RBS's 400 mln pound fee refund plan fails to dispel lawsuit risk

​LONDON: Royal Bank of Scotland is setting up a 400 million pound ($497 million) scheme to reimburse fees to customers who say they were mistreated by its small business restructuring unit as it seeks to end one of its longest customer service battles.

The taxpayer-backed British bank said on Tuesday it would set aside the sum after years of defending itself against claims that its Global Restructuring Group (GRG) pushed some companies into bankruptcy so it could pick up their assets more cheaply.

After a three-year investigation, Britain's Financial Conduct Authority (FCA) effectively cleared the bank of the most controversial allegations brought by hundreds of customers, who said the bank systematically killed off healthy businesses for profit in the wake of the credit crunch.

RBS admitted some wrongdoing over its handling of small businesses, but stopped short of saying they were deliberately pushed into administration.

"However, serious failings have been identified and ... they make for very uncomfortable reading. We deeply regret the mistakes that we have made in the past," RBS Chief Executive Ross McEwan said.

RBS admitted it could have managed the transfer of customers to GRG better and should have explained changes to management and sales charges more carefully.

The fee refunds and launch of a new complaints scheme could help RBS, more than 70 percent owned by the British taxpayer, avoid costly litigation over the GRG allegations.

However, RGL Management, which is leading a group action against RBS over the claims, said it still plans to sue the bank early next year.

"400 million pounds is wholly inadequate. We are aware that claimants have losses well in excess of 1 billion pounds," James Haywood, CEO of RGL, said.

"RBS are offering as little as possible in a cynical ploy to head off litigation," he added.

ANGER

Other ex-GRG customers were also quick to criticise the FCA's conclusion and questioned the timing of the announcement on the day of the U.S. presidential election.

"I am completely disappointed. I have no faith in the CEO of the FCA," Clive May, whose company C. May Brickwork was shuttered by GRG in 2013, told Reuters.

Only 300 million pounds of the cash set aside by RBS will be used to reimburse fees and pay possible compensation to former customers, with the remainder covering the costs of setting up the complaints process, RBS told reporters in a conference call.

Only 4,000 customers are estimated to have paid the complex charges, meaning just one in three GRG customers should expect a refund.

RBS played down fears the scheme could eventually rival the costs of compensating customers who were mis-sold payment protection insurance (PPI), a scandal that has cost British banks more than 25 billion pounds, but said the total redress depended on the volume and outcome of complaints it receives.

WATCHDOG'S WELCOME

The FCA welcomed the launch of the complaints process and fee refund scheme, which will be independently overseen by former High Court judge William Blackburne.

While an investigation did find examples of poor practice at the unit, the regulator said customers transferred to GRG were already showing clear signs of financial difficulty. It found no evidence of a widespread practice of putting customers in the unit for inappropriate reasons.

Andrew Bailey, the FCA chief executive, is due to appear before the Treasury Select Committee later on Tuesday.

The clashes with former borrowers have been among the most damaging to RBS's reputation since the financial crisis, striking at the heart of the bank's core strategy to become Britain's most trusted retail and business lender.

Analysts at Shore Capital said the 400 million pound provision was "not as big as feared and may also take some heat out of the situation". RBS shares were trading down 1.6 percent at 183.6 pence at 1031 GMT.

Reuters has previously reported that the cost to the bank of settling claims from small firms could run into billions of pounds.

($1 = 0.8048 pounds)