(Originally published in May 2021)
The BBRS spin machine is once again in full overdrive, evidenced by their promotion of an article published today in The Times.
It urges SME’s not to ‘self-exclude.’ I know of none that have, but also understand why so many have reservations and concerns. There are so many flaws, limitations and conflicts with the scheme, that it is understandable that SME’s have to consider the ‘benefit to harm’ ratio represented by it.
In this article the BBRS aligns itself with the Financial Ombudsman Service (FOS). Most consumers already know that a typically flawed or dishonest FOS decision in favour of the firm, will be leveraged by the firm in any civil litigation, prejudicing any civil proceedings that they might be able to pursue.
Notwithstanding that the firms and BBRS know that victims will likely have no choice but to accept any decision or award by BBRS, having been financially ruined as a result of the wrongdoing in question and that which the scheme purports to compensate for.
(This also rather contradicts the way that the BBRS recently positioned itself to victims and consumers as a ‘mediation’ service. It is disturbing to anyone that is forced to avail themselves of this service, that the BBRS has no understanding of what it actually is.)
No independent and objective scheme can be regarded as such, when maximum compensation limits are ‘pre- imposed’. How can any case and appropriate damages possibly be fairly assessed on its merits, its evidence and its consequences when a maximum limit has already been imposed?
Yes, there is provision for exceptions to be made in terms of the maximum compensation. However, the pre- defined maximum means that it sets a bar, and that sets the bar too high for such exceptions to be likely, or made whenever it is appropriate to do so.
And we still have no idea how the scheme is going to assess ‘consequential damages’. The wrongdoing in question might involve actual costs or damages at the time that were relatively low, but the consequences of that can be in huge multiples of those direct costs or damages.
For example, it might only have taken dishonesty and fraud by the bank to the tune of £50,000 to create the adverse position for the customer that would then result in loss of business, property or assets that are valued in multiple millions of pounds, and that's even before the consequential damages represented by lost opportunities.
The issue of ‘consequential damages’ greatly disturbs me. Banks, their lawyers, regulators and The FOS go to extraordinary lengths to create a complexity to this issue that simply does not exist, and do so in order to create confusion and barriers so as to prevent proper compensation.
There are incredibly simple measures and benchmarks that can be used to demonstrate consequential damages, and or a valid range of value for such damages in every case. A minimum and a maximum.
And let us not forget that the issue of ‘consequential damages’ only applies when guilt or liability has been established in the first instance.
It is therefore reasonable that the culprits that have been proven liable are forced to accept a simple valuation of consequential damages based upon the growth and profitability of the business up to the financial crisis and/or other event that saw their business destroyed by the bank, and the presumption that the same, or similar, trajectory of growth would have continued BUT FOR the action/s for which the bank has been found liable, and/or benchmarked against UK GDP or other economic indicators that determine economic prosperity over said period. I have perviously raised my concerns as to the appointment to the BBRS Board of Stephen Pegge. Former Lloyds Bank Director and stalwart of the British Banking Association and its later incarnation, so as to ‘conceal our involvement with, and avoid liability for LIBOR failings’, UK Finance. I have cause to raise further concerns today.
Stephen Pegge BBRS Board Member concerns
Stephen Pegge is a former Director of Lloyds Banking Group’s SME Markets business unit. The single worst business unit that I saw, during a 28 year career, for fraud and misleading practises against SME’s, and one of its Directors is on the BBRS Board. I have recently had reason to watch the BBC Panorama episode produced by Andy Verity in 2014, called “Did the bank wreck my business?”
You can watch the episode via this YouTube link
How many false, incorrect or misleading representations does Mr Pegge make in this programme? It is truly disturbing to watch now, against todays backdrop given the evidence we now have in respect to what was truly going on within the Lloyds Bank BSU’s, HBOS Reading, RBS GRG etc. before and at the time this programme and these statements were made. Pegge states in this video:
“if we undervalue a property, and indeed if a property is sold for less than its worth, we’d just be increasing the losses eventually on that particular situation for the bank."
FALSE and he must have known this when making this representation. Or if he did not know this was false, then he should not have been making a declaration for the public record having not checked his facts.
It is an entirely incorrect representation, whether made falsely or through lack of knowledge. The bank is rather like a magician, creating an illusion. They get you to focus on their le hand, so that you don’t look at, or notice, what their right hand is doing.
Take the Ashwell Property Group (APG). In 2007 this business had several subsidiaries and overall assets valued at over £300mio, with net assets versus net liabilities/debts position of positive £114.6mio. These assets included a development landbank with estimated £2bio valuations upon completion of developments.
Step forward in 2009 David Crawshaw & KPMG, instructed by Lloyds Banking Group and its BSU (Business Support Unit) to conduct an "Independent Business Review" of this company. Despite the obvious health of this business and value of its assets.
Yes, the same David Crawshaw and KPMG referenced in multiple reports and findings in respect to the HBOS Reading fraud.
In no time Mr Crawshaw and KPMG saw to it that these assets were ‘down valued’. Indeed, the documentary record shows that the value of the APG property portfolio was slashed by 50% in 2009. This included placing a valuation of £0 on a huge development site owned by APG adjacent to Cambridge station. A site with an industry accepted valuation of £800mio at that time upon completion. My sources tell me that the £0 valuation was justified by the bank and KPMG because until the development was completed, it could be considered a cost burden. They simply took advantage of a snapshot valuation at that specific moment in time, without factoring in the true value and the value they knew existed upon completion.
These valuations, combined with increased debt, engineered a net assets versus liabilities position of negative £140.9mio. A £255mio adverse swing in that position against the company and its owners. How is that possible?
These valuations were used to force APG into administration, and with same David Crawshaw and KPMG that engineered these valuations, being appointed as administrators.
Within a week (Yes, within one week) Crawshaw sold APG and all subsidiaries and assets for just over £3mio. It was sold to a newly formed company called Brookgate Limited, who are legally represented by our friends at Herbert Smith Freehills, and with our friends at Grant Thornton UK appointed to the lucrative role of auditors.
On closer inspection we see that Brookgate Limited, the new company setup entirely for the purpose of purchasing the Ashwell Property Group for this huge under value, is actually 92% owned by........ Lloyds Banking Group.
The sale of Ashwell Property Group to Brookgate will have registered a ‘loss’ for the bank if we only look where the bank and Mr Pegge want you to look.
However, three years later Lloyds Banking Group sold their stake in Brookgate Limited for an estimated £300mio profit to a Luxembourg based property fund.
The bank books a ‘loss’ on the one hand that it and Mr Pegge shows you, and that Mr Pegge refers to in his interview, and tries to make you believe under valuations and sales at under valuations, incur a loss for the bank and are not good business sense.
WHEREAS at the same time, the bank and Mr Pegge are holding the huge profit in their other hand conveniently held behind their backs, and concealed from you, proving that under valuations and sales at under valuations are incredibly profitable for the bank.
Smoke and mirrors. It’s the Lloyd’s Banking Group way.
Either Mr Pegge was lying to Andy Verity and the public when making his claim, or he did not know, and therefore was not qualified to make statements on this subject and for the public record.
Indeed, the evidence that ‘under valuations’ are very much a lucrative business practise for the bank can be found in internal bank documents specific to BSU. Perhaps Mr Pegge is also unaware of these?
Documents that I have seen from 2008 and 2009 reveal Chris Packham’s “Business plan for the expansion of the BSU Investment Team in Support of the Unit’s three year plan”. (I imagine he used a small font for this title when producing it).
In it Mr Packham outlines key objectives: “doubling income” “moving from defenders to strikers” (a reference to seeking means to pro-actively profit from, as opposed to defend and nurture these customers.) The documents go on to say that there was:
“a core remit being to develop and implement a strategy for driving value from the increasing number of investment (equity) stakes held in BSU relationships.”
Mr Packham explains how they propose to achieve this and who they propose to ‘recruit’ or partner with in this drive for profit “....considerable external referencing with a variety of professionals” including “partner level accountants and various turnaround professionals.”
To be clear, this ‘partnership’ is in reference to revenue generation for the bank, not the interests of their customers, all of whom would be forced to pay the fees levied by these ‘trusted partners’ and turnaround professionals, all of whom were little more than Trojan horses acting on behalf of the bank in this revenue drive.
The documents reveal Packham’s desperation and intent to drive this initiative forward, and these strategic partnerships “building a network of trusted turnaround partners” and see to it that “marketing literature is adapted/developed in order to outline the core offering to the market and BSU’s desire to participate in shareholder turnaround situations”.
Turnaround and value ‘situations’ that were ‘optimal’ for the bank, not the business customers that they had targeted. Indeed, these documents detail the explicit narrative as to how they are going to achieve this, all of which seriously questions the integrity and/or honesty and/or competence and/or knowledge of Mr Pegge when making those statements to Andy Verity and the public. The documents reveal that a bonus system was to be introduced for BSU Investment Team employees that was an “additional pot at a fixed percentage of equity gains”, and “would be fixed at 10% of any investment gain” and be for “distribution between the Investment Team and any BSU Relationship Managers closely involved in the generation of associated value”.
It stressed that a benefit of such an approach and expansion of the BSU Investment Team was that“opportunities to take investment instruments will not be missed” and that “the further embedding of a private equity approach to BSU will result in new equity stakes that otherwise would not be taken, and potentially the realisation of value (to the bank) that might otherwise be lost.”
Documents dated July 2008 state that the BSU Investment Team now has “a regular dialogue with both LDC and ECM” (Lloyds Development Capital and Equity Capital Markets). Both are Lloyds Banking Group units not dissimilar to RBS’s 'West Register'.
But perhaps most damning for the bank and Mr Pegge, given his statements to Andy Verity, is a BSU Investment team presentation from June 2008. This details the following: The teams goals are to take
“ownership and management of BSU’s equity investment portfolio to obtain value on ultimate disposal/exit”
That a key performance metric for the BSU Investment Team was how many investment stakes it held and that the goal was to
“ensure that the bank is able to share in the successful turnaround in businesses via investment stakes as a rule rather than an exception.”
And most damning is this. Training the BSU management teams to make them
“aware of how to generate value thereby increasing the equity value of the business and impacting the profitability of our stakes in the business...”
and particularly by way of
“entry pricing – buying the business at a low value”.
In other words all BSU’s up and down the country had been trained in engineering the down/under valuation of a business and its assets so as to generate maximum value for the bank.
To be very clear, the way you optimise your 'entry pricing' when you plan to take a % of the business, is to depress the value of the business. Just as Lloyds BSU and its partners did with APG and countless other customers, as did RBS GRG and the 'Business Support Units' of other banks.
The documents further reveal that numerous potential investment opportunities had already been identified from within the Lloyds Bank customer database, and that this was an ongoing practise. A practise that required down/under valuation of a customer and/or the customer assets to achieve its clearly defined goals.
Perhaps Mr Pegge would care to revisit his statements to Andy Verity, intended for the public?
And better yet, perhaps he and the BBRS can explain how he can possibly hold a position on the BBRS Board?