The downfall of the Peacocks fashion chain has turned a spotlight on the fact that taxpayer-owned Royal Bank of Scotland is wielding the power of life and death over hundreds of financially stretched companies. The decision by RBS that it did not want to swap debt in Peacocks for a stake in the business – in contrast with fellow lender Barclays, which believed the company was viable – is just one of many such dilemmas it will face in the coming months. Thanks to the gung-ho approach to lending taken by previous management, RBS is saddled with a huge exposure to the struggling retail and property sectors. Its new bosses have to decide whether to back these companies and hope they can trade their way out of difficulty, or whether to pull the plug – and all under the glare of publicity. RBS faces a storm of criticism over its decision to walk away from Peacocks. But the reality is there are no easy ‘right’ answers on its treatment of the ailing store chains clogging its loan books. Withdraw support, and the bank stands accused of failing to back British firms and of letting down the workers who bailed it out with their taxes. But if RBS continues to pour money into companies with no hope of ever recovering it, then taxpayers will lose even more in the long run. As well as Peacocks, RBS is also a lender to ailing music seller HMV and Clinton Cards, along with Premier Foods, the makers of Angel Delight, and tour operator Thomas Cook. Others include Endemol, the production house behind Big Brother, and hotel chain Jurys Inn. The legacy of the loan-happy Goodwin years is so large that the bank’s ‘restructuring’ division, which tries to get financially strapped borrowers back on their feet, employs no fewer than 1,000 staff. The bank claims it strives to keep businesses afloat wherever possible, as that gives it the best chance of having its loans repaid. But a spokesman said: ‘There are some, though, where their time is up.’ The bank supported failed nightclub operator Luminar for a long period before it, and fellow lender Lloyds, pushed the firm into administration. It also carried on lending to social housing group Connaught after a series of profit warnings, though eventually it fell into administration too. The restructuring unit is run by Derek Sach, a former private equity boss at 3i. He claims that in 2010, the latest full-year figures available, it dealt with around 1,000 British businesses, saving 64,000 jobs and that fewer than 10 per cent went into insolvency. Sach runs his own private-equity style operation within his empire, by taking stakes in the distressed firms he considers to have a strong chance of being profitable in future. This tactic of taking a share in a company at a rock bottom price when it is in trouble is a tried and tested technique among private equity operators. RBS is essentially trying to beat them at their own game. It has taken share stakes in luggage firm Samsonite and care home operator Four Seasons, among others. Insiders at RBS believe Peacocks is trying to make political capital out of the fact the bank is state-controlled. ‘We are damned if we do lend to companies in trouble, and damned if we don’t,’ said one executive. Peacocks has announced its intention to appoint an administrator and has lined up KPMG. It now has a 10-day window of opportunity to find new backers before the administration actually happens. It may yet find a white knight. But for RBS, there will be many more such difficult decisions for the companies it has on life support in the coming months.
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