RBS Announce Results: Provision for Swaps Mis-selling Increased by 1300%

The Royal Bank of Scotland have today announced their 2012 results.  These show an operating loss of £5.2 billion with a total loss for 2012 of £5.8 billion. They also show a provision of £700 million in relation to the mis-selling of ‘Interest Rate Hedging Products’. This is an increase of 1300% on their previous provision of £50 million, which as we said previously, was plainly inadequate.

RBS continue to downplay involvement in swaps mis-selling

RBS have not said anything about this issue in the Highlights section at the start of the report, nor have either the Chairman or the Chief Executive mentioned the issue in their letters to shareholders, which accompany the results. Mis-selling of IRHPs is mentioned on pages 25, 93 and 131 of the full report. In these places RBS continues to downplay its involvement in this scandal, saying for example:

Prior to the FSA review, RBS’s sales processes had generally been found to be appropriate during the period, with 59 out of 62 adjudications by the Financial Ombudsman’s Service in the bank’s favour. This included 20 out of 20 adjudications relating to the disclosure of break costs. Two recent court cases also found in favour of RBS, including rulings on past sales processes and the adequacy of related disclosures.

This conveniently fails to mention that, within the FSA review, over 90% of such products were found to have been mis-sold. If the FOS was previously giving rulings in the bank’s favour in the large majority of cases (and our experience suggests that this was indeed the case), this merely shows how toothless and inept the FOS unfortunately has been in dealing with mis-selling cases. Not only that but last year’s 35 million euro settlement to David Agar in Ireland (by RBS Group’s Ulster Bank) is not mentioned at all. Of course that latter settlement and the many others are confidential.

£700 million swaps mis-selling provision still inadequate

Of the £700 million provision, £575 million is stated to be for providing redress, while the remaining £125 million is for ‘administrative’ expenses, of which the bulk is presumably legal costs. The report does finally note that, “As the actual amount that the Group will be required to pay will depend on the facts and circumstances of each case, there is no certainty as to the eventual costs of redress.”

RBS do not give any indication of how many customers have purchased IRHPs, nor do they give any indication of how many are likely to be ‘non-sophisticated’ for the purposes of the FSA review. It is therefore impossible to say what provision has been made in relation to each customer. However, the FSA have indicated that 40,000 products were sold to non-sophisticated, and we believe from the many cases this firm has seen that RBS was involved in a significant, possibly the largest, proportion of these cases.  We therefore consider that the £700 million provision is still plainly inadequate.

It is apparent that RBS are doing everything they can to delay dealing with this problem, and are continuing to offer only minimal redress to the victims of derivatives mis-selling. It is therefore particularly important that RBS customers who consider that they may have been victims of swaps mis-selling obtain independent legal advice.

M Ali Akram (Principal)