Royal Bank of Scotland (RBS) traders compared their behaviour to gangsters in “Goodfellas” and joked about ruining the US housing market in the run up to the financial crisis, it has been claimed.
A US Department of Justice report into the mis-selling of mortgage-backed securities before the 2008 banking collapse details bankers and traders’ apparent disregard over their contribution to the global monetary meltdown.
It was published alongside the announcement that RBS had agreed to pay $ 4.9bn (£3.6bn) to settle the DoJ’s probe.
RBS chief executive Ross McEwan said there was “no place for the sort of unacceptable behaviour alleged by the DoJ at the bank we are building today”.
While the DoJ accused RBS of misleading and providing inaccurate loan data to investors, RBS said it “disputes and does not admit” the allegations.
According to the report, one senior RBS staffer said in an email to his colleagues that there was a “tremendous amount of pressure… to grow volume” and “[a]s a result, loans that should not have been made were pushed through the approval process”.
Another top banker described the loans as “total f***ing garbage” with “fraud [that] was so rampant… [and] all random” so “the loans are all disguised to, you know, look okay kind of… in a data file”.
One senior trader noted in May 2006, that when compared to “the rest of [Wall S]treet… we do the least amount of diligence and kickout the fewest loans”.
The underwriting of loans was summarised in October 2007 to a top trader as follows: “You can’t get to these default levels without having every possible, you know, style of scumbag… it’s like quasi organised crime… [F]acilitated by brokers… and just a lot of bad people… “
Senior bankers openly discussed what RBS’s due diligence process was, as a senior bank analyst described, “just a bunch of bullsh**”, the DoJ report said.
One senior banker cautioned to colleagues in a January 2007 email that if RBS kicked out 15% of the loans in a pool due to more stringent due diligence the bank would be “screwed” going forward because it would make it more difficult for RBS to win bids for other loan pools.
A senior banker upon learning about the increased diligence, lamented, “Oh, God. Does anyone want to make money around here anymore?”
A trader reminded his boss on one occasion: “We think there’s $ 20m in the trade. So, I said, ‘take that into account as well’.” His boss responded, while laughing: “Please don’t f***in blow this one. We need every dollar we can get our hands on.”
A banker said in a phone call to a trader in discussions about calls for a kick-out cap agreement to be included in a written confirmation of a deal: “They want us to put all this sh** in writing.
“And I think our play on this is pretend you never got the f***ing email. There’s nothing here that we can, you know, acknowledge.”
A banker joked in September 2007 about the demise of one deal, calling it “the golden goose”, while a trader remarked, “it’s unfortunate for us; it was a good run while it lasted”.
When it emerged the deal failed to make any money during its existence as a result of the losses incurred, another trader described RBS’s relationship with it as being a “[r]edistribution of wealth to [Wall S]treet”. “It[‘]s like that sceen [sic] in [G]oodfellas where they buy the guy[‘]s bar[,] take ever[y]thing and then light it on fire.”
One trader received an e-mail from a friend saying: “[I’m] sure your parents never imagine[d] they’d raise a son who [would] destroy the housing market in the richest nation on the planet.”
The trader responded: “I take exception to the word ‘destroy’. I am more comfortable with ‘severely damage’.”
The report makes for uncomfortable reading and Mr McEwan said after the settlement was agreed: “We are pleased to have reached a final settlement with the DoJ and that we can focus our energy on serving our customers better and returning capital to our shareholders.
“This settlement dates back to the period between 2005 and 2007.
“There is no place for the sort of unacceptable behaviour alleged by the DoJ at the bank we are building today.”
The DoJ said the penalty is the largest-ever imposed on a bank for misconduct leading up to the financial crisis.