A report by the European body, Institute for Turnaround (IFT), has released a report today on the ‘questionable’ processes and practices of business support banking, including RBS’s Global Restructuring Group (GRG). This research has been passed on to the Bank of England and the HM Treasury.
The ‘Benchmarking Best Practice in Business Support Banking’ report calls for new regulations to change the way UK banks run their business support units. Over the last year, IFT have researched more than 250 businesses that have been put into turnaround units across the UK. The research also includes evidence of meetings with certain senior officials employed by the big banks - Lloyds, RBS, HSBC and Barclays.
One of IFT’s main concerns was the correlation between fees charged and bonuses rewarded to bankers (bonuses depended on excessive fees). This often made some businesses stay in the unit for longer, delaying opportunities for extra funding and restructuring because there was a lack of motivation on the bankers’ behalf.
Fees were piled on to struggling businesses that could not afford them, letting them fall deeper into insolvency. A senior executive from RBS admitted, “GRG has a culture of taking aggressive action - not necessarily illegal – and encourages its people to do the same.”
Authors of the report, CEO, Christine Elliott and Chairman, Iain MacRitchie of IFT, have produced a number of principles and suggestions for bank units and troubled businesses to focus on. They want to see banks provide ‘transparent, respectful, documented and open to challenge’ advice and support and not be ‘profit centres’ whereby bonuses mean more than saving a company.
Fees should also be no more than what’s charged for viable companies and the company’s situation must be taken into account when fees are calculated.
Furthermore, the IFT wants companies to have the option of being referred to an ombudsman as well as having a channel for both bank staff and customers to report any concerns or issues.