Honesty is the best policy. Photographer: Simon Dawson/Bloomberg
Honesty is the best policy. Photographer: Simon Dawson/Bloomberg

Royal Bank of Scotland, which trashed itself so badly during the financial crisis that the U.K. government had to take an 80 percent stake in the institution, has been less than honest with -- guess who? -- the U.K. government.

The bank's executives were quizzed by Parliament's Treasury Committee last month about a department with the slightly scary name of the Global Restructuring Group. Did that unit, the parliamentarians asked, seek to profit by driving struggling small- and medium-sized enterprises into the ground, charging advisory fees to oversee their loan defaults and buying up their assets on the cheap?

A November report by government adviser Lawrence Tomlinson had suggested that very thing. A separate report by Andrew Large, a former Bank of England deputy governor, said the RBS unit was run as "an internal profit center" resulting in "a perceived conflict of interest." As Andrew Tyrie, who heads the committee, said at the June 17 hearing, "there can't be all this smoke without some fire."

Not at all, said RBS Deputy Chief Executive Officer Chris Sullivan. The restructuring group was "absolutely not a profit center," he told the committee. "Absolutely, unequivocally."

A month later, Sullivan has done what Tyrie calls "a belated U-turn." In a letter dated July 15 and shared by Tyrie this week, Sullivan made what he calls "some additional comments" on the matter. It turns out that the division was indeed a profit center. "The financial performance of GRG was monitored to enable us to understand GRG's financial performance," Sullivan wrote. "We do not disagree with the way that that accounting term was used."

Tyrie, as you can imagine, was not impressed:

It’s not as if the facts have changed. So it now appears that RBS has been wilfully obtuse with the Committee. If this is how RBS deals with a parliamentary Committee, how much can customers and regulators rely on it to be straightforward with them?

Misleading your shareholders is never a good idea. Misleading your biggest shareholder is an even worse idea. Misleading your biggest shareholder when that shareholder is your government is likely to win you first prize in the bad ideas competition on National Bad Ideas Day.

The accusations -- and the subsequent fudge by RBS -- are serious enough to warrant an even deeper investigation. Tyrie, a former Treasury economist who manages to somehow combine a patrician manner with an assassin's steely glint, should commission a forensic examination of every e-mail sent by every member of the RBS restructuring group. And if bankers did indeed murder companies for profit, they should be duly punished.

To contact the author of this article: Mark Gilbert at magilbert@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net