UK Bank Accused Of Egregiously Harming Small Businesses In Order To Make A Profit

It seems our friends across the pond are embroiled in their own naughty bank brouhaha.

RBS has asked a law firm to "investigate claims it forced firms to close so it could make a profit." The key thing to remember here, as Felix Salmon at Reuters notes, is that RBS was effectively nationalized by the U.K. government during the financial crisis.

The rough allegation is that RBS, in an effort to deleverage after the crisis, royally screwed over its borrowers with particular delight and fanfare. Here's an example from Salmon:

Eddie and Cheryl Warren bought the Bold hotel in Southport for £3.7 million, with a loan from RBS. In the UK, mortgages are floating-rate, and the bank forced them to take out an interest-rate swap to protect them against rising rates. When rates fell, they had to pay penalties on the swap of £120,000 per year - but even so, they always remained current on all their payments. That notwithstanding, RBS declared that thanks to the rate swap, the Warrens were deeply underwater. The bank declared the hotel to be worth just £1.8 million, forced the Warrens into insolvency, and then ended up selling the hotel to - yes - West Register, for the bargain-basement price of £1.4 million. The Warrens lost everything, including their home; they are now divorcing.

As it happens, West Register is RBS's own property division.

There are a lot more stories like the Warrens', and government advisor Lawrence Tomlinson wrote a report to find them. What was going on, according to Tomlinson, was "systematic and institutional" malfeasance at RBS.

To make matters worse, Salmon writes that borrowers in the U.K. have been doubly hosed because they can't sue the banks. "Any law firm which does business with banks will refuse to take their case," he writes.

Read the full report at the BBC»

And read Felix Salmon's take »