`Let Customers Hang Themselves:' RBS Memo Fuels Lending Scandal

(Bloomberg) -- A junior manager at Royal Bank of Scotland Group Plc had some unusual advice for colleagues involved in the bank’s troubled unit accused of mistreating small businesses that were struggling to pay back loans.

“Sometimes you need to let customers hang themselves. You have then gained their trust and they know what’s coming when they fail to deliver," the former manager wrote under a subheading labeled “Tips” in a 2009 memo. “Missed opportunities will mean missed bonuses.”

The document, provided to Parliament’s Treasury Committee and published Wednesday, is the latest embarrassment for the bank stemming from a probe of its business-lending practices. Entitled ‘Just Hit Budget!’, the memo is among documents sought by lawmakers as they fought regulators over the disclosure of the wider report. The behavior led to a 400 million-pound ($552 million) fine for the bank in 2016.

RBS Chief Executive Officer Ross McEwan said the author is no longer at the bank.

“The document should be viewed in context," McEwan said in a letter to committee Chair Nicky Morgan. "For the avoidance of doubt, the language used in the document was completely unacceptable."

RBS declined to comment beyond McEwan’s statement.

RBS’s Global Restructuring Group, or GRG, unit came under scrutiny in 2013 after a government consultant claimed the bank had pushed small companies that owed it money into difficulties to help bolster earnings.

Following the allegations, the U.K. Financial Conduct Authority appointed a consulting firm and accountant to review RBS’s conduct. The FCA concluded that while there were examples of “poor practice” from the bank, it didn’t set out to deliberately transfer customers to its restructuring unit.

The outcome angered customers who claimed they’d been victimized by the bank and led to a battle between the FCA and lawmakers over the last year as members of Parliament petitioned the regulator to publish the full report behind its findings. The FCA has provided a detailed summary that has been independently verified by a trial lawyer working for the Treasury Committee but said it can’t publish the report without permission from the parties involved.

A debate in the House of Commons on the treatment of small and medium-sized businesses by RBS’s restructuring unit is scheduled for Thursday. McEwan and RBS Chairman Howard Davies are scheduled to appear in front of the Treasury Committee to face questions on the issue on Jan. 30.

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