THE GREAT BANK HEIST EXPLAINED
This was not the fault of the small companies involved. It was not the result of these small firms borrowing more than they could afford or being badly managed. It was a deliberate strategy of the banks to loot the assets of their customers for corporate gain. Why target small and medium enterprises (SMEs)? Unlike lending to individuals, bank lending to small companies is unregulated. This means small business customers are at the mercy of their lenders – who can sue a bank and win?
Banks used a variety of scams – some illegal – to loot their small business customers:
1. TAILORED BUSINESS LOAN SCAM
30,000 small companies were sold “tailored business loans” (TLBs) and similar “complex” financial products by the Clydesdale and other banks. Customers were deliberately not told that cancellation or re-scheduling TLBs would result in “break” fees as high as 40% of the original loan. Numerous cases have come to light of bank officials later fabricating records to pretend customers had been given the correct facts. When interest rates fell, borrowers found it too expensive to exit TLBs in favour of cheaper financing and were forced into bankruptcy. Their properties and homes were then seized by the banks.
In 2012, the UK Financial Regulator banned complex loans to small businesses. Clydesdale Bank agreed to pay limited compensation – but refused to accept legal responsibility. Clydesdale also refused to repay lost profits to businesses wrongly bankrupted.
2. HBOS-READING AFFAIR – THE SCAM
In 2017 Lynden Scourfield, a senior banker at HBOS-Lloyds, was found guilty in court of defrauding the bank’s small business customers of up to a £1 billion.
Scourfield and his criminal associates were sentenced to almost 50 years in prison. But the real scandal is that the board and senior management of HBOS-Lloyds knew of the fraud for a decade but did everything they could to block an investigation or bring the culprits to trial. Between 2002 and 2007, HBOS small business customers from across the UK were routinely transferred to the bank’s corporate division at Reading. There they were classified as ‘high risk’ – even when they had never missed a repayment. The head of the Reading operation, Lynden Scourfield, operated a corrupt scam. He forced customers to appoint his business cronies, David Mills and Michael Bancroft, as bogus consultants. They would then submit a case for additional loans – often against the wishes of the owners. Scourfield would give the extra cash which went to Mills and Bancroft (with a cut for Scourfield himself). The stolen money was spent on holidays and prostitutes. These unnecessary loans often bankrupted the small firms. But they also cost HBOS-Lloyds around £1 billion. However, the bank’s corruptly inflated loan book qualified senior managers throughout HBOS for huge bonuses. Early on, the scam was uncovered by two of the victims: Nikki and Paul Turner. They informed the bank, its board, senior managers, the British government and the official regulator. But for a decade no official action was taken against the fraudsters.
3. HBOS-READING – THE COVER-UP
HBOS-Lloyds covered up the scandal in case it affected the bank’s share price and the bonuses of top management. The bank refused to press charges against Scourfield. Instead, HBOS-Lloyds tried to evict the Turner’s from their home. Eventually Anthony Stansfeld, the elected Thames Valley police commissioner, took up the case and pressed for the prosecution of Scourfield. The bank remained uncooperative but in 2013, worried senior executives commissioned a secret internal report on who knew what about the Reading scam. Code-named “Project Turnbull”, this report was written by a senior HBOS-Lloyds manager, Sally Masterton. She proved that the bank at the highest levels had deliberately covered up the Reading fraud for a decade, misleading shareholders and protecting management bonuses. In a panic, the bank fired Masterton and buried her report.
It was finally published by the House of Commons Treasury Committee in 2018. As a result, the National Crime Agency has launched a criminal probe into Lloyd’s conduct.
4. THE RBS GLOBAL RESTRUCTURING SCAM
Global Restructuring Group, or GRG, was a unit of RBS created supposedly to help the bank’s small business customers manage their way out of economic difficulties. Instead it became a monster dedicated to maximising the bank’s profits by tripping companies into bankruptcy, buying them at knockdown vales, then selling on at a mark-up. Following the 2008 credit crunch, GRG took control of 16,000 SME customers with £65 billion of assets via ‘Project Dash for Cash’. In 2013 the UK government’s official entrepreneur-in-residence, Lawrence Tomlinson, published a report into GRG. Tomlinson found RBS had seizing viable companies that had not defaulted on any loan repayments. Individual bank managers were able to increase their bonuses by identifying viable customers who could be looted.
Tomlinson was an RBS customer himself. The bank responded to his report by closing his accounts and cancelling his loans.
As a result of the Tomlinson Report, the official UK bank regulator commissioned its own investigation into GRG.
The FCA report found that:
2 out of 3 companies transferred to GRG were perfectly financially viable
In a fifth of cases, customers “experienced inappropriate action by RBS” resulting in material financial distress”
In other words, RBS looted assets from these firms to make a profit. As a result of the FCA findings, RBS has set aside £100m to compensate victims of GRG…
But RBS claims that as the lender to these firms, it should get most of the compensation!