 1990s under Derek Sach, who cut his teeth in private equity and pursued a new approach to dealing with distressed companies that saw the unit turned into a profit centre.
Allegations have been made that it worked closely with a property unit within RBS that handled the disposal of assets of distressed companies.
Sir Andrew said: "It [Tomlinson] is a set of assertions. I can see why they were made and I'd like to know whether they were true. If I had written report I would have wanted to put more substance behind them. I suspect that is what we are gong to see with section 166 inquiry [commissioned by the FCA]."
But he disagreed sharply with some of Tomlinson's other conclusions such as the argument that the state controlled RBS and Lloyds should be split into six new banks to encourage more lending.
He said such a project would be "tremendously complicated" and warned "I'm not sure what you would gain by it".
He also added it was "wrong" to conclude that the Bank of England's demand that banks hold more capital was a "problem" when it came to lending, although he admitted that it could make loans more expensive.
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