News this week confirmed that RBS is being sued in a class action by a number of small firms and their shareholders. They claim they were the alleged victims of unlawful actions by GRG. Is this yet another banking scandal where short termism, distorted ethical values and disregard of customer service has come back to haunt?
GRG was well regarded in years past. However if the allegations are true, it appears that over time bad practice within the bank and cronyism between banks and advisers crept in. Short term gains and fee income took precedence over longer term customer service and value preservation. That’s when the problems began to surface, the alleged abuses became newsworthy and the Government began to act.
At BM&T we have long felt that the bank model of using panel firms who are also Insolvency Practitioners to advise distressed businesses is wrong. It is a manifest conflict of interest and the advisers lack independence and objectivity if working for two masters. If that is coupled with the culture of a profit centre in the bank and large incentives to the staff then it is not surprising that dubious behaviour results. Let’s face it we have seen in so many areas of banking how large incentives result in bad behaviour.
And yet the banks still cosy up to the insolvency profession who act as both “doctors and undertakers”. This onion is also being peeled and evidence emerging of instances where companies have been put into insolvency when they may have been saved by consensual restructuring and more value saved for all stakeholders. But a cynic may ask, “Where are the fees in that”?
Notwithstanding all the scandals and potential new ones, the banking industry clings to the idea that large bonuses are essential despite their link to dubious behaviour. On the other side of the coin the government and regulators impose ever more onerous regulation that is ultimately stifling the whole banking industry. It seems to us that the answer is obvious. Impose a need for greater independence, take away the unnecessarily large carrots and you won’t need such a big stick!
We await the Financial Conduct Authority’s report with interest.
David Bryan – Principal, BM&T
16th September 2014