Dunno about this, just dunno

RBS was already facing pressure over its turnaround business’s operations following a report by former Bank of England official Sir Andrew Large, who recommended last month that the lender look into claims by some smaller businesses that GRG had acted against their best interests to make more profit.

An analysis of West Register accounts highlights the expansion in the size and profitability of RBS’s restructuring division since the financial crisis. One subsidiary, West Register Investments, has grown in size from £21.8m in 2008 to £110m at the end of last year, while its profits have increased from £10m to £52m over the same period.

The property restructuring group’s largest individual unit by assets is West Register Property Investments, which has seen its assets expand from just under £19m in 2008 to £579m in 2012.

Separate accounts are not available for GRG, which is run as a profit centre by RBS.

Chuka Umunna, shadow business secretary, said he was concerned that a bank 81pc owned by the state was operating a division meant to help stricken customers as a source of profit.

“If RBS’ business turnaround division, the Global Restructuring Group, is being used principally as a profit centre as opposed to an operation to help businesses and prevent loss, that rings alarm bells and sends the wrong message,” he said. “It would paint a picture of otherwise viable businesses being fleeced for fees and profit, instead of being given the support they need.”

Andrew Tyrie, chairman of the Treasury Committee, said the reports revealed “a fundamental cultural problem with RBS’s lending to and treatment of SMEs”.

Businesses that have dealt with GRG staff have complained they have been required to pay hundreds of thousands of pounds to RBS in penalty fees, as well as being forced to pay out large sums of money for reports by outside consultants.

Yes, I can imagine bankers ripping off companies in this manner. Wouldn’t surprise me in the least. Capitalism red in tooth and claw and all that.

However, I also wouldn’t take a rise in the balance sheet of the part of a bank that dealt with stricken property firms as evidence of their doing so. We have just been through something of a property crash, have we not? What would we expect to be happening with the part of a bank that deals with distressed property at such a time?

Quite, in the aftermath of a property crash we would expect that part of a bank that deals with dud property to be rather busy. So I don’t take this limited evidence as being evidence that everyone’s being ripped off. Still open to someone proving it but this ain’t it.

6 comments on “Dunno about this, just dunno

  1. Somebody definitely has form for this sort of behaviour – I can’t remember who it was though. One of the accountancy firms, I think. Get appointed as receiver or to turn the company around and spunk all the remaining cash on expensive services from other bits of your company.

    Noting, of course, that pretty much all non-accountancy services from accountancy firms are damn expensive and there is little incentive to bargain hard on rates.

  2. It could be a bit dodgy that the unit is profitable. A charge holder/receiver has an obligation *to the debtor* to get the best price when selling a property, so that the debtor gets whatever equity he has, and/or the debt is reduced as much as possible. (Not like the US where you hand the keys over and the bank owns the property and the debt is released.)

    So if a bank sells to a susidiary and then makes a profit, did it really sell for the best price? You can see some property developers whose stuff was sold to a unit of the bank in, say, 2009-10, being aggrieved as it is now resold.

    I suspect the market for secondary property was thin to non-existent at the time. So (a) hard to tell what market value was at the time and (b) there may have been no buyers. But it’s easier to defend selling cheaply to some chancer/genius at the bottom of the market than selling cheaply to yourself.

  3. Not like the US where you hand the keys over and the bank owns the property and the debt is released.

    This isn’t universally true. Many US states have a “deficiency judgement” system – Texas and Colorado, as examples, where if the bank doesn’t get the full value of the loan (+ fees and penalties) back, they can still come after you as in the UK. California only allows deficiency judgements after judicial foreclosures, rather than mortgage contract ones,

  4. I dealt with GRG for over 7 months and managed to save the business through a pre-pack (all external creditors were repaid by the newco).

    The process was triggered through a revaluation of assets by an external surveyor based in the GRG offices and was justified as a “fire sale” valuation.

    I was never in doubt that the intention was an asset sale or liquidation although they have a different script. GRG put an advisor (who we paid) in charge of our cash-flow who had to authorise all payments.

    In the six months it took to negotiate a purchase the business repaid approx £1m to RBS through cash-flow generation, the accountants and solicitors employed by RBS took over £400k in fees. The whole exercise destroyed value for the bank and wiped out the shareholders. West Register was used as a threat to try and push up our offer price.

    Most of the people in GRG were just out of uni and had a set script – which is maximum leverage by holding a gun to your head. They try and get you to put funds into the business or provide PG’s, by the accounts online some people were stupid enough to do so.

    However your in an impossible situation as other lenders won’t touch you and there is a huge amount of emotional pressure applied, I can believe some people cracked under it.

    GRG should have been more honest (RBS was pulling out of property to shrink their balance sheet), however this would have been difficult to sell to the public as by that time they were a government bank. The irony is that your being told how to manage your business by a company that has just recorded the biggest corporate loss in UK history.

  5. Meh, so an insolvency practice (which is basically what this is) makes money during a recession when there are lots of insolvencies and this is a surprise because…..

    Alan spot on about RBS though, they couldn’t run a bank but somehow know everything there is to know about managing SMEs, Lewis Carroll couldn’t do better.

  6. Worth checking the number of properties on that balance sheet. A significant rise might be indicative of truth in the allegations.

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