Skip to main content

Royal Bank of Scotland Better Get Cracking. We Said Now, Mister.

Back in the "any port in a storm" days in February, RBS was foolish enough to commit to a legally binding lending quota in exchange for a few more wheels of government cheese. (One can only hope it was imported from France, but we doubt it.) RBS had to pay for the recently constructed largest trading floor in the known universe, after all. (Don't be sad. The UBS building is there to keep it company.) So, some £25 billion was supposed to flow into the hands of RBS borrowers... and hasn't.
With "the government" as a 70%+ owner of RBS (through the proxy of "United Kingdom Financial Investments," the British version of the trusts holding shares in U.S. bailout recipients) RBS could effectively be a government ministry. The lending quotas were intended to present the illusion that RBS would be permitted to make commercially reasonable loans without interference from the UKFI. That, of course, is impossible.
Lending quotas, so popular with U.S. institutions as the "anti-redline spray" used to ward off the enforcement agencies, certain civic leaders and "community organizers" back in the '90s (we understand that Deep Woods Pay-Off™ works well too) are, by definition, either too low, and therefore useless, or too high. In the latter case, the only way to comply is, obviously, to reduce underwriting standards. The soft illusion spun by the quota quickly evaporates in this case. There is nothing commercially reasonable about quotas, no matter how they are dressed up.
The great irony is that RBS is complaining that a number of business customers have paid back loans early, lowering their lending figures. Tragic, we know.
Still, even the scintillating intellect and pure management acumen of Alistair Darling is insufficient, it seems, to curb the current crisis without some force-fed debt from the captives. Accordingly, now is probably the perfect time to take your one page business plan for a global chain of authentic British cuisine restaurants on over to RBS.
RBS Is Missing Lending Target [BBC News]