The ‘problem’ that netted RBS an extra £73bn of liquidity

NatWest….saved by the bell?

A broad spectrum of NatWest/Ulster Bank customers and suppliers have raised new doubts about how and why last week’s RBS ‘glitch’ occurred. Also RBS’s current financial position doesn’t inspire confidence: and the ‘glitch’ gave the Group what might have been a vital windfall of £73bn in liquidity.

Yesterday, The Slog put out an appeal to those private and business users affected by the group’s Nat West/Ulster ‘computer problem’. I asked them to supply any and all experiences in recent times suggesting that this site’s suspicions about the explanation offered for hanging onto customer monies might be justified, or just pure conspiracy theory bollocks.

The inbox here in Slogger’s Roost has been busy ever since. The overwhelming finding from the input is that there seem to be problems in RBS that go way beyond pure technical snafu. I’ll start with two key quotes from business suppliers:

“In the last couple of months, particularly with Ulster Bank, the withholding of invoice payments has reached new depths. In one case, for work done in February, we are still working through the, ‘failed to raise a purchase order, raised an incorrect purchase order, missed some information on the PO, wanted the invoice readdressed, can’t pay because the payment system is down’. We are beginning to feel that this is moving beyond incompetent administration to a deliberate policy of holding back payments to suppliers. Won’t pay, or can’t pay. Neither are good characteristics for a major bank.”

“I work for a niche supplier of marketing services to NatWest. They have been at or near our insurance level of debt for months now, and the excuses for non-payment get sillier day by day. Nobody was surprised here when this ‘computer problem’ suddenly came up. In fact, our own bank rang us to request a meeting about our cash situation once they heard about the ‘glitch’. So if a rival bank has its suspicions, what else are we to think but the worst?”

The Slog long ago fingered RBS Group as by far the most wobbly UK banking consortium, but last week’s development was unexpected. What’s especially unusual in this case is that things are clearly so desperate inside RBS, even small business and private consumer problems were apparent before this ‘technical problem’ was announced. Again, a spread of anecdotes….but with the emphasis on those quotes showing IT expertise:

“We had trouble last week in that we were trying to fulfill a large order for a customer.  On Monday one of our suppliers called to say that our account with them was on stop due to an unpaid invoice.  On Friday we had the same call from another supplier.   A quick check of bankline on Monday showed that I had paid the debt in full.   However one of my payments had not reached the supplier’s account.  I also was certain that I had paid the second supplier in full as well but couldn’t access bankline until yesterday.   The first supplier demanded payment if the outstanding amount before they would release the order.  Which means we’re now out of pocket by £500. I first began to suspect that RBS/Nat West might be having liquidity problems several months ago when for a time our streamline payments were not being processed on time.  Usually they go into our account two days after they are taken from the customer but for several weeks there seemed to be delays in the processing some payments.  We would only get part of what we were expecting.”

“I’m an Ulsterbank customer (for what little I keep in there) so all I see is anecdotal. But this started early last week. I keep bugger all in my account and usually just enough to cover a few bills etc. Because of this the account sometimes goes overdrawn and I have an overdraft that has always been in place, not much but about €700, then last week this suddenly failed to work and caused a standing order to bounce. I didn’t think too much of it but in the context of the last few days is it pointing towards a bank with an acute cashflow problem?”

“A funny thing happened to me last Thursday at an RBS ATM in a suburb of Manchester. It restricted withdrawals to £50 and only paid out in old £5 notes.” (Several different versions of this one)

“I believe the curious and relevant events were RBS saying that they had ‘debugged’ and technically sorted the problems yet ‘normal service’ would not be resumed for well over 48 hours. This smacks of total back up failure or issues not related to the IT department.”

“As one previously involved in large corporate IT management, I can confirm that any IT department worth its salt would always have a roll-back position available and at least one ‘go/no-go’ check-point in the upgrade process. Such changes are always implemented outside prime-shift (overnight or weekends) to limit impact on concurrent operations and to enable the roll-back if necessary.

If it was the RBS IT Department’s fault, then one IT Director will surely be looking for a new job tomorrow – all bank’s IT folk are generally pretty good at that routine operational stuff, so I share the common view that there are other balls in play here.”

RBS yesterday said it would waive any overdraft fees or charges on current accounts, and the taxpayer-owned banking group allowed customers into 1200 NatWest, RBS and Ulster Bank branches across the UK and Ireland on a Sunday for the first time. It is also set to extend opening hours until 7pm on Monday to help them with enquiries and access to cash. But none of this can explain why problems were apparent before the ‘glitch’ explanation was offered, and the massive coincidence of all these events having immediately followed a major credit agency downgrade of the Group.

What one can – and should – observe is that the cashflow savings created for RBS by this uniquely insoluble techno problem vastly outweigh anything it might offer the customer once the crisis has passed. Take a look at these numbers:

Income in March 2012 was down almost £1billion year on year. Credit adjustment losses quadrupled over the same period, and the loss before tax was ten times higher.

Further, according to Reuters daily statements last week, RBS cash assets stood at £82bn, whereas net loans were recorded as £476bn.

But this might be the clincher: total deposits came in at £476bn…exactly the same as loans. However, the difference between total assets and total liabilities was around £60bn in the bank’s favour. Given the amount of potential toxic write-off in the RBS group – and any ‘rush’ following a downgrade – it wouldn’t require much to change that positive into a disturbing negative. With total fluid assets standing at around £930bn, zero outgoings over five days of a ‘computer glitch’ would give the bank a £73bn windfall. More than enough to stave off a crisis, and at least temporarily restore creditor confidence, if such was needed. At the same time, of course, it physically barred the way to a run on the bank.

I don’t think this is the end of the matter: it might even be the start of some very nasty matter weeping from an infected wound. This morning, for example, the Daily Telegraph’s main headline reports that the ‘glitch’ that was over will in fact continue for another two days at least.

Stay tuned.

In other news today….

HOW BERLIN BIGGED UP THE GREEK DEFICIT TO GET EUROZONE MEMBER COOPERATION…& SAVE ITS BANKS