RBS Sets Aside $500 Million to Repay Fees to Small Businesses

(Bloomberg) -- Royal Bank of Scotland Group Plc said it will take a 400 million-pound ($500 million) charge in the fourth quarter as it refunds fees to small-business customers and sets up an independent complaints system.

The bank will also issue an automatic refund for “complex fees” paid by small-business clients who were referred to its Global Restructuring Group, RBS said in a statement Tuesday. The moves follow a review by the U.K.'s Financial Conduct Authority of the way the bank handled small businesses that were in financial trouble.

The review cited some examples of “poor practice” from the bank, but said it didn't set out to artificially transfer customers to its restructuring unit. Chief Executive Officer Ross McEwan said any possible related fine is in the hands of the regulator.

“We have acknowledged for some time that mistakes were made,” McEwan said in the statement. “Some of our customers went through what was a traumatic and painful experience as a result of the crisis. I am very sorry that we did not provide the level of service and understanding we should have done.”

RBS, the U.K.'s biggest government-owned lender, declined 1.1 percent to 184.5 pence in London trading.

Compensation Costs

The bank is setting up a new complaints procedure for certain small-business customers, overseen by a retired High Court judge. About 300 million pounds of the money set aside will be used to compensate customers, while 100 million pounds will be spent on administration, Chief Conduct & Regulatory Affairs Officer Jon Pain told reporters on a conference call.

British lawmakers have also criticized the bank and urged the FCA to publish the findings of its almost three-year-old probe into the bank's treatment of small-business customers. The allegations follow a 2013 government-commissioned report that said the bank “artificially" distressed otherwise viable businesses in order to buy their assets at a discount and charge them fees.

RBS required a 45.5 billion-pound bailout from British taxpayers to avert failure during the financial crisis, as commercial and real estate lending soured while it recorded deep losses at its investment bank. The bank has since offloaded assets worth more than 1 trillion pounds as it shrinks from a global titan to focus on domestic consumer and business lending.

To contact the reporter on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net. To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Jon Menon, Andrew Blackman