London briefing: RBS under fire over asset-stripping claims

Bank of England governor Mark Carney has weighed in to the row over Royal Bank of Scotland's alleged brutal treatment of its small-business customers, amid claims that the state-backed bank deliberately drove companies to the wall in pursuit of profit.

Appearing before MPs at Westminster yesterday, Carney described the allegations as “both deeply troubling and extremely serious”, calling for them to “be tracked down to the full extent of the law”.

Two reports into RBS were published on Monday, one by Leeds-based businessman Lawrence Tomlinson, and one by a former deputy governor of the Bank of England, Sir Andrew Large. Tomlinson, an adviser to UK business secretary Vince Cable, took it upon himself to write his 21-page report; Large's 95-page tome was commissioned by RBS.

It is the Tomlinson report that contains the most serious and sensational allegations so, not surprisingly, it has received most of the coverage. It focuses on RBS’s global restructuring group (GRG), the division that deals with companies deemed to be in distress.

Forced into insolvency
Tomlinson claimed that the bank deliberately pushed viable businesses into GRG to generate fees and that it would buy up assets of the companies it had forced into insolvency on the cheap. He also said there was evidence of companies being instructed not to pay their tax once they were placed in the restructuring division. RBS is, of course, 80 per cent owned by British taxpayers.

The allegations may well be true – past misdeeds reveal the banks to be guilty of all manner of shoddy, immoral and downright illegal behaviour. But it is worth taking a closer look at Tomlinson and his report, which is based largely on anecdotal evidence.

None of the companies cited in the report is named, and Tomlinson has a history with RBS: his Yorkshire-based LNT business, which operates care homes and is involved in the construction, chemicals and software industries, was once refused funding by the bank.

This fact is not disclosed in the report, and Tomlinson has declined to specify how many companies he has spoken to.

As one of two “entrepreneurs-in-residence” at the UK department for business, innovation and skills, Tomlinson’s report does not have the official backing of the business secretary. But Cable described the allegations as “very serious” and handed the report to the City regulators, the bank itself and Sir Andrew Large.

Which brings us on to the Large report. It provides a detailed rather than anecdotal examination of RBS’s lending practices. Large has not investigated the Tomlinson allegations and devotes only a few paragraphs to the bank’s restructuring unit. However, his report does acknowledge the conflict of interest that GRG presents for the bank.

There is an obligation now for a proper investigation into the asset-stripping claims. If proven, companies that were forced to the wall will be queuing up to take legal action against the bank – another bill for the British taxpayer.

Fiona Walsh is business editor of theguardian.com