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UK backs £167bn of overseas bad debt |
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Wednesday, 09 December 2009 |
 British taxpayers stand behind more than £167bn of toxic assets in the US, Ireland, the Middle East and beyond, it has emerged as the Treasury disclosed details of what Royal Bank of Scotland has dumped in the state insurance scheme for bad debts.
Most of the £281.9bn of assets RBS has placed under taxpayer protection
are based outside the UK, with loans secured against everything from
negative equity properties in Dublin to hedge fund assets in Caribbean
tax havens and container ships docked in ports around the world.
In a document released quietly on its website, the Treasury revealed
the full make-up of the portfolio of assets taxpayers are now
supporting through the Government’s Asset Protection Scheme (APS).
It includes:
• The overdrafts on 3.2m British bank accounts, and 70,000 UK
mortgages at an average loan-to-value ratio of an alarmingly high 95pc.
• A vast portfolio of loans to Irish and Northern Irish businesses
and customers, including £2.9bn worth of negative equity mortgages in
Dublin and throughout Ireland.
• Some £3.1bn of loans to hedge fund managers, almost half of whom were based in the Cayman Islands and a third in the US.
• Almost £4bn worth of shipping loans secured against oil tankers and container ships.
The details underline the fact that at the peak of the banking crisis,
RBS had become the world’s biggest bank in terms of assets, having
expanded rapidly during the credit boom, swelling its size even further
with its acquisition of ABN Amro.
Similarly striking is the fact that in almost all of the asset classes,
the majority of the loans now being supported by the taxpayer were made
only very recently, some of them in 2008, only months before the bank
was semi-nationalised.
In total, £167.4bn of assets underwritten by British taxpayers are overseas. Only £114.5bn are in the UK.
Observers estimated that at least a quarter of the insured toxic debts
came with RBS’s disastrous acquisition of Dutch bank ABN Amro. In all,
the Government’s exposure to RBS’s European assets is £75.4bn, its US
ones £43.6bn, and “other” foreign debts £48.4bn.
The Treasury stresses in the document that its “central expectation is
that overall net losses on the insured pool will not exceed the £60bn
first loss [borne by RBS]. The direct cost to the taxpayer from the APS
is therefore expected to be nil”.
Under the agreement, RBS will manage the assets in the scheme but hand
control to a “step-in manager” appointed by the Treasury if losses
reach £75bn. The bank has also been instructed to ensure “RBS personnel
working on the APS are remunerated at an equivalent level to those
working on non-APS assets”.
The document reveals that the Treasury paid its advisers, including
investment bank Credit Suisse, £71m to set up the APS – a sum that has
been reimbursed by RBS and Lloyds. Lloyds, which withdrew from the APS
earlier this year, has paid £26m and RBS “is paying” £45m.
RBS has also agreed to pay the Treasury for the cost of running the
Asset Protection Agency (APA), the body established to ensure RBS’s
assets are being managed in the taxpayers’ best interests. It is
expected to have a staff of 50, led by chief executive Stephan Wilcke,
a former senior advisor of Cairn Capital.
Source: Telegraph
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