The £400m set aside will be accounted for during the final quarter of this year. Management admitted "some of the complex fees charged were not properly communicated or were not explained clearly enough" for customers of GRG in the aftermath of the financial crisis. These "complex fees" will be automatically refunded and affected customers will be written to by the bank. These fees include:
• Management/monitoring fees: Fees charged to cover the increased costs incurred in relation to managing customers in restructuring situations. Usually this is a fixed amount per month/quarter.
• Asset sales fee: Fee charged on the sale of an asset to reflect the bank's increased risk profile such as in circumstances where the customer's cash flow could not meet the increased margin required by the bank on an ongoing basis.
• Exit fee: Fee charged at the point of repayment to reflect the bank's increased risk profile such as in circumstances where the customer's cash flow could not meet the increased margin required by the bank on an ongoing basis.
• Mezzanine fee: Fee charged to reflect mezzanine risk (ie, the debt level above the bank's standard senior debt appetite), usually expressed as a percentage of the mezzanine debt level.
• Ratchet fee: Variable fee charged by the bank in relation to a repayment milestone.
• Risk fee: Fee charged to reflect an increased risk profile in continuing to support a customer for a period of time following an event of default or failure to agree a formal renewal of expired contractual facilities.
• Late management information (MI) Fee: Fee charged for the late submission of management/financial information by the customer.
As the chart below shows, litigation and conduct costs have eaten away at the bank's profits during the past two years. In a separate action, the RBS Shareholder Action Group, which represents around 27,000 retail investors, institutions and local authority pension funds, are pushing ahead with a £1.25bn compensation claim against the bank over its 2008 rights issue. During the first half of the year, RBS took a £700m provision against the expected cost of the lawsuit.
During 2008 the number of SMEs transferred into GRG increased by 400 per cent. RBS says it lost £2bn from lending to SME customers. Management reasserted the Financial Conduct Authority's update that "RBS did not set out to artificially engineer a position to cause or facilitate the transfer of a customer to GRG" and "there was not a widespread practice of identifying customers for transfer for inappropriate reasons, such as their potential value to GRG, rather than their level of distress". The FCA plans to release the full findings of its investigation - carried out alongside consultancy Promontory Financial Group and audit group Mazars - into whether there were any regulatory breaches later this year.
