Following the Tomlinson report RBS’s Global Restructuring Group (GRG) has been very much in the spotlight. The allegation that it deliberately put many small businesses into insolvency to pick up assets at a knock down price is a serious one. The report also suggested that staff in GRG were incentivised to charge large fees and to seize assets where possible with GRG being run as a profit centre.
It is worth reflecting on the history of this. In the recession of the 90’s, all the banks pushed many businesses into insolvency without any attempt to restructure or save them. This was widely criticised both for the devastating effects on the businesses and jobs but also because, with hindsight, it was clear that Private Equity firms had bought the assets cheaply out of the insolvency process and made a killing, mostly at the creditors’ but often at the bank’s expense.
RBS was at the forefront of the response to this and its workout and restructuring group (now GRG) was widely praised at the time for its more innovative approach under Derek Sach to saving value.
Following on from the Tomlinson report commissioned by Vince Cable, RBS commissioned its own report by Clifford Chance. This concluded there had been no fraud. Clifford Chance are on RBS’s panel of lawyers so were criticised for not being independent. As importantly, their terms of reference were to look for fraud – a very high burden of proof – so perhaps their conclusions were no surprise.
RBS also asked Sir Andrew Large to look at the structure of GRG and the way it was run. He concluded that running it as a profit centre was a flawed structure. RBS executives including Derek Sach testified to the commons select committee that GRG was not run as a profit centre and subsequently had to retract that. All a bit of an unethical mess!
So how did something that was so innovative apparently go so wrong? We will probably have to wait until the autumn for the authorities (the FCA) to report in full but the news recently that GRG is to be closed and two senior managers including Derek Sach to leave does create a sense that maybe the FCA report is not going to make good reading for RBS.
Alan Tilley – Principal, BM&T
11th August 2014
