Transcripts of pre-financial crisis conversations show senior bankers’ disregard for customers
RBS bankers joked about destroying the US housing market after making millions by trading loans that staff described as “total fucking garbage”, according to transcripts released as part of a $4.9bn (£3.8bn) settlement with US prosecutors.
Details of internal conversations at the bank emerged just weeks before the 10-year anniversary of the financial crisis, which saw RBS rescued with a £45bn bailout from the UK government.
The US Department of Justice (DoJ) criticised RBS over its trade in residential mortgage backed securities (RMBS) – financial instruments underwritten by risky home loans that are cited as pivotal in the global banking crash.
It said the bank made “false and misleading representations” to investors in order to sell more of the RMBS, which are forecast to result in losses of $55bn to investors.Advertisement
Transcripts published alongside the settlement reveal the attitude among senior bankers at RBS towards some of the products they sold.
The bank’s chief credit officer in the US referred to selling investors products backed by “total fucking garbage” loans with “fraud [that] was so rampant … [and] all random”.
He added that “the loans are all disguised to, you know, look okay kind of … in a data file.”
The DoJ said senior RBS executives “showed little regard for their misconduct and, internally, made light of it”.
In one exchange, as the extent of the contagion in the banking industry was becoming clear, RBS’ head trader received a call from a friend who said: “[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.”
He responded: “I take exception to the word ‘destroy.’ I am more comfortable with ‘severely damage.’”
Another senior banker explained to a colleague that risky loans were the result of a broken mortgage industry that meant lenders were “raking in the money” and were incentivised to make as many loans as possible.
Employees who might raise the alarm about the riskiness of such lending “don’t give a shit because they’re not getting paid”, he said.
The bank made “hundreds of millions of dollars” from selling RMBS, the DoJ said, while disguising the risk they posed to investors, which included a group of nuns who lost 96% of their investment.
By October 2007, as signs of stress began to show in the banking system, RBS’ chief credit officer wrote to colleagues expressing his true feelings about the burgeoning volume of subprime loans in the housing market.
He said loans were being pushed by “every possible … style of scumbag”, adding that it was “like quasi-organised crime”.
“Nobody seems to care,” he added.