RBS under attack over SME lending

Allegations that RBS forced viable businesses into insolvency has landed the bank once more in hot water.

The Royal Bank of Scotland is facing a possible criminal investigation by the Serious Fraud Office (SFO) into allegations of unscrupulous treatment of distressed small business clients.

An independent report by government adviser Lawrence Tomlinson has claimed that the bank currently 81% owned by the state deliberately forced some borrowers into turnaround and insolvency so as to profit from higher fees and the opportunity to take control of their assets.

The allegations unsurprisingly drew a strong reaction from politicians. Chancellor George Osborne called them "shocking". Business Secretary Vince Cable said the evidence behind Tomlinson's claims seemed "solid" and "appalling".

In addition to the potential SFO investigation, the Financial Conduct Authority and the Prudential Regulation Authority will also review the report, while RBS has commissioned law firm Clifford Chance to conduct an inquiry.

What the commentators said

But while RBS may deserve whatever punishment the authorities ultimately mete out, it's worth reflecting on other factors that may have helped put it in this position. Concerned about the banking system being bogged down supporting "zombie companies", regulators pushed RBS to "put them out of their misery".

There's an obvious conflict between this and politicians urging it to support small businesses, so it's not surprising if some viable businesses were poorly treated as the bank tried to balance these demands.

Indeed, this cuts to the heart of difficult questions about RBS's future, said the Lex column in the Financial Times. It's clear that politicians want it to be lending more to small businesses; it's also clear that they want it "to be nicer to them when it does so".

Given low prospective returns on such lending, that's not a terribly attractive proposition for investors.

Furthermore, RBS is now well-established as a whipping boy: "Politicians of all sides can give themselves a popularity boost by firing accusations at it". Given that, selling the state's stake in the bank, as Osborne plans to do, "will be a tough job".

Recommended

The new social-care levy: an unfair tax that protects the “assetocracy”
National Insurance

The new social-care levy: an unfair tax that protects the “assetocracy”

The government’s regressive social-care levy will make Britain’s tax system even more complex. Root-and-branch reform is long overdue.
18 Sep 2021
With the right political will, inflation can be defeated
Inflation

With the right political will, inflation can be defeated

Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.
17 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
The UK jobs market is booming – what does that mean for investors?
UK Economy

The UK jobs market is booming – what does that mean for investors?

Unemployment in the UK is back to pre-pandemic levels, employers are desperate to hire more staff, and wages are rising. John Stepek looks at what tha…
14 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021