By Thomas Connolly
The Clydesdale Bank, one of Scotland’s biggest financial services’ employers, is in serious trouble with the regulator after being hit with a record fine over its mis-selling of “PPI” insurance, and how it handled complaints.
More than 90,000 customers are expected to receive compensation from the Clydesdale, which is now being forced to review no fewer than 180,000 previous complaints, having been served with a massive £20.7m for its behaviour.
The bank is effectively up for sale, although its ultimate owners, National Australia Bank, have indicated that they may attempt to raise up to £2bn via stock market flotation at an unknown date.
Jobs on the line?
Strangely, the Clydesdale’s predicament remains out of the political limelight in Scotland, while the various parties slug it out over opinion polls, dodgy economics and the credibility of each other’s election promises.
Yet the bank employs 4,700 people directly, and has become enmeshed in various banking scandals and catastrophic lending situations since 2011. While its core business seems stable, it is paying a heavy price for poor strategic decisions.
Flotation could mean massive cost-cutting, and ultimately a hostile or agreed takeover by another bank. Clydesdale remains in a weakened position partly because of its mis-selling transgressions. Founded in 1838, the bank is one of three in Scotland to retain the right to print its own notes, and remains an important part of the Scottish business community.
Yet it has been caught behaving dishonestly over the PPI situation, the latest in a series of scandals involving “mis-selling” – probably the most memorable euphemism of the financial crisis, as it actually means fraud.
Mis-selling – and mis-leading
Today’s fine is not only the result of mis-selling, but stems from the fact that bank staff actually mis-led the regulator in their original response to complaints, a damning fact that will be highly embarrassing to its board and owners.
It is known widely that the Clydesdale’s behaviour with private and business clients is contributing to a growing share of politicians’ constituency casebooks.
Before election hostilities began, one Holyrood MSP approached others on a cross-party basis to take up dozens of serious allegations and complaints from small business customers who were sold hedging products disguised as business loans over the last decade, to give one example.
Clydesdale, long seen as a steady if unspectacular consumer bank, came under pressure to build its business, following its takeover by NAB, which also owns the Leeds-based Yorkshire Bank. NAB wanted its UK banks to start behaving like their much bigger counterparts such as RBS and Llloyds, and to become more aggressive in new markets.
It is thought within the industry that the Clydesdale wasn’t equipped to compete on that bigger stage, despite moving aggressively into the small business, buy-to-let and commercial property sectors soon after 2000, and not long before those sectors faced collapse in 2008. Under pressure from Australia to divest, Clydedale has spent recent years backing out of those sectors, at great expense.
NAB has been trying to prepare Clydesdale to be sold, floated or broken up, as the Australians fend off criticism from investors concerned that its UK businesses as the financial equivalent of turkeys.
Chief executive David Thorburn – best man at the wedding of his former colleague and friend, disgraced RBS chief Fred Goodwin – stood down earlier this year. He was chief operating officer during the years of expansion and scandal, and his name appears on all current Clydesdale bank-notes.
Today his stand-in, Debbie Crosbie — keeping the CEO seat warm until the new boss arrives — apologised for the bank’s behaviour and said she and her colleagues would be doing everything possible to remedy the situation. It could take months, or even years, to settle the outstanding claims.
The Financial Conduct Authority believes that, by choosing to ignore certain paperwork, Clydesdale may have rejected more than 40,000 customer complaints, and may have underpaid compensation to 52,000 others.
The Bank that lied
The FCA decision states that between May 2012 and June 2013, Clydesdale “provided false information to the Financial Ombudsman Service in response to requests for evidence of the records Clydesdale held on PPI policies sold to individual customers.” In other words, it lied.
Clydesdale and Yorkshire Banks have so far set aside £806m to deal with PPI “mis-selling”. The insurance policies, seen as an “easy sell” for years by aggressive financial services companies, were supposedly providing cover for mortgage and loan repayments in the event of redundancy — in fact, most of the policies were unnecessary or would not apply to individuals such as the self employed.
The bank was previously fined £8.9m in 2013 after miscalculating the mortgage repayments of more than 42,000 customers.
It faces a growing scandal over it selling and handling of so-called “Tailored Business Loans” to small businesses, many of whom remain unaware that they were locked in to hedged products, often with enormous penalties. A growing group of customers claim that they were driven out of business by the banks’ swingeing terms and allegedly aggressive behaviour.
In a bizarre interview with The Herald in February, outgoing CEO Thorburn claimed: “I do feel very strongly I am handing the bank over in good shape to my successor and I do feel we have made good progress in building a better bank for our customers.” Said at the time to be “pondering his next move”, he has remained silent since departing the bank.
Last year he and Crosbie were challenged strongly about the bank’s behaviour when they gave evidence to the House of Commons Treasury Select Committee. The subsequent report published last month is critical of the Clydesdale’s so-called “Tailored Business Loans”, indicating that another scandal may be looming.