June 17 (Bloomberg) -- Royal Bank of Scotland Group Plc Deputy Chief Executive Officer Chris Sullivan denied the bank profits from small-business customers in financial distress.
The bank’s Global Restructuring Group tries to help turnaround companies and is “absolutely not a profit center,” Sullivan told parliamentarians at a Treasury Committee hearing in London today. “Absolutely, unequivocally, I’m saying this is a cost center.”
RBS pushed companies that owed Britain’s largest state-owned bank money into financial difficulties to boost profit, according to a report by Lawrence Tomlinson, a government adviser, published in November. Clifford Chance LLP, a London-based law firm, found no evidence the bank distressed viable businesses, in a separate investigation commissioned by RBS in April.
“There can’t be all this smoke without some fire,” said Andrew Tyrie, Treasury Committee chairman at the hearing. “There have been widespread concerns about RBS’s lending practices.”
The lawmakers were questioning the 80 percent taxpayer owned bank after Tomlinson’s report led the Financial Conduct Authority to appoint Promontory Financial Group LLC, a consulting firm, and the accountant Mazars LLP to review its treatment of business customers. Once companies were in default, RBS would charge them advisory fees and buy their assets at reduced prices, Tomlinson said.
A separate report by former Bank of England Deputy Governor Andrew Large with consultant Oliver Wyman & Co. published in November and commissioned by RBS, said the Edinburgh-based bank ran its turnaround unit as an “internal profit center.” That gave rise to a “perceived conflict of interest” at the bank, Large wrote.
“RBS has flatly denied an important conclusion, and concern of Sir Andrew Large’s report,” Tyrie said in a statement. “I will be writing to Sir Andrew Large for his view.”
GRG lost 2.1 billion pounds ($3.6 billion) over a five-year period for the bank, Derek Sach, head of the RBS unit, said. “We would never get any advantage from destroying a customer.”
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