Upper Tribunal Tax and Chancery Chamber

[2025] UKUT 00185 (TCC)

Fecha: 09-Abr-2025

Business and Commercial Lending

Business and Commercial Lending

186.

The ninth item on the agenda for the CRPAC meeting was the annual review of commercial lending. Responsibility for this item sat with Mr Somers, but in his absence, Mr Dransfield took responsibility. The related slide pack consisted of 40 slides. The only reference to RWAs in the Executive Summary was in this passage:

“We have experienced some issues with asset classification for regulatory reporting of RWAs. We understand that this is not unique to Metro Bank, however, signals the need for our systems, data, reporting and risk infrastructure to be robust and consistent with what is expected by Regulators and external stakeholders of a Tier 2 UK Bank.
►This will be resolved over a two year period when commercial IRB models (Asset Classification, Slotting and RiskCalc) are finalised, incorporated into an appropriate IT system and made mandatory for new applications and annual reviews.”

187.

Nearly at the end of the slide pack (number 37 of 40) was one headed “Overview of Out of Scope Portfolios” (“the Out-of-Scope slide”), on which Mr Jaffey placed significant weight. It stated that the related portfolios comprised PBTL of £1,001m and “Commercial-other 432m”, and the latter consisted of:

(1)

Canberra Commercial of £176m, made up of 1,707 loans with an average loan size of £104k;

(2)

London Commercial of £103m, made up of 763 loans with an average loan size of £135k; and

(3)

T24 Commercial Mortgages of £153m, made up of 467 loans with an average loan size of £327k.

188.

The same slide also said that the Canberra Commercial and London Commercial were “originally badged as commercial as the borrowing entity is a limited company” but “are being treated as retail as the credit risk is reflective of a retail BTL” and that the T24 Commercial Mortgages were “being treated as retail for the same reasons as the Canberra and London Commercial portfolio”.

189.

Mr Jaffey submitted in closing that the £432m of “other commercial” loans on the Out-of-Scope slide were part of the £1,029,173,140 of “other commercial” figure included in the Impact slide. In his words:

“So what this slide is really saying overall is there is 432 million of commercial lending which isn't really traditional commercial lending, and it is comprised of three things, and they are all, really, retail buy-to-let conducted through companies…and, of course…they are not ordinary commercial loans. You can't risk-weight them and assess them and work out their credit risk on the usual basis as with commercial loans. The reality is that it is just retail buy-to-let.”

190.

The import of his submission was that:

(1)

£432m of loans identified as CLIP should have been classified as residential and so risk-weighted at only 35%;

(2)

£432m was a significant figure, so the overall adjustment for CLIP loans would have been much less than the £574m in the RWA Report; and

(3)

this information had been provided to the CRPAC at the time of the Q3 Update.

191.

We disagree with Mr Jaffey for the following reasons:

(1)

The Impact slide in the RWA Report, and the Out-of-Scope slide in Business and Commercial Lending report were both prepared by the same Credit Risk team, led by Mr Somers. If £432m of the “Commercial – other” shown on the Impact slide were retail loans, the Credit Risk team would have known that, and would not have risk-weighted them as commercial.

(2)

The Out-of-Scope slide says the opposite: the Canberra and London loans were “originally badged as commercial” but “are now being treated as retail”.

(3)

It is clear from the Out-of-Scope slide that the Canberra and London books are not held within T24, while the £1,029,173,140 recategorised on the Impact slide is all within T24.

(4)

There were 983 loan accounts included in the “Commercial Other” line of the Impact slide, but 2,973 on the Out-of-Scope slide. As Mr Stanley submitted, there is “simply not room” for those 2,973 loans to be part of the 983 “Commercial Other” recategorised loans on the Impact slide.

(5)

None of the witnesses referred to the Out-of-Scope slide in their witness statements, and no questions were asked by Mr Jaffey about whether there was a link between it and the Impact slide, even though Mr Somers, Mr Dransfield and Mr Arden in particular could have been expected to give highly relevant evidence about that matter.

192.

We also note that Mr Jaffey did not apply to the Tribunal for any witness to be recalled, despite (a) Mr Arden and Mr Donaldson being present in the hearing room, and (b) there being time before the end of the listed hearing to accommodate the recall of a witness.

193.

In short, the supposed link between these two slides was a theory put forward by Mr Jaffey at the last minute. It had no supporting witness evidence, and was inconsistent with the information set out on the face of both slides. We find as a fact that the £432m of loans on the Out-of-Scope slide does not change the RWA adjustment required for CLIP loans of £574m shown on the Impact Slide.