RBS suspends two utives in mortgage inquiry

RBS suspends two in mortgage inquiry

Two RBS executives have been suspended after the bank, which is backed by taxpayers’ money, uncovered evidence of alleged corruption in its overseas mortgage department.

By Holly Watt, Robert Winnett and Jon Swaine
Telegraph, 31 Oct 2009

RBS has been investigating the allegations since May but is yet to alert the police Photo: AP

The bankers were allegedly asking foreign estate agents for kickbacks worth tens of thousands of pounds in return for referring customers.

RBS has been investigating the allegations since May but is yet to alert the police.

Many of the alleged practices are suspected to have continued to take place since the taxpayer-funded bail-out of the bank last year.

The foreign mortgage department under investigation handled hundreds of millions of euros of lending for Britons wishing to buy second homes in Spain, France and other European countries.

RBS is in negotiations with the Treasury over a multi-billion pound scheme for taxpayers to take on so-called “toxic” assets, which have threatened to bankrupt the high street bank.

Financial experts believe that the deal is likely to include mortgages for Spanish properties sold by RBS. Therefore, the taxpayer is likely to become responsible for the questionable loans arranged by the department at the centre of the fraud investigation.

The two executives involved in the bank’s inquiry are Alan Dawson and Simon Clark.

Mr Dawson was responsible for Spanish mortgage lending to RBS customers in north-west England and Mr Clark dealt with customers in the Midlands.

Customers from RBS’s subsidiaries including NatWest, Coutts and Adam & Company were referred to the two men.

The bankers’ unit would arrange mortgages for those interested in buying homes on the Continent. The two executives would also allegedly offer to put customers in touch with a “trusted” agent who would help them find a villa, apartment or any other type of property.

Thousands of consumers had been stung by disreputable estate agents when buying a home abroad and the offer of an introduction from RBS would have had its attractions. However, the two RBS bankers are alleged to havesought significant “commission” payments from the agents that were allegedly not disclosed to customers.

The money was allegedly to be paid to the bankers’ wives or other friends with “property” businesses. In some cases, cash is alleged to have been paid directly.

RBS’s investigation is being run by Chris Nichols, the head of legal matters for RBS International, who is understood to have obtained covert tape recordings and emails between agents and bankers. Stephen Hester, the chief executive, is aware of the inquiry.

The money allegedly being sought by the two bankers potentially runs into tens of thousands of euros as commissions from property sales abroad are much higher than in Britain.

An agent selling a property in Spain could earn up to five per cent of the sale value. The two bankers were alleged to be then asking for a quarter of the estate agent’s commission.

If a property sold for one million euros, the agent could earn up to €50,000. A quarter share would be €12,500. Some RBS clients were looking for villas worth more than €5million.

The two executives allegedly claimed that they were in a position to get other colleagues involved. The RBS inquiry is understood to be investigating whether the alleged corruption spread within the department as the two bankers allegedly offered to introduce other colleagues.

“The police should be looking at this,” said a source close to the RBS inquiry. “These guys appeared to have been very cavalier and it looks like many people may at least have been aware of the arrangements.”

Agents alleged that other dubious practices were being offered by the two bankers, including the backdating of mortgage offers.

This allows unscrupulous agents to profit from falling property prices. For example, a new apartment which had yet to be built may have been sold “off plan” for €100,000 two years ago. However, it may now only be worth €80,000.

Therefore, a backdated mortgage is agreed as if the property was bought off plan for €100,000. However, only €80,000 is actually handed to the developer and the remaining €20,000 is split between the banker, agent and customer.

Mr Dawson and Mr Clark declined to comment on the allegations when recently contacted at their homes. Both men are thought to own properties in Spain or Gibraltar.

The allegations are embarrassing for RBS, which was saved from collapse last October by an emergency injection of £20 billion from the Treasury. The taxpayer now owns 70 per cent of RBS. The Treasury has been in detailed negotiations with the bank for the past six months about extending taxpayer support by underwriting RBS’s toxic assets.

The near collapse of RBS prompted the resignation of Sir Fred Goodwin, the former chief executive, and many other senior executives. The bank’s meltdown was blamed partly on the culture that was allowed to develop with bankers taking disproportionate risks.

Mr Hester replaced Sir Fred and was ordered by the Government to clean up the bank’s operations. However, many of the practices alleged to have occurred in the foreign mortgage department have taken place after the bail-out.

Agents have been surprised that RBS has continued to lend large amounts of money to people wishing to buy properties abroad at a time when many small businesses and consumers complained that it was denying them credit.

Last night, a spokesman for RBS said: “We take any allegation of fraud very seriously and would always as a matter of course carry out a full investigation into any claims of wrongdoing.”