Royal Bank’s real estate hustle starts to unravel
Article By Ian Fraser October 1st, 2012 (updated from July 6th, 2012)
Today, RBS chief executive Stephen Hester used a speech at the London School of Economics to call for a new “compact” between banks and society.
In the past few years, the Royal Bank of Scotland has shifted billions of pounds of commercial property debt from its banking book into its vast commercial property repository, West Register.
With the juggling act, the Edinburgh-based bank, which also owns NatWest, avoids crystallising losses on loans that are decreed to have gone bad* and is in a position to transform liabilities into assets. Such commercial real-estate shuffling is central to RBS chief executive Stephen Hester’s recovery program, enabling him to flog off the assets for much-needed cash.
However to make this possible, the bank has been preying on and asset-stripping many of its long-standing commercial borrowers. It has been doing this by reneging on lending agreements, making arbitrary changes to lending agreements, getting friendly chartered surveyor firms to concoct fantasy valuations that suit its needs, plus a wide range of other forms of nefariousness and skulduggery. Much of the activity borders on the criminal.
As one abused customer, Brechin-based hotelier Nigel Henderson, told RBS chairman Sir Philip Hampton at the bank’s 2011 annual general meeting:-
“the conduct of a significant number of employees in your bank would make even the most crooked, unscrupulous and despicable back street loan shark appear as a paragon of virtue. Yes, the jackboot culture is alive and kicking – literally as well as metaphorically within [Royal Bank of Scotland], despite your pious statements”
It seems the UK authorities are, finally, waking up to malpractice that appears to be rife within the state-rescued institution. The Times today gives a flavour of the sort of thing that’s been going. Investigations editor Dominic Kennedy reports on an investigation by City of London into the bank’s alleged ‘theft’ of a multimillion-pound hotel from its own borrowers. The article states:-
Detectives have requested interviews with bank executives in a case that shines a light on how RBS moved a fortune in clients’ assets into its own property division … RBS has bought £1 billion worth of its former borrowers’ property, but City of London Police is trying to establish whether a crime was committed when the Coniston, a four-star conference hotel in Sittingbourne, Kent, came into its ownership.
The previous owners, Chris Richardson and Innes “Ernie” Berntsen, were longstanding customers of NatWest, which is owned by RBS. The bank used them on a brochure boasting how it had provided a multimillion-pound package to redevelop an old hotel, but the pair now claim to have lost savings of £4 million.
In February 2010, four months before it was due to open, the property agent Savills valued the Coniston at £7.7 million on completion. Internal RBS documents suggest the bank estimated its value on opening would be even higher, exceeding £9 million. But nine days before the scheduled opening, the bank said that the business had run out of funds.
The hotel’s owners, described on internal bank papers as “excellent customers”, were perplexed. They understood that all lending had been agreed. The RBS Global Restructuring Group, which handles “problem lending situations”, wanted a further valuation. RBS-appointed valuers then put the hotel at “less than £2.5 million to £3 million”. Among those in a conference call where the valuation was given was a representative of West Register, the RBS property wing. The owners were not party to the call. With no more cash available from RBS against an asset now so poorly valued, the hotel went into administration with a guide price of only £3.95 million. A member of staff at RBS Global Restructuring Group e-mailed the administrators: “Please keep me advised on the second highest bidder’s position.”
The bank is entitled, as a creditor, to be informed about offers for customers’ assets, although RBS insists that it erects “Chinese walls” to stop its property staff getting this sensitive information. The bank, which wins a third of its bids, won the Coniston by offering £4.24 million cash, beating the next best offer by just over £300,000.
The hoteliers complained to police under the Fraud Act because newly disclosed internal bank documents suggest that they still had funds available when RBS claimed that they had run out of cash. The bank says the documentation is a mistake.
RBS said the customers had “already articulated these allegations in High Court proceedings. NatWest and West Register are happy to co-operate with police inquiries.”
The previous owners, Chris Richardson and Innes “Ernie” Berntsen, were longstanding customers of NatWest, which is owned by RBS. The bank used them on a brochure boasting how it had provided a multimillion-pound package to redevelop an old hotel, but the pair now claim to have lost savings of £4 million.
In February 2010, four months before it was due to open, the property agent Savills valued the Coniston at £7.7 million on completion. Internal RBS documents suggest the bank estimated its value on opening would be even higher, exceeding £9 million. But nine days before the scheduled opening, the bank said that the business had run out of funds.
The hotel’s owners, described on internal bank papers as “excellent customers”, were perplexed. They understood that all lending had been agreed. The RBS Global Restructuring Group, which handles “problem lending situations”, wanted a further valuation. RBS-appointed valuers then put the hotel at “less than £2.5 million to £3 million”. Among those in a conference call where the valuation was given was a representative of West Register, the RBS property wing. The owners were not party to the call. With no more cash available from RBS against an asset now so poorly valued, the hotel went into administration with a guide price of only £3.95 million. A member of staff at RBS Global Restructuring Group e-mailed the administrators: “Please keep me advised on the second highest bidder’s position.”
The hoteliers complained to police under the Fraud Act because newly disclosed internal bank documents suggest that they still had funds available when RBS claimed that they had run out of cash. The bank says the documentation is a mistake.
RBS said the customers had “already articulated these allegations in High Court proceedings. NatWest and West Register are happy to co-operate with police inquiries.”
The Times has also published a separate analysis piece by Kennedy (Cashing in on property crash), which suggests that the bank’s response to the property cash was to seek to purloin customers’ assets. The Times report that ‘leaked papers’ reveal that the bank set a strategy of seeking to take ownership of its own customers’ assets. ”The internal papers, dated May 2009, showed that the bank decided that it would need to “strengthen the level of resourcing available to support the buy-in activity”. The bank used West Register was to be used as the vehicle Hoover up the properties. The Times adds: “Offices, retail and industrial premises, pubs, hotels, nursing homes, car dealerships and hospitals were to be considered.” This is exactly the sort of thing I covered
I understand that Tayside Police and the Crown Office 
(Scotland’s equivalent to the Crown Prosecution Service) are looking into the bank’s alleged misappropriation of two hotels from former customer Nigel Henderson as part of an ongoing probe into RBS malpractice North of the border.
Cat McLean, a solicitor advocate from Edinburgh-based law firm MBM Commercial, has detailed how the bank used Machiavellian tactics to allegedly misappopriate the ownership of Charters in Sunningdale, Berkshire, which was used by the Duke and Duchess of Windsor. It has been converted into a luxury block of flats where Sir Cliff Richard has an apartment. After developer John Morris ran out of money RBS placed the business in administration and refused a £32m Investec-backed offer from Morris to buy the property. West Register then bought it for £16.2m.
Here is a piece I found on July 6th 2012 on the UK Business Property website…
Today West Register is selling, among other assets, 15 residences on Grosvenor Crescent, three years after seizing the properties from an insolvent developer and taking on the unfinished project. Having appointed the Duke of Westminster’s Grosvenor Estates to complete the pert finished project, RBS expects to get its money back finally, as it offers one of the 15 properties for £45 million, while the rest range down to £9 million.
“We are certainly looking to get all our money back,” said Aubrey Adams, head of property in the bank’s Global Restructuring Group (GRG) of which West Register is a subsidiary.
Adams is better known as the former boss of Savills, but is also on the boards of British Land and Max Property.
The West Register portfolio is a small part of RBS’s exposure to real estate and operates on a global basis. While the majority of the assets are UK-based, the West Register contains properties across Europe as well as in the US and Asia.
West Register was set up in 1991 to deal with that property downturn. Due to the length of time it takes to sell some of it’s more challenging properties it was still around when the next cycle hit.
RBS aims to eliminate its £83 billion non-core loan book by the end of 2013, Adams said some of the debt is so underwater the deadline may be missed.
There is no shortage of private equity funds for this distressed real estate, but the prices on offer would force further writedowns on RBS, which it is seeking to avoid by expert management from Adams and his staff.
“As we get further and further into the portfolio there will be a rump that’s harder and harder to sell and that’s an issue,” he said.
Fri, 6th Jul 2012
“We are certainly looking to get all our money back,” said Aubrey Adams, head of property in the bank’s Global Restructuring Group (GRG) of which West Register is a subsidiary.
Adams is better known as the former boss of Savills, but is also on the boards of British Land and Max Property.
The West Register portfolio is a small part of RBS’s exposure to real estate and operates on a global basis. While the majority of the assets are UK-based, the West Register contains properties across Europe as well as in the US and Asia.
West Register was set up in 1991 to deal with that property downturn. Due to the length of time it takes to sell some of it’s more challenging properties it was still around when the next cycle hit.
RBS aims to eliminate its £83 billion non-core loan book by the end of 2013, Adams said some of the debt is so underwater the deadline may be missed.
There is no shortage of private equity funds for this distressed real estate, but the prices on offer would force further writedowns on RBS, which it is seeking to avoid by expert management from Adams and his staff.
“As we get further and further into the portfolio there will be a rump that’s harder and harder to sell and that’s an issue,” he said.
Fri, 6th Jul 2012
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