Treasury forecasts £77bn loan losses for Lloyds and RBS
A new measure of the scale of our big banks' recklessness in the boom years has been provided in the Treasury's annual report for the past year.
It says that it expects the public purse to incur a loss of £25bn in respect of the Asset Protection Scheme.
That's the safety net provided by the Treasury for Royal Bank of Scotland and Lloyds, which was announced on 19 January as an alternative to full public ownership of these banks.
It involves taxpayers providing insurance to RBS and Lloyds against possible future losses on £325bn of loans and investments made by RBS and £260bn of credit extended by Lloyds.
Negotiations are still in train on the fine print of this insurance arrangement. But the Treasury says that "on preliminary analysis of a sample of assets initially proposed to be included in the scheme", it estimates it could lose £25bn (as my colleague Stephanie Flanders has written about here).
However it adds that the estimate "could be subject to substantial revision (up or down) as further due diligence reports are completed" and that "altered economic and market conditions would clearly also effect estimated losses" (doh!).
Now you'll probably find this slightly odd, but I think this statement is more interesting for what it says about RBS and Lloyds than for what it says about potential costs to us, to taxpayers.
The reason is that it's impossible at this stage to forecast with scientific precision the shortfall between the loans provided by these banks and how much they'll ultimately get back from overstretched borrowers.
But here's the important point.
There would be no estimated loss to the Exchequer at all unless the Treasury was confident that the banks would use up the entirety of their excess - their liability to take the first loss - on this insurance scheme.
Or to put it another way, the Treasury would not and will not incur a penny of loss on the Asset Protection Scheme unless and until Royal Bank of Scotland suffers £42.2bn of additional eye-watering losses on those £325bn of loans and investments and Lloyds incurs £35.2bn of losses on its £260bn of insured assets.
It's worth saying that again. Royal Bank and Lloyds - which already reported record losses for 2008 - are expected by the Treasury to suffer further losses on their loans and investments of at least £42.2bn and £35.2bn, or £77.4bn in aggregate.
That's the kind of financial calamity that makes me feel slightly dizzy.
Of course, these losses will be incurred over a period of months and years. And they will be offset to some extent by profits that are being generated from the unpoisoned parts of the two banks.
But to call these losses the toxic fruit of reckless lending doesn't quite capture the magnitude of these banks' departure from sensible prudential standards.
And I ought to add that if the Treasury were right that the loss to the Exchequer turns out to be £25bn on top of these losses for the banks and their shareholders (that us again, of course, since taxpayers are set to own 84% of RBS and 62% of Lloyds), there would be further losses for the two banks of £2.5bn (losses over and above the first loss are shared 90:10 between taxpayers and banks).
As it happens, I can conclude with marginally better news for taxpayers.
Which is that the net loss for the taxpayer on the APS may eventually turn out to be zero.
Here's why.
It's true that there will almost certainly be a substantial gross loss for the public sector as insurer of those ill-judged loans and investments.
But, as with all insurance schemes, the banks are paying substantial fees for the protection. And in the case of Royal Bank, it has also agreed not to claim tax losses or allowances relating to its disastrous loans and investments.
Once those fees and tax benefits are taken into account, the taxpayer may well break even on the deal.
Which, of course, is not to argue that this is good business for the public sector.
We'd all have been better off if the banks' lending binge hadn't been so wild and prolonged.
But small virtue can be extracted from this hideous financial necessity.
I'm 
© MMX~RS~q~RS~~RS~z~RS~43~RS~)
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Well well well, Another banking story!!!
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Very very interesting, but what about the value of 'our' shareholdings? Are these included in your break-even analysis or is this merely based on the insurance against losses scheme?
I'll be very surprised if the premiums were set at a realistic level as you impliedly suggest- particularly given how quickly the deal was done...but hang on- what if this is a double dip we're heading for and the losses are only just starting to accrue?
As an aside- why on earth are the BCC coming out quite so strongly in criticising the BoE for not extending QE. Would that not be an unnecessary risk similar to extending the limit on the card?
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yet more proof that Lloyds was sold a pup..... the directors should be in court for failing in their fiduciary duty by caving in to save GB's skin...
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if lending decisions have been this poor how is it that a) the banks are not nationaised entirely or b) the entire management sacked? If any other business that would have been the case, yet these guys are not only still drawing a significant wage but also some bonuses!
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The day Parliament breaks up would seem to be a good day to bury this piece of bad news.
Much like the treasury accounts being qualified and the other government accounts not adding up earlier this week.
There seems a huge amount of bad news coming out this week when our elected representatives cannot take the government to task over them.
How convenient!
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Robert - you must make "eye-watering losses" your catchphrase as you use it so often.
I know it's hard to describe 42.2 Billion as anything else - but you could try..
Earth shattering losses
Ground breaking losses
Ball shattering losses
Head frying losses
Teeth grinding losses
Head banging losses
Hand clapping losses
Spine shivering losses
Nail biting losses
Bum squeaking losses
Hair loosing losses
...they should keep you going for a while why I think of some more....
Just keeping it interesting Bob.
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P.s.
Wasn't someone talking recently how the British Public would be 'doing quite well' out of this Lloyds deal when the turnaround comes and we sell back our shares?
....or was it all a dream....
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The asset protection scheme is not insurance it is a subsidy for banks. Imagine you phoned up a car insurance company after you crashed your car - would they give you coverage for an event that had already happened even thougth you did not know how much it would cost to repair the car.
Whatever the premium on asset protection scheme it should be doubled. The present charge is to cover losses on the crash that has already happened. As soon as the banks have asset protection insurance and they are paying a premium for it naturally they are going to make sure their losses exceed the premium. They will be looking for schemes and deals that crystalise losses on old protected loans while creating new 'profitable' business.
Since government have decided that people who lend money to banks should be protected from loss all the banks should also be paying compulsory insurance against costs to the state if they crash again. What is the market rate for insurance against an event that has happened regularly throughout history and which cost more than £100Bn the last time it happened?
If they were paying for the true costs of their business banks would not be nearly as profitable. They might start looking at getting their costs into line by cutti8ng pay.
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This effectively gives the lie to Brown's assertion last week in front of the select committee chairmen that if Lloyds hadn't stepped in to buy HBoS, then HBoS would have gone bust. Clearly, the government would have nationalised the bank, just like Northern Rock, and Lloyds would not now be staring at several years flirtation with insolvency.
The proof is that any way you cut this, the taxpayer foots the bill, so whether we simply nationalised HBoS in October last year and took the consequences then, or stretched out the pain over several years, fundamentally makes no difference. We, the taxpayer, is still the insurer of last resort, and we, the taxpayer, will never see any return for our largesse, magnanimously offered on our behalf by HMG.
Meanwhile, it's business as usual for the City. More Dom Perignon, anyone?
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Are you suggesting RBS and Lloyds are paying £25b in fees and loss of claimed tax? Seems steep. Did some one give you these figures or have you calculated them yourself like a good journalist?
Wait for the next leg down. You can only hide rubbish for so long before it needs to be addressed. Anyone know the true extent of toxic debt in the banking industry. 2 years after it started and the banks still won't tell us. Are the governments powerless? Shouldn't this figure be the first thing to find out before we gave any taxpayers money to them?
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Have these figures kindly provided to you by the Treasury been subject to an external audit process?
Thought not...
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can someone please explain how the boards of these what now should be termed terrorist organisations are still in place ???
These organisations and there co conspirators alone have done more damage to our country than terrorism ever will.yet we still see the same people in the main at the top while the people who were just foot soldiers get sacked.
We are now the share holders and we are now responsible so lets get the lot of them sacked for gross mismanagement and replace them with some graduates they really cant do any worse than what is in place.
How are we expected to have any confidence in any decisions they make until that happens.
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So RBS, which is basically owned by the Government (83%), has insured itself against losses with that same Government. Is anyone really claiming there is any sanity in this arrangement? Basically whatever happens the whopping losses made by this wretched bank are going to fall on the Government one way or another. Not sure why we've come up with a system that partially cushions the blow against the remaining 17% of shareholders though. Same situation with LLoyds of course. What about other banks? Are we expecting any non-nationalised banks to claim on the Asset Protection Scheme as well?
And if we think RBS has a loss of £40+ billion in the pipeline, where does that leave their Capital Ratios? Are we going to have to recapitalise them again (ie pump in yet more Government money?)
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Robert,
I came across this query written in another blog:
"is anyone else aware of current Lloyds TSB policy a bank owned 43 percent by us to close accounts without notice and without discourse if they do not meet its criteria for acceptable levels of profitability?"
------
Is this true? It seems like a return the bad old days. The government has always encouraged those on benefits say, to be paid through bank accounts as it is more cost effective than cashing giros etc. Do these banks not realise that they have responsibilities to society?
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#6
Is it just me that sees a certain predictability in the fact that a business based on buying and selling gold concludes its apocalyptic forecast of the future of the financial markets with the assertion that the ONLY safe investment is, you've guessed it, gold?
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Robert
What exactly are the "unpoisened parts of the two banks". Is it not so that the cancer has spread, metastasis, if not yet then soon everywhere?
On a global scale innovative accounting rules have helped the banks the last two quarters, but where will any income come from the next quarters? Certainly not from the left overs of a ruined economy. I suggest to rename the file "bank" and create a new one: soon!
C
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Still skirting around the exchequer's funding shortfall by falling revenues Robert?
Anyone would think you were avoiding the issue
In this article you don't mention how having these potential catastrophic losses on your books is actually changing the behaviour of the banks. Where are they squeezing this profit from?
If every tax payer who currently banks with RBS, Lloyds and all their subsidiaries left, what would the loss to the tax payer be then? Can we in effect push them into administration and liquidation without incurring any further loss?
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While these huge losses were being racked up, the banks were happily dishing out massive bonuses and pension benefits to staff. In fact, even now the losses are known they are still paying out bonuses.
This money should be recouped. Just charge those responsible with corporate fraud and levy a fine equal to the bonuses paid out. I see no reason at all why the alternative, that the ordinary tax-payer picks up the bill, should be deemed any more acceptable.
The banks have ruined the country, yet we seem happy to award them bonuses for doing so. Not only that, but we seem to be happy to let them go ahead and do it again as soon as they have the chance. This is complete madness, and I cannot for the life of me understand why Robert Peston does not seem to see this.
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So the sorry saga continues. Our public wealth stolen to prop up privately owned Banks, whose rapacity has
wrecked our economy, in order that the Directors and Senior executives of these Robber Barons of the 21st century can continue to receive enormous salaries and huge bonuses for their continued infamous activity while Unemployed on Job seekers allowance and OAPs on basic National Pension struggle to survive below the poverty line.
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Picture in today`s Telegraph showing Fred and Joyce Goodwin jetting off from Heathrow.
Happy to report he still has the shirt on his back, unlike some of us.
My hero, unrepentant to the last.
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RP says: 'That's the kind of financial calamity that makes me feel slightly dizzy.'
The Labour party now knows that GB was a wizard as Chancellor of the Exchequer and now Prime Minister at 'nodding intelligently' about the strength of the nations finances, at the same time as being far out of his financial depth.
One has to fear the multiple risks of leaving him in post, not least to himself.
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Are you sitting comfortably? Then I'll begin....
...so if we reinflate the credit bubble then those assets will recover in price and there will be no loss at all to anyone...
...so it was time for Daddy Bear to go bye-byes....
...and they all lived happily ever after.
Any more stories for the kiddies; eh?
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Could the Mods please explain why lm_f_ao ie Laughing My Freaking Ass Off is rejected as profanity?
(Suitable Twitter hashtag: BBCFAIL)
Here's profanity: dozens of UK troops killed needlessly in Afghanistan for lack of helicopters.
"Forget the helicopters, shall we fund another Quango, PM?"
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Robert,
How much have we lost with Northern Wreck? We were supposed to get out of it with a profit for the taxpayer but Darling made that stupid promise before they had done due diligence.
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If any of these predictions are based on government figures, you can bet your bottom dollar (if you still have one) that they are dreamt up by the over-optimistic boffins in the treasury who are spinning wildly around in clouds of smoke trying to dream up new ways of having to avoid admitting that things aren't quite as they seem.
'Worse than expected' - a three word summary of Gordon Brown's political career....
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d) Is RBS misusing the tax payers' monies
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"But to call these losses the toxic fruit of reckless lending doesn't quite capture the magnitude of these banks' departure from sensible prudential standards."
Wasn't part of the deal that these guys resume lending to 2007 levels? Where are the sensible and prudential standards in that!?
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12:51 and all my comments have been referred to the Mods?
Amazing.
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#39 plb_plb
The big banks have been ordered to lend more (as well as fulfilling the FSAs capital adequacy requirements), in order to shore up the housing market, to prevent a collapse. I went into Lloyds TSB recently in order to pay a cheque into my wife's account and was accosted by one of their managers who attempted to sell me one of their loans, harping on about how they are still able to lend even in the current climate. Wasn't interested obviously!
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Surely more evidence for a civil action on behalf of shareholders against the Directors of both those banks......Talk about breach of fiduciary duty........!!
I don't happen to have been a shareholder - simply a customer of HBOS - so I cannot take any action.
Have RBS and HBOS shareholders given up all hope, or is a group of them investigating the matter?
But regarding the government's treatment now of the banks - it is in a rather tricky position.
In the short term it simply has to go along with them making huge spreads (with Libor at less than 1%), given they all need to be dug out of a big hole.
But at some stage it needs to introduce a large dose of competition and force them to stop ripping off their customers.
Just two things need to be done:
- legislate for all banks to open their books/disclose their management accounts....... what harm would that do?....... and now crikey that would lead to a bit of competition!
- break them up, limit their size and split off the deposit taking parts from the casino parts. Then sell off the casino parts under the new laws of disclosure. Then mutualise the deposit taking parts (i.e. effectively hand these bits to the depositors).
For the benefit of every single citizen of the UK we must change our monetary/banking system from the 'black box' model where we leave it to so-called experts (FSA/regulators/rating agencies etc/Basle 1, 2, 3 and half etc) to look inside the black box and then tell us...... "don't worry your pretty little heads, people, we've had a look, we're very expert at this, and this bank is jolly safe!".....
....to an 'open book' model, where all is on public display (save actual individual names of people/businesses etc of course) and we can see for ourselves what they are up to.
What do we have to fear from forcing banks to disclose huge amounts more information?
A fairer bargain between the 'people' and the 'money lenders'?
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Peston,
If I wrote to my MP to complain about the censorship on this blog, a publicly funded blog on Business, through which I have attempted to raise legitimate concerns, e.g. the betrayal of the obligation on the Fourth Estate to serve the public, would you (or the Mods) object to this?
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No 20. Well said Wykhamist. But who would be able to bring such a charge. Could it be possible?
Anyonewho believes in fairies clap hands now.
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FTSE_muppet
Would love to know what you're saying that is so controversial!!
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Can Robert explain what happened to Basle i and ii accords which were meant to govern financial risks within banks. Did anyone adhere to them?
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#6, do you hold shares in razor blade companies by any chance, I think I should slit my wrists now! (gold ones of course).
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#1 windchrisleeds - Banks are businesses! They are at the heart of our current problems and probably our future ones..... buck up!
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"33. skynine wrote:
Robert,
How much have we lost with Northern Wreck? We were supposed to get out of it with a profit for the taxpayer but Darling made that stupid promise before they had done due diligence."
The last i had heard was that £18bn of the 27bn loan has already been repaid and so it is ahead of schedule. However they are also being allowed to lend again which it is hoped will speed up the recoveryt of NR and the return to private sector ownership. whether that will work remains to be seen but it looks like the monies will be recouped at least.
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9. tom_edinburgh
Good stuff, I would also like to add that part of the reason the world has got (or rather will get) into trouble is when banks started selling insurance (CDS's and PPI). On both counts one is where they simply don't understand the risks and the other where they do not ensure the insurance is right for the customer.
....and now the Government is selling (or giving away) insurance.
Isn't this just a little bit worrying? - who is insuring the Government?
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so the banks lost more money and in reality its taxpayer money going down the drain.
sadly untill those responsable are able to be brought to book then confidence in banks and governmental handling of the problem will not return in near future.
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16. obangobang
....of course it's predictable - but then are you disputing any of the facts?
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20. At 11:47am on 22 Jul 2009, wykhamist wrote:
"While these huge losses were being racked up, the banks were happily dishing out massive bonuses and pension benefits to staff. In fact, even now the losses are known they are still paying out bonuses."
wykhamist - rest assured these actions are simply accelerating their own downfall.
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The tax payer should not be insuring the gambling debts of the banks, only the depositors money should have been protected. The banks are like a bent bookie and some politicians are like a bent jockey so the ordinary punter(us) gets scammed.
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ftse_muppet
What are you trying to say? It must be good I've never seen so many breaches of the house rules.
Maybe it's a secret the BBC don't want to let out.
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The name of the game is to make money money by hook or crook.
In fact I was a couple of billion short myself and needed a top-up fundage to invest in the markets. But I blew it I should have asked for 100 billion to do some of that old dodgy double entry book keeping accounting stuff we did last christmas. i.e 50 % legal + 50% dodgy toxic on the sly
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#53. ftse_muppet wrote:
"I made a statement in an earlier post that said RBS were misusing tax payers' monies. What legitimate reason can be given for censoring this claim?"
I think you'll find that the statement to which you refer is still visible on this blog (#38). It is your other childish, off-topic posts that have been removed (or, as you would have it, "censored").
The fact that the BBC is a publicly-funded organisation does not give you the right to use its public forums to post your opinions, just as you would not be permitted to spray them on the walls of an NHS hospital. This blog, like all others on this site, has a clearly-defined topic and it is my experience that all posts that add to the discussion are permitted, whether or not they follow what you might perceive to be a BBC "party line".
Now, back on topic...
Even I, as someone who has worked in finance for 10 years, in commercial banks, investment banks and even a central bank, am completely at a loss when I attempt to work out just how much exposure we - the taxpayers - have to the banks' losses. Robert Peston's analysis above does nothing to clarify (not his fault - I simply think that it's unfathomable). I don't think any of us will know for five years or more what this whole debacle has cost the country.
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FREE THE FTSE_MUPPET NOW - ALLOW HIM TO SPEAK.
WE ARE ALL ADULTS AND CAN MAKE OUR OWN DECISIONS ABOUT THE CONTENT - IT SEEMS THAT IT'S OK FOR THE BEEB TO PROMOTE FACTLESS STORIES ON THE TV SO WHY ARE YOU PICKING ON FTSE_MUPPET?
I'm sure whatever has been said is no worse than what we're all thinking was said (what I am thinking is completely unprintable)
The stench of corruption has reached the BBC - what next - lies about swine flu deaths - or is that happening already?
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RE MODERATION OF FTSE Muppet
IS WHAT HE/SHE SAYS REALLY SO BAD??
IT CANT BE AS BAD AS THE ABUSE OF THE PUBLICS MONEY BY nulabour/GORDY?
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FTSE-Muppet:
The message board house rules are with little consistency enforced for the commentators, but the moderators don't follow their own house rules. If some moderator (I am not sure who the Big Brothers are?) finds not enough substance to remove a comment, then the comment is simply put into the 'referred to the moderators' category, thereby made invisible to the other readers and then left there for a few days. This is effective censorship, no prove of anything needed.
The message board house rules state:
"One of your messages has disappeared or been removed from the board
Please be patient - your message is being checked by one of our moderators.
If there is no problem with your message it will reappear shortly.
If your message breaks our House Rules it will be removed permanently and you will be sent an email explaining why. Please reply to this email if you would like to query or comment on the decision."
Some of my previous comments have been, for no good reason, 'referred to the moderators' in Robert Pestons Blog 'Tory plan to sanitise banks'.
They have been left unmoderated now for over two days
without any follow-up.
Moderators, could you please let them reappear shortly?
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#64 rbs_temp
Actually, post #38 about RBS misusing tax payers' money is not one of the censored comments I was referring to. My original comment, that was, made several claims so I resubmitted each claim one-by-one. All (except d) have since been buried.
Your comparison with spray-painting an NHS wall is idiotic. You are a New Labour drone in denial. Simples.
So, what else did I claim? I'm sure you can look it up in your database. All those donations to the Labour Party didn't go to waste, surely? You must have spent some of those millions on CRM software, lol!
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#64 rbs_temp
"Even I, as someone who has worked in finance for 10 years, in commercial banks, investment banks and even a central bank"
Well, if you haven't figure it out by now... lol.
You are part of the problem.
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Robert
I thought that UKFI was created to represent the taxpayers interests regarding RBS and Lloyds BG, so the source of your article should have been them and not the Treasury. In terms of regulation is it not now the case that the TRI partite system has now been replaced by the QUATRO partite system?
Nothing like keeping it simple!
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#64 rbs_temp
"It is your other childish, off-topic posts that have been removed"
So who is deciding what is off-topic? - you, or a faceless moderator at the BBC?
If the comment involves RBS then it is very much on topic. If it's so badly off topic (like about the weather) then it will not receive a response from other bloggers.
Unless I'm mistaken this blog is started by the 'business editor' - that's you Robert - and RBS is still a business (well at least the last time I looked over the road!)
I'm also confused by this statement
"The fact that the BBC is a publicly-funded organisation does not give you the right to use its public forums to post your opinions"
...I thought a blog is exactly for posting your opinions - or are we all journalists here bound by the rules of journalism?
....and that's my opinion - anyone care to join?
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#67 - Curzon
"IT CANT BE AS BAD AS THE ABUSE OF THE PUBLICS MONEY BY nulabour/GORDY"
You have slipped into lower case - are the wheels coming off? I'm worried the pressures of recession are taking their toll - can I help?
(unfortunately I don't have 1.1 trillion to plug the whole, but i can lend a sympathetic ear)
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From what I have seen, ftse_muppet is not posting anything controversial or which might cause embarrassment to anyone in or out of government. They are merely off-topic ramblings from someone who wishes his opinions to be heard.
Unfortunately, I think we can probably expect a lot more of this nonsense now that the schools are closed for the long summer holiday. Roll on September.
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Peston,
If I wrote to my MP to ask that the decisions behind burying my comments were released under FOIA, would you (or the Mods) object?
You really are in danger of _becoming_ the story, doncha think?
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#69. ftse_muppet wrote:
"Your comparison with spray-painting an NHS wall is idiotic. You are a New Labour drone in denial. Simples."
Just because I disagree with you does not make me a "new labour drone", as you put it. I do not vote Labour.
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70. ftse_muppet
".....and even a central bank"
notice rbs_temp has not specified which one - I'm presuming it's the old lady - surely it couldn't be the fed - or maybe it's the central bank of Kazaghastan.
It's good to know that the old boy network still operates fully - a tour of the banks and still hasn't worked out why the brown stuff is all up the wall....
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71. At 2:24pm on 22 Jul 2009, excellentcatblogger wrote:
"In terms of regulation is it not now the case that the TRI partite system has now been replaced by the QUATRO partite system?"
Now that's funny - shame it's wasted on this blog.
Maybe we should go for the 'CENT-Pertite system' - 100 regulators arguing about 'what is to be done' and still achieving nothing.
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"But to call these losses the toxic fruit of reckless lending doesn't quite capture the magnitude of these banks' departure from sensible prudential standards."
Bingo!
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74. At 2:33pm on 22 Jul 2009, rbs_temp wrote:
"From what I have seen, ftse_muppet is not posting anything controversial or which might cause embarrassment to anyone in or out of government. They are merely off-topic ramblings from someone who wishes his opinions to be heard.
Unfortunately, I think we can probably expect a lot more of this nonsense now that the schools are closed for the long summer holiday. Roll on September."
....wait a minute.....isn't all that off topic too? What has school holidays and FTSE_muppets behaviour got to do with Business?
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Here's something on topic:
"Gordon Brown says it has been a "difficult year" but insists he has not shirked "tough decisions" as he begins his summer break."
....like whether to order a flake with his ice cream or simply cover it in strawberry sauce whilst he sits on he edge of Lake Windemere....
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#74 rbs_temp
"From what I have seen"
Well, you are disingenuous or you are making it up. Just about everything I posted early on is _very_ on topic, and subsequently, if it deals with censorship, events make it on-topic too.
And I call _myself_ a muppet!
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"Treasury forecasts £77bn loan losses for Lloyds and
RBS"
+
Rob
Yes, the old jokes are the best
but, we heard that one already
are you having a bad inspiration day today?
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Apparently our big banks' recklessness in the boom years has not meant we have run out of cash - money is not, or never has been, an issue.
"UK has enough helicopters" - Brown
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The Treasury says it expects the public purse to incur a loss of £25bn in respect of the Asset Protection Scheme, so no fear of our Taxes going up yet again!
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#76 rbs_temp
'Just because I disagree with you does not make me a "new labour drone", as you put it. I do not vote Labour.'
What do you disagree with? Let everyone in on it, 'cos ya know, just about _all_ of my comments are censored, so not visible to the rest of us plebs without access to Labour CRM, lol!
Forgive me for calling you a New Labour drone. Perhaps you are one of the Special Brew-swigging lot who abandoned Labour for the BNP. Say it ain't so banker-man!!
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writingsonthewall - thank you very much for the link in support of fiscal and monetary conservatism.
I knew that you would come round.
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The entire process was an act of irresponsibility on the part of banking institutions and governments. These two are joined at the hip and there is and was no separation in this process. The banks gave the bad loans, that they made a substantial amounts of money processing, to willing governments. The banks wanted to maintain profit margins without all that risk that they had developed with their unsecured loan scheme. The banks should be forwarding processing fees to the government attached to the bad loans and at least reduce the vunerability of the taxpayer for these costs. Under any other circumstances this would have been designated a criminal organization and if investigated that may be proven to be true as it apprears the majority of the financial services industy was in on the scam. A large number of people received letters saying: oh, by the way, your retirement/investment account has just been diminished by 30%, no hard feeling we hope. The government will tax you to cover our losses, but nothing seems to be in it for you. Good luck and we hope you will remain our loyal customer.
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There ya go! #84 and #85 got through! Quote Peston and you're good to go. Forget about contributing your opinion, analysis or insider info!
Oi, Pesto! Will Mandy have the time to keep up all those committees - like the banking one - when he becomes PM?
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87. At 3:17pm on 22 Jul 2009, truths33k3r wrote:
"writingsonthewall - thank you very much for the link in support of fiscal and monetary conservatism."
.....and how is that going to be achieved under the present system? Surely if everyone and everything is in competition with each other then this becomes impossible.
I'm sure if you asked Yussain Bolt to conserve his energy expenditure in the next 100m he runs he will be only too happy to tell you where to get off as his primary goal is to win - and not conserve energy.
It sounds like what you need is "From each according to his ability, to each according to his need" - which would promote the conservatism you desire....
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88. ghostofsichuan
....yes, but give them credit for consistency.
The people ran up bad debts which they couldn't pay back and risked default
The banks ran up bad debts they couldn't pay back and risked default
The Government ran up.....well you know the rest.
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So the Treasury are still frantically trying to make some sort of forecast.
If it's like their other forecasts you may as well think of a figure, any figure will do and double it.
Like other posters on here I tried to read through it and make some sense out of it.
We should know better for the Treasury under Brown {still is} never produces anything that is remotely understandable.
Read between the lines and what we get is a never ending series of losses of such magnitude it doesn't bear thinking about. All discovered of course when Brown is long gone.
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I'm a a bit of a thicko when it comes to all this banking bail out mullarkey etc etc.
What if the government invested as much money in revitalising UK manufacturing industries. Would this help in any way shape or form?
Someone please explain.
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93. At 4:31pm on 22 Jul 2009, CRANBROOKKID
What about instead of enslaving future generations in debt and robbing savers and pensioners through inflation, the government got out of the way and let the market function?
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Yes Lloyds was sold a pup and RBS blew it through the ego of its CEO but are you telling us they are the only ones with toxic garbage on their books. Are we saying the soon to be broken up FSA's recent stress testing was good enough given we have no information on the question set, and no doubt the Freedom of Information act excludes us finding this out.
No underlying attitudes have changed when it comes to stock market investment and the public is still abused daily through misinformation and the endless greed factor that still reigns supreme.
What we need to know is how much bad debt are the banks openly carrying as well as the Insurance companies and pension funds.
And lets not forget the Americans have not even started on their legal fights f who know what and when and the wonderful compensation packages they will be claiming for.
I'm sorry Robert but your going over he same thing is geting tiring and you need to focus on the bigger picture, like supplying answers to the above.
That way we can all make informed decisions and not be reliant of scare and rumour mongering because we don't know.
Certainly the B of E and the U S Treasury have taken on board wadges of rubbish in the name of the taxpayer but why should we assume hey will net out for nothing
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If they changed the rules so that it is harder to foreclose on bad loans, then slowly bring the rules back to normal. The banks will only be able to put a small number of properties on the market, propping up the market, keeping people housed and taxpayers from the wolf. After all the Gov gave its blessing to lend to the sub prime market, it should afford some protection to the people lent to.
This would have in turn left there accounting percentages intact and they could have traded their way out of it. Least we forget all this is on paper and we are in so much trouble because of a line drawn on a percentage chart, allowed by the Gov and worked to by the banks.
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We shouldn't be surprised at these bad numbers.
In fact, almost all of the RBS and Lloyds "insured assets" may have to be written off in the end.
I suspect that RBS and Lloyds and the Treasury know that these losses are mostly non-recoverable, but are breaking it to the public gently.
The entire 580 billion may be worthless.
Much of it is sub-prime.
Sub-prime losses are hopeless, unlike UK reposession losses.
A reposession in the UK may realise 50% to 80% of the loan value as recoverable.
But in the USA sub-prime foreclosures are resulting in almost total losses, with entire suburbs abandoned.
Boarded-up cities.
It may not even be possible to realise the land-value, due to re-development costs.
Why would banks put any healthy loans in the insurance scheme?
We should be prepared for the worst.
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Robert, your comment is fatuos because liabilities need to be declared however unlikely they may be called on, that is why they are there!!
The way your talking the government has used up billions of taxpayers money and is on no risk when we know that is not the case.
Why buy the garbge of debt due if it was risk free, and what are they still holding back on in teh hope the obscene margins they are now working on will act as a cushion against further write downs.
It all sounds like an anticompetitive state of overt collusion between the banks and this lame duck government.
if there are green shoots out there it is the lilly livered blood of this lame duck government being shot to pieces by the banks strewn across the whole country!
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More alarmist nonsense from Pesto. As an accountant I know that the government support for banks hasn't cost them a penny and they will most definitely make a profit on these deals unless taken to court.
Unfortunately this profit they will make will be at the expenses of ordinary shareholders and pensioners.
Hope you are proud of yourself Pesto.
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Rearrange this: barrel, got, you, me, a, over
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Fireyshandy (99) is right. GB has taken advantage of shareholders and pensioners since he first became chancellor.
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Were a Private Equity Investor to provide this level of support, at the level of demonstrated risk, they would be a demand for massive returns at "market rate". Where, when and how will the taxpayer be provided with these "market rate" returns? Anything else is a form of subsidy that is prohibited by the spirit - if not the letter - of World Trade Organisation frameworks and agreements.
The huge figures being thrown around are indicative of a huge opportunity for the Taxpayer to benefit by a massive windfall. If George Soros can manage to make billions in a calamitous market there should be no reason for the treasury not to do so to. Taxpayers have been hammered with the rubric of the market being all powerful for decades. Here is a chance for our political and business masters to demonstrate that to be the case.
George Osborne, Alistair Darling and Vince Cable can all bleat on about "banking reform" all they wish. The bottom line is that the Exchequer is in a position to dictate terms in the same way any Private Equity Fund, with one tiny difference. The Equity Fund is effectively the British Taxpayer.
Any Chancellor going into the next election while not advising that they will be realising a profit from this situation should forget about office. Clearly, things have gone wrong at the Banks. In putting together a rescue package - for which politicians of all parties are responsible - there had better be a benefit to the Taxpayer. A significant, long term financial benefit: the scale of investment demands it in a market economy.
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So let's see Robert
The Government made a decision without taxpayers consent which is going to cost £25 billion.......
There are about 28 million income tax payers which means its roughly £1000 per tax payer (don't forget the opportunity cost of utilising £25 billion). However, at least a third of those are public sector/SE fund backed. So the reality is that its actually around £1500 per real tax payer.
I'd like my £1500 back please.
If we presented this episode as a 3rd W case study we would have labelled the Government as corrupt. But its the UK so its not........
As for Treasury accounts not being ratified (first time in its history) I'm amazed we haven't got insurrection on our hands.
But then again as a nation if you're asleep and don't question the continued propaganda and rubbish emanating from Nos 10 onwards and the fact that papers like The Guardian still sell more than one copy are we surprised?
Utterly, utterly indefensible and it hasn't really started yet.........
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This is just Peston stirring up old news ... for goodness sake, we know the banks all round the world got into deep trouble and their respective governments had to bail them out ... at a very high price, of course!
In a few years the taxpayer will have made a stonking profit and will Peston be here telling us wonderful the whole arrangement was?
Probably ...
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#104 ...in a few years...how about when your kids reach retirement age...and no, Peston probably won't be here then!
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writingsonthewall
I like your idea about appreciating the things in life which money can't buy. I also like your idea about appreciating people who actually do something, as opposed to those who deal in paper and/or who act as seat warmers.
It isn't happening though. Everything about Britain today is a story of style over substance. My two sons, highly qualified engineers, are paid nothing like the young bankers. My older son has just been told his pay is frozen - bad news at the start of his career. Perhaps my sons should appreciate the finer things in life, but they are worried about keeping a roof over their heads at the moment, particularly with student debt mounting up.
I thought there was going to be a new order with an emphasis on practical skills and real ability (as oppposed to ability to defraud the public). But it seems that nothing - and I mean nothing - has changed and I think now that nothing ever will change.
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I just don't get it.... logic to me dictates that the public purse should not incurr ANY loss. Banks should be taxed at 100% until all monies loaned, invested, bailed etc is 100% paid back. Then the shareholders get their companies back and not before. Is that too much to ask? I don't care how many years that takes, if this government had a backbone they would do it.
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To quote: "That's the kind of financial calamity that makes me feel slightly dizzy."
- What makes me dizzy is that LloydsTSB walked into this open eyed. Amazing. They were the only Bank to act with some prudence before the 'Credit Crunch' and then were cleared by Mr Prudence that it would be OK to go ahead and take over HBOS. Some dizzy behaviour.
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At the time that this "insurance scheme" was set up (October 2008), the banks' exposure to UK repossessions was unknown.
125% mortgages were largely with Northern Rock, and buy-to-let was largely with Bradford and Bingley.
Banks do not give up so easily on credit card, store card or personal loan debt, and the size of damage from these would not have been known.
Business loan damage could not have been assessed either.
Only one thing would have been known for certain....the exposure to sub-prime.
That is why I think that the insurance scheme is a cover for really massive losses, perhaps even total losses.
I really hope this concept is wrong, but time will tell.
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All this bailing out business and the fiddling with the bubble burst makes me sick. We are now 2 years into this and the government, the banks and the consumers are still in constant denial. The majority still doesn't want to hear that it is all because of a deliberate, collective life-on-debt approach for the last 10 years or so. Any way out of this goes past this simple bit of understanding what went wrong. The lesson needs to be learned and a brutal change needs to be made.
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#105
I would anticipate that all the money will be paid back to the taxpayer at a nice little profit within three years ... no wonder the Tories are so anxious to gain power, and Brown so eager to hang on if he can!
It was the small bank shareholders, pension funds etc who really suffered in the banking crisis losing billions of pounds. The government and taxpayer (like most lenders) will be the big winners ... so PLEASE STOP MOANING EVERYONE!
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Err scottycelt said "the taxpayers will be the big winners?. What abut those taxpayers who have lost their jobs because of this crisis? As for the pension funds and small shareholders, as holders of equity, they benefited in the good times now they suffer in the bad times.
The reality is that the banks were allowed to get so big and so that they could not be allowed to fail. None of the proposals put forward changes this. They will still be in a position where we can't allow them to fail. The big banks need to be broken up! As for the market arguments, banking has never been a free market in the last few years. There are significant barriers to entry and suppliers can't exit when gthey like.
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Yes, these losses are "eye-watering" - and, whatever you say, Bob, they are being underwritten by the taxpayer. So let's put this down in simple terms. The cleaner in London's poshest hotel, drawing minimum wage, is paying to underwrite the financial losses incurred by the folk who still sleep in the rooms she cleans. The waitress in the smart restaurant who actually takes home less than the minimum wage because she's supposed to pick up tips is bailing out the folk who completely screwed our economy and who are still sitting at the tables and ordering their lobster and champagne. The guy who hauls dustbins filled with empty bottles from fine vineyards away from smart London addresses has shelled out for their occupants who continue to eat only the best while having shown themselves to be wholly inadequate to the job they are paid for.
Bob - this is a sin. It is wrong. It is the mark of a society that has become wholly corrupt and amoral.
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Morning Robert,
yet another spellbinding article on banks estimated losses.
I have tried very hard to follow these figures for 18 months and I must admit that I am lost and confused (but I won't give up yet).
The Treasury are briefing you for a reason, you, Robert decide what to put in your blog which has a wide readership.
My view is that the numbers are meaningless. One takes out insurance and hopes that you won't need to use it (eg car or house insurance).This bank guarantee stuff is a bit different because it is being used by accountants and auditors to lessen the effect of the writedowns. This is nothing more than a trick (cf Ponzi scheme).
The ONLY way that the figures can be verified is if the auditors provide an independent view of the banks' finances and liabilities. As long as the auditors are paid by the client (ie. the bank being audited) the figures will be suspect. What does my hero Mr (Baron) Brown propose to do about making bank audits independent?
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Man`s grasp should never exceed his reach. The City proves this time and time again. We live in cycles and the cycles begun by the policies of the Reagan/Thatcher years have lead us here. Accepted her hand was forced by the ridiculous behaviour of the Unions, who incidentally provided the tax payers who of course are suffering now. It seems to me that we need to get back to building solid businesses that create wealth instead of moving it around the world. As the cycle turns and regulation squeezes these "brilliant" mercenaries, they will move east with their spoils. Ever since British Gas was privatised there has been a break down in moral conduct as those who purport to be our leaders feed at the trough in the belief that money reflects their worth and b****r the rest of us. We need to redefine our society and find new leaders.
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I have just watched a programme on ITV (Nightwatch) that had a piece about the heroes that served this country during the Falklands War...and and that made me think about our servicemen now fighting in Afghanistan.
...and then it made me think about how they and their heroic actions are being usurped, every day, by the scum in the City and Westminster...it really does make one weep!
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94. At 5:17pm on 22 Jul 2009, truths33k3r wrote:
93. At 4:31pm on 22 Jul 2009, CRANBROOKKID
What about instead of enslaving future generations in debt and robbing savers and pensioners through inflation, the government got out of the way and let the market function?
Well let me think. Oh yes! Because the market failed to function. Because the market encouraged inexperienced tyros at every level of the economy to run up unsustainable debts. Because the market has landed the poorest members of our society with the burden of bailing out the wealthiest.
The market as the best guide to economics - the biggest bust in history. If it weren't for the fact that it's failed so often before.
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The Libor rate at which banks lend to each other is only about 1.5%, but the rates at which they lend to their customers can be at least 10 times this. Does this not suggest that there is some sort of private agreement between them, to give each other preferential terms, and would this not be a breach of competition rules?
Why has this matter not been referred to the appropriate authorities for investigation? Could it be that the government, which would normally do the referring, happens to have large shareholdings in some of the banks?
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Robert, your maths is wrong. You are assuming that the first loss piece of both Lloyds and RBS have been fully used. This is one scenario. It could also be that the £25 billion estimated loss could result entirely from RBS OR Lloyds in which case you paragraph should read:
It's worth saying that again. Royal Bank and Lloyds - which already reported record losses for 2008 - are expected by the Treasury to suffer further losses on their loans and investments of at least £35.2bn if only Lloyds has used up its first loss alowanceand possibly as high as £77.4bn in aggregate if both banks have used up the entirey of their excess.
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Any other business owner who operated in the way that Bank Executives behaved would be in Jail.
So why are our Bankers not?
The MP's in Parliament and the FSA didn't do their jobs corectly.
We pay over the odds for everything in this country and we still get ripped off.
If you or I were to run out of money, that Government wouldn't step in and give you cash.
Give the Liberal Democrats a go in Goverenment at the next Election.
The Tories are in bed with business and 10 years later we will be back where we are now, rotten to the core and if nothing else drives mass migtration from the UK then this will.
with all the taxation in the UK you give nearly 64% of your money to this Government.
In effect you get an allowance for working 40hours a week and from that allowance you are expected to pay for everything.
We now live the illusion of freedom under a modern Orwellian State form of Slavery, monitored and harrassed by Police and Beauracrats.
I am getting out of this country and transferring all my pensions assets, because this is what this Government will go after next.
The UK has become the largest open slave labour camp in the world, we have more class stratification and bias than ever.
Come from a slum and want to aspire, don't bother you will never get a job in the Civil Service.
Bankers are merely one of many at the top who milk the complacency of the UK electorate, we are too lazy to make a difference.
After all the furore with expenses we have allowed them to vote in a useless Expenses Bill that removed all legal accountability for MP's operating Fraudulently (a criminal act)
The General Election won't change this, as the Tories will just go back to the same joke that they were before Labour.
Time for a real change, vote in you local Independents at the next Election.
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Does Mr Peston as a journalist take any responsibilty for the mess we are in or does he purport to merely repport on matters (and thereby appear very clever) after they have occured?
When Gordon Brown was saying how well we were doing can he name a single inverview when he asked about or commented on growing balance of trade deficit and indeed the massive trade imbalances the west had with China?
I was watching our Prime Minster yesterday stating that we now had 60% more helicopters in Afghanistan. Not one reporter countered with either, "Well how many have we got then?" or indeed replied with, "well there were 10 helicpters when we had 3000 soldiers there, we now have more than 9000 troops and only 19 helicopters.."
You journalists have a good job and you appear afraid of rosking the boat or perhaps your all just plain lazy and do not get the facts?
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106. At 9:56pm on 22 Jul 2009, economaniac wrote:
"My two sons, highly qualified engineers, are paid nothing like the young bankers."
economaniac - but this is so wrong, your sons have practical skills that are useful to society - all bankers have is wealth which they distribute as they see fit - with the sole purpose of amassing more wealth. What worries me is less and less people will take your son's route through university / college and shy away from useful skills and we'll end up with a country full of bean counting idiots.
"I thought there was going to be a new order with an emphasis on practical skills and real ability (as oppposed to ability to defraud the public). But it seems that nothing - and I mean nothing - has changed and I think now that nothing ever will change."
....but that's where this time may be different, do you really think the banks are going to be able to justify their salaries? How long before we head into 1974 style 3 day weeks - strikes etc. The bankers cannot make money if there are no businesses to make money from.
What they hope is that things will quieten down and everything will go back to normal. Having seen a channel 4 report on the US situation I don't think that's going to happen this time. I certainly won't be returning my money to the bank (I use a combination of NSI and credit union now).
I don't give in to blackmail and I don't see why my country should do it on my behalf.
Just as when Hitler started to conquer Europe the men and women of this country knew they had to stand up and be counted - now the enemy is the banking system and it's time for us to all stand up and be counted.
....trust me, people can be very ingenious when they have no job and are sitting at home thinking of revenge...
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A WORD OF WARNING
To all those 'hoping' the UK Government will make money from the banking bailout.
Don't you think if there was money to be made then P.E. companies or other wealthy individuals would have been keen to step in and do the same?
Don't you realise that the reason the Government had to step in was because NOBODY ELSE WANTED TO GET INVOLVED.
One thing you can rely on is that the rich know a bad deal when they see one.
There will be no profit - by the time we get it back inflation will have eroded it and we will need 10 times the amount to repair the damage to public services the expected cuts will produce.
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#117 what you are describing is the unfair manipulation of markets, not the market itself.
I would be interested in your alternative to a merket for the issues that we face.
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We will have to pay the £77bn we are forced to gave to the bankers with our jobs, pensions, savings, inflations ...
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#58
They're not facts, they're opinions. They are making a prediction. How can that be factual?
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I am a little at loss. If the banks are so hard up as it would seem they are how is it that time and time again you read one or another is paying £billions for take overs and buy outs? From where does a finance company get £3.5 billion in cash to bid for Barclay Card Partners fund management when all banks are strapped for cash and what advantage is this to the taxpayer who in the end has to finance this failure of the unregulated finance system? Which money source unable to help small businesses can find this sum? This is one of many such bids.
Where do private equity firms get their cash???
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As I have always said ....... if banks cant manage money properly WHO CAN !!! Shame on them.
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Was their ever any doubt That the deal set up to prop the HBOS was anything other than a manouvre to support Browns Constituency and Scottish Jobs.
The Lloyds deirectors were sold a pup and the shareholders have suffred as a result. But does the Treasury and City care! For them it is business as usual. Sadly, if the board was sacked they would be replaced by corparate finacial institutions nominees from within their own ranks with the same motivation as those sacked.
The dust is settling and the financial services are resuming business as usual. Grateful to the government for their Gift Aid, still denying that what happen was their responsibily.
Perhaps the Financial Instruments the invent should have the equivalent of the house selling manual which is now required, when they are marketed.
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The BBC should be more truthful and besmirch the name of HBOS rather than Lloyds which was practising prudent banking.
The BBC should point out that Lloyds TSB was coerced or conned into buying HBOS by Gordon Brown and the prudent shareholders of Lloyds have been punished or even robbed , never mind the good name of Lloyds.
So much for scottish(HBOS) prudence and canniness.Under Mr Brown's as tenure as minister of finance they went psychotically and rampantly reckless destroying so many lives .
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Ah yes, those pesky banks, loaning money, standing at street corners virtually giving it away, forcing people to go buy big TV's, buy fancy cars, expensive holidays, clothes that are normally the preserve of footballers and film stars.
The truth of the matter is that no politician will actually lay the blame squarely on whom it belongs, the consumer (did I say consumer? I meant voter). Instead, lets join the shooting party, I think phrase that springs to mind is "like shooting fish in a barrel".
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