TTF Blog: 20 April 2021

by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting

As the Covid-19 crisis continues to rack up the world’s debt month on month, it may surprise you how many British borrowers are still grappling with loans that are more than a decade old.

Scandals that laced the U.K.’s ‘economic recovery’ after the crash of ’08, have still not been addressed. Victims are still living with the impact of homelessness, family breakdown, and most harrowingly an unquantified number of suicides.

The Royal Bank of Scotland’s GRG scandal and the plight of mortgage prisoners epitomise this toxic legacy of the crash in the U.K. – when banks and private equity funds turned on borrowers.

Mortgages and loan books from the crash are still being traded

When Northern Rock crashed, a little-known U.K. Treasury bank called UK Asset Resolution stepped in to ‘rescue’ mortgagees. Any impression of chivalry in this act was short-lived, however. UKAR then kept these borrowers on 5% interest rates for years, at a time when they could have got much better deals on the private market.

A BBC Panorama investigation excoriated the scandal in 2018 (watch). Andy Verity interviewed mortgage borrowers who remained trapped, unable to sell and with cruel debts. The film also covers the Government’s astonishing sale, in 2016, of 270,000 former Northern Rock mortgages to a vulture fund for £13 billion.

The buyer was Cerberus Capital Management, a Private Equity company that did not even have a lending license in the U.K. One mortgage prisoner told TTF’s Debt Group yesterday what happened next- “you then got sold on and sold on again,” with clear transparency issues to boot, as “you struggle to find out who owns you and how you are bought and sold.”

Many of these mortgagees have remained in that desperate situation for more than a decade. Lord Sharkey pleaded to Parliament for them in 2018:

“UK Asset Resolution said that returning those borrowers to the private sector would mean that they would be offered new deals, extra lending and fixed rates.”

“This was completely untrue. Instead, about 100,000 borrowers were trapped. They continue to pay very high interest and are not allowed by Cerberus to have a fixed-rate mortgage. Many are now in deep financial difficulty.”

Lords last week approved an Amendment to draft law the Financial Services Bill that might lift some of the hardship faced by these borrowers. It’s going back to the Commons – watch this space.

A global trade in debt

These weren’t the only ‘distressed’ assets scooped up by Cerberus. One of the first pieces of research I did for Transparency Task Force covered the ongoing plight of Glasgow businessman John Guidi. His case was discussed in Parliament here. He went on hunger strike against Clydesdale Bank in 2019. Guidi explained to me how National Australia Bank had flogged his allegedly engineered default, including a personal guarantee on his family home, to Cerberus. He has repeatedly decried that a company that is not even a bank is allowed to buy up British borrowers’ distressed assets in this way, with their family homes on the line.

It is no comfort to any of these borrowers that Cerberus Capital Management has a dirty record in its home country of the U.S. It’s been fined for employment violations, fraud, environmental violations and even ‘kickbacks and bribery’. You can check its record on Violation Tracker, which monitors all  fines levied against American corporations, here.

The most destabilising aspect of all this is how many people – who allege they are indebted through no fault of their own – still feel at constant risk of being turfed out of their homes. Adrian Tupper – editor of the ‘Money Questioner’ website commented yesterday to our Debt Group on how astonishing it is in this century, to see housing still being treated as a mere asset to be flogged to the highest bidder. Shouldn’t it be a human right? Sue Lewis, a former member of the FCA’s consumer panel, told us that she is fearful of an even bigger wave of homelessness if this issue is not addressed; the downturn of the Covid-19 pandemic has stoked financial vulnerability.

The asset-stripping of independent businesses

A similar devastation was wrought by RBS’s Global Restructuring Group after the crash. With a supposed rationale to salvage ‘distressed’ businesses, the GRG had a perverse incentive to bust a much wider range of customers, including viable companies, to boost its own profits.

The scandal would be probed in 2016 by Buzzfeed News’s ‘Dash for Cash’ investigation, following on from Ian Fraser’s book Shredded: Inside RBS, the bank that broke Britain. As Fraser told us last week, the GRG’s pillage of borrowers remains in his view the “defining scandal” of RBS. To resolve its liquidity crisis of 2009, the bank had decided to “cannibalise their own customer base  … destroy SMEs and treat them as collateral damage.”

Ex-financial adviser Steve Middleton estimates that 2.9 million individual borrowers passed through the GRG ‘meat grinder’. The bank’s behaviour may have been incentivised by an “insurance scheme built by the government that – in theory – was to support the bank but in reality became a killing ground for SMEs”.

A necessary sacrifice?

Ostensibly, Gordon Brown’s bail-outs in 2009 of £45.5 billion were not enough to secure RBS’ survival. Somehow, the squeeze didn’t hit the pocket of Stephen Hester, then chief executive, who received £15M from 2008 to 2013.

Post-crash, banks removing ‘bad debts’ from their books and ridding themselves of ‘risky lends’ was to be expected. It is important to understand that this was not what the GRG turned out to be doing. Entrepreneur Lawrence Tomlinson penned a report in 2013 for the government that was widely credited with revealing the scandal. He wrote:

“The experiences of many businesses across the country suggests that, at least within RBS, there are circumstances in which the banks are unnecessarily engineering a default to move the business out of local management and into their turnaround divisions, generating revenue through fees, increased margins and devalued assets.”

And:

“The bank extracts maximum revenue from the business, beyond what can be considered reasonable and to such an extent that it is the key contributing factor to the business’ financial deterioration. This is not an open and transparent process, nor is it a proportionate response from the bank. During the process businesses are completely in the dark as to what is happening around them until it is too late. Most worryingly, the businesses affected are often perfectly viable and but for the action of the bank, would have been able to positively contribute to UK growth.”

This activity extended into Ulster Bank, too, alleged by litigants to have contributed to hundreds of Irish suicides in building and agriculture alone. As Claire Leonard from Dublin put it to us: “there were £43 billion of assets liquidated in Ireland, and that out of a population of 5 million.” It took a heavy toll on society.

Chris Gordon, an estate agent from Northern Ireland is attempting to sue in relation to the scandal. He believes that: “everybody in Ulster Bank was [put] in GRG unbeknown to them”. He is also concerned by a seeming lack of transparency about a computer glitch at the bank in 2012: “As the computers went down our parliaments called RBS directors … on the record and asked them what had happened. They stated that they would publish what happened within months. It’s now nine years later and nothing has been published by RBS or Ulster Bank about what happened. The only body that has published anything is the FCA [City watchdog, the Financial Conduct Authority].”

BoE Governor Andrew Bailey – dogged by history

Current Bank of England Governor Andrew Bailey will continue to be dogged by accusations and legal actions from whistleblowers about his time heading the Financial Conduct Authority – alleging that he failed to do enough on the GRG scandal.

Most concerning are allegations that Bailey may have misrepresented RBS whistleblower Mark Wright to MPs on a Treasury Select Committee inquiry. Bailey claimed to the Committee on 7th February 2018: “we have found it very difficult to actually meet these people”, to discuss what Wright was alleging, that RBS was forging customer signatures, and other issues.

Wright can show that in 2017 he emailed Bailey with the name of an alleged bank signature forgery trainer within the bank. His MP Norman Lamb sought to arrange meetings with Bailey.

It appeared from Lamb’s emails that Bailey indicated that he would engage, but had then cancelled both appointments.

Wright and Steve Middleton did not go away quietly. They are now crowd-funding to try to force disclosure of documents regarding the bank’s actions during the crash. They are seeking that disclosure from the bank, and from the FCA.

Allegations of a ‘conflict of interest’ on the GRG scandal have since emerged against the Governor in the British press.

In 2009, when Bailey was the Bank of England’s chief cashier, Governor Mervyn King presented him to MPs as “The person who has been working most closely with the Treasury on the design” – of the Asset Protection Scheme for RBS assets.

The APS’s annual report and accounts of 2013 make clear that its goal was to return profits to the Treasury: “The Government has realised a £5 billion profit for the UK taxpayer.”

To that end, the APS “consented to the overwhelming majority of RBS disposal requests and in some instances encouraged RBS to sell even more exposure of certain assets. The APA sought to reduce risk and maximise value in the APS portfolio. By working closely with RBS senior management and asset managers on debt restructurings and sales of the largest APS assets we materially influenced RBS’ analysis, strategy and management of many of these assets.“

Bailey said of the plan in 2009: “The balance that is being struck is the one that has to be struck to get the bank to a position where it is stabilised.” He stressed the need for ‘due diligence’ on the assets.  Was that put in place? It appears to me from a cursory search of Parliament’s website, that Bailey has never been cross-examined on the design of APS, or the extent of his advice on it.

The Bank of England responded this year to concerns raised in the Times‘ about Andrew Bailey’s potential conflict of interest with RBS at a time when he was heading up the City watchdog.

A BoE spokesperson told reporter James Hurley that Bailey “was not a decision maker in respect of any decision by the FCA on whether or not to undertake an enforcement action” against the bank for the scandal. As the paper put it: ‘There is no suggestion he had any involvement in GRG’s tactics or conduct — but he is under pressure to explain why his involvement in the scheme’s design was not disclosed even when he was given ample opportunity to do so.’

What was the Government’s reach on the GRG scandal?

Alexandra Rogers reported on the apparent relationship between Treasury’s Asset Protection Agency and the GRG for City A.M. in 2019:

‘The incentives and bonuses of the GRG’s top bosses were evaluated against performance targets set by the Asset Protection Agency (APA), an arm of the Treasury that was established to run the Asset Protection Scheme (APS) that insured RBS’s toxic loans at the height of the financial crisis’, Rogers wrote.

Former Business Secretary Sir Vince Cable claimed to press at the time: “It’s very clear where RBS got its instructions from. … “It’s shocking because when I was secretary of state I pressed for the pay of RBS executives to be tied to lending to small businesses – the opposite of what GRG was doing.”

Broken families & GRG suicides

The searing anger that GRG victims feel is palpable to this day. Some are still in the clutches of toxic debt. Internal RBS documents came out showing that the bank sent ‘victory emails’ when they seized assets – a fact that unsurprisingly retraumatises victims and reduces them to tears.

Bricklayer Clive May – featured in the Times here – was one of the bank’s business customers targeted. He spoke to TTF last week of how an RBS manager appeared to ‘invent a death’ in his family that hadn’t happened, to serve a profit motive.

From May’s perspective: “There’s an obsession with RBS about death, about end of life for whatever reason  … Me, Neil Mitchell and Bill Esterton appeared on the Victoria Derbyshire show … I started speaking about the the victory emails … I was contacted on on Twitter by a person who said … it still upsets me today. That person said his friend committed suicide at Christmas they left two young … he left two- two young daughters, you know.”

Clive explained, through tears, that he had contacted City watchdog the FCA about that suicide case, and others. It appears to me from a chain of emails that regulators – including even Bailey himself – responded with an undue emotional detachment and possibly even an air of apologism for the banks, in response to May’s cry for help. The trauma to broken families runs beyond the pale.

TTF again write to Boris Johnson

You can watch our Symposium on the RBS scandal on TTF’s YouTube channel TTF TV here. Founder Andy Agathangelou has again written to the Prime Minister about the paper-trails revealed by participants, much of which were distressing.

He writes:

The speakers’ presentations bring these questions to mind:

●Are there untenable conflicts of interest at play between the Financial Conduct Authority and The Royal Bank of Scotland, NatWest, HSBC and Barclays?

●Did the Governor of the Bank of England lie to the Treasury Select Committee when he was the Chief Executive of the Financial Conduct Authority?

●How many members of the public have committed suicide following a problem with The Royal Bank of Scotland, NatWest, HSBC, Barclays or any associated bank? And why did they kill themselves?

You can read the letter in full here.