BONUS-HUNGRY BANKERS are being incentivised to hit SMEs with excessive fees, according to extensive new research into the behaviour of lenders towards companies placed in so-called business support units.
The Institute for Turnaround claims to have found fresh evidence of questionable practices within the divisions of UK banks, including state-owned RBS, and has called for urgent changes to address the issue.
The professional body analysed more than 250 cases involving companies transferred to banks’ restructuring teams and spoke to a number of senior bankers.
Christine Elliott, chief executive, said: “If it is a policy objective to return under-performing businesses to viability in an open, fair and timely manner, then banks’ incentives are misaligned to achieve this aim and should be refocused.”
The IFT claims that some bonuses are being calculated on the basis of excessive fees that companies in business support can be required to pay if they are judged to have fallen into difficulties.
Ms Elliott told The Yorkshire Post: “It has been a widespread practice. As far as we are aware there has been talk of reform. We have not seen evidence that it has been implemented.”
These practices are improving the short-term health of banks’ results but preventing SMEs from being helped to recovery, the report said.
The IFT has recommended a code of conduct for business support units, which says that banks should be customer-centric and treat customers fairly; lenders should not treat the divisions as profit centres and fees should take account ability to pay.
Lawrence Tomlinson, the Yorkshire entrepreneur and Government adviser who compiled a dossier of complaints against RBS’s turnaround division, said many of the IFT’s findings echoed what he heard from businesses and whistleblowers, especially around high fees and aggressive behaviour.
Mr Tomlinson told The Yorkshire Post that the City watchdog’s probe into RBS’s business support unit, an increase in competition in the banking sector and the work of organisations like the IFT should lead to a vast improvement in business support practice and “ensure it works in favour of returning the business to health”.
A spokeswoman for RBS said it is not the case that staff have been incentivised by fees. She added that bonuses are discretionary and based on a wide range of objectives set for staff, including successful turnaround of businesses and customer focus.
She said: “Objectives have not been set for fees generation or for the number of companies put into insolvency.”
The spokeswoman added the vast majority of firms that RBS works with are successfully turned around.
She said: “Serious allegations have been made about the way some customers in financial distress have been treated, to date there has been no evidence to substantiate these claims.”
RBS has hired City law firm Clifford Chance to look into the allegations raised by Mr Tomlinson. Chris Clegg, managing director at Endless, the Leeds-based special situations investor, said while undoubtedly there is room for improvement within business support units “we should be careful not to generalise”.
He said many business support teams have worked successfully with companies to help them through difficult times.
The IFT, whose partners include banks, law firms, private equity houses and asset-based lenders, is discussing its findings with the Bank of England and the Treasury.
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