How about Really Bad Service? How about Run by Blokes with no Scruples? Or Riddled By Scandals? Or, for the more sophisticated, Robbery by Sophism? Or, synonymously, Royal Bank of Scotland (LSE:RBS).
RBS is a glowing example of the conflict between ethics & morals on the one hand and revenues & profits on the other. RBS seems to be unable to operate successfully without employing some scheme that scams the citizenry or pushes the boundaries of propriety. From a common man’s perspective the way RBS (and the other major banks) have operated over the past decade is despicable. From an investing perspective, who cares, as long as the bank is profitable, the share price is increasing, and dividends are being paid? Oh, my apologies for not mentioning it earlier, but the RBS share price rose a modest 0.73% to 332.50 today, even though it is now being investigated for “poor governance at the Co-operative Bank” and, breaking yesterday, news of what has been called “unscrupulous treatment of small businesses.” Excuse me if I am less polite than the Financial Conduct Authority (FCA), but what they call “unscrupulous,” I call “extortion.”
FCA advisor, Lawrence Tomlinson, submitted a report indicating a pattern of misconduct by the bank’s Global Restructuring Group (GRG), the bank;s “turnaround” division.
HINT TO THE NAIVE: “Turnaround” is a commercial euphemism for “we’re going to make money for the ownership, no matter what it costs customers, employees, suppliers or peers.” The first clue that something is afoot is that people who specialize in this field are called turnaround “artists.” You know. Kind of like “con artist.”
According to Tomlinson’s report, the latest trick discovered in RBS’s bag has been coercing small businesses into paying rather substantial fees in order to maintain their borrowing terms with the bank. Tomlinson reported that the issue is both historic and ongoing and that both current and former bank employees are stepping forward with knowledge of the practice. It is alleged that firms that asked for the bank’s help during troubled times were forced into administration when all they really needed was some empathy and cooperation.
The bank’s practice in dealing with struggling business is much like what banks in the US were doing several years ago, lending money to people and business whom they knew would probably default on a regular basis, thus racking up substantial fees and penalties, which, for the bank, is income. Tomlinson accurately describes the practice of RBS putting clients in GRG “generates revenue for the bank through fees, increased profit margins and the purchase of devalued assets by its property division.” GRG does not exist to help your business. It exists to make RBS more profitable. It’s really such a simple concept that people don’t even notice it. The Sunday Times claims to have additional evidence that the GRG had “a hit squad…that has driven businesses into financial difficulty through punitive fees and charges and then scooped up their property assets at rock-bottom prices.”
RBS exemplifies the general lust for money. It is not a problem isolated to RBS, but RBS is certainly the problem’s poster child. Evidence for this argument is that shareholders don’t run away on the news, they are influenced more by the dividends reaped as a result of the bank’s profitability which is derive, at least in part, from a “disgusting” practice.
And that is the way the world works.