(8 years, 11 months ago)
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I beg to move,
That this House has considered the Serious Fraud Office, and the cases of Alun Richards and Kash Shabir.
This debate concerns allegations of fraudulent misrepresentation and collusion involving Lloyds bank and receivers used by that bank. My hon. Friend the Member for Ogmore (Huw Irranca-Davies) and I both have constituents who, as customers of Lloyds bank, underwent the same ordeal: having their hitherto successful businesses revalued downwards, forced into receivership and then sold. The allegations concentrate on but are not confined to Lloyds’ operations in Wales. The facts of the cases resemble the malpractice at Royal Bank of Scotland identified by the Tomlinson report, which was published on 25 November 2013.
I bring this matter to the House today so that Mr Kash Shabir, my Cardiff Central constituent, may have his account of events put on the parliamentary record. I anticipate that my hon. Friend will do the same in respect of his constituent, Mr Alun Richards.
I would like to put on the record the case of one of my constituents, which relates to this matter. Michael Field bought some land and borrowed from Lloyds bank to finance a project to build several houses. He maintained his payments without fail, was a good customer and fulfilled all the terms and conditions of the loan agreement, but Lloyds seized his assets and foreclosed on him. He then discovered that his assets were actually traded inside the bank, which was a great concern. Does my hon. Friend agree that the Government need to intervene and change things to protect customers such as Michael Field?
My hon. Friend makes a very interesting and valuable point about the fact that this bank is part-owned by the taxpayer. The Government should look into its internal practices.
Both Mr Shabir and Mr Richards say that they have suffered significant financial and emotional harm as a result of the actions that are alleged. Mr Shabir built his business from scratch. He was a successful entrepreneur and property developer, with a portfolio valued at around £10 million. He enjoyed an excellent credit rating and reputation among banks and building societies. In 2006, Lloyds bank competed against Barclays bank to win a large portion of his business lending. Lending was secured by Mr Shabir with Lloyds at 1% above the base rate, because of his excellent track record. So far, so good, people might say.
As the House knows, however, the 2007-08 financial crash brought Lloyds to the brink of collapse. At the peak of the financial crisis, Lloyds requested emergency funding from the UK taxpayer. The Government set up a division within the Treasury—UK Financial Investments —to manage the bail-out of Lloyds, the Royal Bank of Scotland and Northern Rock.
For Lloyds to secure and receive that bail-out, it was essential for it to quantify and declare to the Government the amount of money required to save it from collapse. So it conducted an overall assessment of its investments and assets. This appears to have prompted Lloyds to take the opportunity to reassess its relationships with customers who were borrowing large sums on what are called fine margins. Customers on fine margins are good customers allowed to borrow at low rates. Due to the lack of liquidity, however, the cost of money in the money markets had risen significantly—more importantly, it had risen to a point above the contractual levels at which it was being borrowed.
Almost overnight, those businesses on fine margins, which Lloyds had regarded as its best customers, became highly vulnerable since the bank could no longer make profits from those arrangements. As Lloyds sought to improve its own position, the fine margin customers were targeted first, to eliminate them from the bank’s portfolio. That was particularly true of small and medium-sized enterprises, which did not have the resources to defend themselves.
Banks almost always lend money that is secured against assets, by way of a loan agreement. The parameters of that agreement, such as the loan to value ratio, are set out in writing at the outset. Provided that a customer’s assets do not fall below the agreed level, the customer is, in broad terms, described as safe.
During the financial crisis, it is alleged that Lloyds and other banks adopted a mechanism known as down-valuation, to engineer a shortfall. Again, that practice has been recognised in the Tomlinson report, and it has two consequences in this case. First, Lloyds was able to secure a larger bail-out from the taxpayer. Secondly, individual customers were held to be in breach of their loan conditions. That enabled Lloyds either to renegotiate more favourable terms for itself or to eliminate its customers altogether, by triggering receivership proceedings and then the sale of those businesses. It was that second engineered consequence—of being in breach of loan conditions—that brought about the unjustified failure of many successful companies and individuals, including Mr Shabir.
I will explain to the House in a little more detail the mechanism of the alleged collusion applied to engineer a down-valuation in respect of Mr Shabir’s portfolio. Lloyds bank utilised Alder King LLP, commercial property consultants and Law of Property Act receivers, for the majority of the valuations that it carried out in Wales. Alder King was the approved professional company for all receiverships in south Wales. What is of particular concern is that Lloyds engaged as a manager for its Wales operations an equity partner of Alder King, Mr Jonathan Miles, who worked within the bank’s recoveries department—the very department responsible for making receivership appointments. In this position, it is alleged that Mr Miles worked with the valuers and receivers from his own firm of Alder King, and was able to manipulate Mr Shabir’s business into failure.
I am told that Mr Miles never disclosed his own identity as an Alder King partner and misrepresented his position to Mr Shabir as being an employee of Lloyds bank and a long-time Lloyds bank manager. Mr Miles had a Lloyds email address, Lloyds-headed stationery and a Lloyds business card, all of which he used daily. I am also told by Mr Shabir that Mr Miles appointed another Alder King receiver, his Alder King partner Mr Julian Smith, as the receiver in Mr Shabir’s case. Mr Smith wrote to Mr Miles thanking him for making the appointment. Mr Smith was also given a Lloyds email address, together with Lloyds stationery. He had full access to confidential customer data and communicated directly with Lloyds customers, misrepresenting himself as a Lloyds employee, it is alleged.
During Mr Miles’s secondment to Lloyds, he had 2,400 live cases, each worth in excess of £1 million, within his recoveries department. Those were 2,400 live cases in respect of which, if he wished to, he could appoint receivers from his own firm, Alder King. Alder King received substantial professional fees for its services as appointed receivers. These figures illustrate the size and scale of the obvious conflict of interest and the potential for financial abuse. The role played by Mr Miles within Lloyds, with the bank’s knowledge and consent, created an immediate and significant conflict of interest.
Mr Shabir accepts that banks will utilise the services of third-party specialists, such as surveyors, in their day-to-day business, but in engaging such third parties it is the bank’s responsibility to ensure that conflicts of interest do not arise. In Mr Shabir’s case, his Lloyds portfolio was down-valued by Alder King by more than 50% from its original valuation, placed into receivership and sold. Mr Shabir has four valuations from the same period by other Lloyds panel valuers, all reflecting nearly double the valuation of Alder King at the point of placement into receivership.
Once the portfolio of properties was placed into receivership, the receivers failed to transfer all associated bills to themselves, and Mr Shabir has since become the recipient of approximately 30 county court judgments for claims against properties that had been removed by the receiverships from his control. His credit rating is now completely destroyed. This young, successful entrepreneur, who grew up in a small terraced house in Cardiff and built a business worth £10 million, has been financially destroyed. With a young family who are dependent on him, he has lost his entire investment portfolio, with only his family home remaining—on which Lloyds has a second charge.
Mr Shabir alleges that he was forced by Lloyds to take out an interest rate hedging product as a condition of his lending facility with Lloyds in November 2006. When his portfolio was transferred to the recoveries department of Lloyds, it unilaterally cancelled the hedge and levied termination fees of almost half a million pounds against Mr Shabir. It is alleged, and now confirmed by Lloyds, that the hedge was mis-sold. The sales process was non-compliant in seven respects that the Financial Conduct Authority suggests are mandatory for a compliance sale.
I turn to the regulatory framework. In March 2015, the Business, Innovation and Skills Committee, under the chairmanship of my hon. Friend the Member for West Bromwich West (Mr Bailey), conducted an inquiry into the insolvency regime. At the inquiry on 4 March 2015, evidence was heard about the practice of seconding insolvency practitioners and surveyors within lenders’ restructuring divisions. Mr Graham Horne, deputy chief executive of the Government’s Insolvency Service, said that receivers should never work as active insolvency practitioners within a bank. Mr Julian Healey, head of the Association of Property and Fixed Charge Receivers, expressed concern about the impression the practice gave and concluded that if receivers on secondment also worked on the same bank’s administration, there was “clearly” a conflict of interest.
Mr Shabir made a formal complaint to the Royal Institution of Chartered Surveyors about Alder King’s conduct. In its response, RICS specifically confirmed that Mr Julian Smith of Alder King was on secondment to Lloyds at the time of the valuation of Mr Shabir’s portfolio, when he personally acted as the valuer, but also when he was appointed by Mr Jonathan Miles as the receiver. During the same period, Mr Jonathan Miles, as head of receiverships for Alder King, was embedded in Lloyds bank as Mr Shabir’s allocated bank manager.
Despite the evidence that Mr Horne and Mr Healey gave to the Select Committee, RICS somewhat astonishingly claimed to see nothing wrong with Alder King’s practice. It responded as such to Mr Shabir shortly after the Select Committee hearing at which the chair of the RICS regulatory board, Eve Salomon, gave evidence. Although the alleged collusion and fraudulent misrepresentation were first identified and raised with Lloyds by Mr Shabir in 2010, responses have amounted to no more than stonewalling by successive levels of Lloyds management.