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Treasury rated RBS as sound less than a week before throwing it a £37bn lifeline

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Treasury rated RBS as sound less than a week before throwing it a £37bn lifeline - Times Online

 

The Treasury was wrong-footed by the banking crisis, privately judging that Royal Bank of Scotland was “reasonably strong” less than one week before the bank was rescued with £37 billion of secret government loans, according to an official report.

 

The revelation is one of several contained in a National Audit Office (NAO) report, published today, into the Government’s handling of the crisis. It also reveals that:

 

the Treasury considered closing HBOS down at the height of the crisis. Only the 11th-hour bid from Lloyds TSB prevented the closure, which would have had repercussions for millions of HBOS customers;

 

ministers did not use normal parliamentary rules and kept the chairmen of the Public Accounts Committee and the Treasury Committee in the dark about the secret loans to RBS and HBOS;

 

regulators were trying to find an emergency buyer for HBOS as early as the summer of 2008, long before the collapse of Lehman Brothers and when the bank was portraying itself as relatively robust;

 

• the total exposure of the Government to banks through capital injections, loans and guarantees is now £846 billion and the total cash outlay has reached £131 billion, which is equivalent to the health and defence budgets combined;

 

• RBS is likely to miss its lending targets set by the Government for this year, which it agreed to meet as a condition of receiving rescue money.

 

The NAO said that it was too early to put a price on the eventual cost of the rescue. It said that the level of support had been “unprecedented in modern times” but that it was justified.

 

:lol::lol::lol:

 

We clearly have idiots in charge.

 

This reads like a scripted farce from a Ealing comedy.

 

So one week before RBS went pop the geniuses at the Treasury thought the bank was sound!

 

Also HBoS was clearly a concern long before the numpties at Lloyds bought it, however doesn't this admission make legal action from Lloyds shareholders more likely? The govt must have misled Lloyds into buying the bank?


If DEBT is the problem REPAYMENT is the solution

 

Debt revenue doesn't equal tax revenue

 

I will pay for my own stupidity but not for the stupidity of others.

 

Remember, profits are privatised, losses are socialised.

That's the 21-century Free Market.

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Someone needed to go to Specsavers. . . :rolleyes:


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The thing I found more worrying is just how much they spent (and continue to spend) on advice. What is the point in having Ministers if they need constant (expensive) advice, I though the whole point was to get people who were bright so that they could make decisions on thier own.

 

They still have some firms on a retained which from what I cn gather is a very exensive way to do business.


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Mystery of Royal Bank of Scotland’s insolvency explained – Telegraph Blogs

 

In fact, there is no mystery about this at all. It’s called leverage, and it explains not only why RBS could have been solvent one moment but insolvent the next, but also why the whole banking system had become an accident waiting to happen.

Leverage (or borrowings) in an average industrial company would be perhaps one times capital. In circumstances where there is a 5 per cent loss in the value of the assets, the cost to the equity base is therefore 10 per cent. Assets would need to lose half their value before the equity was completely wiped out and the meltdown started to eat into borrowings. That’s why on the whole bankers like to demand lots of equity from their customers. It protects the banks’ lending.

But they don’t apply the same rules to themselves. Many banks became as much as 40 times leveraged in the boom, but let’s for the sake of this exercise assume 25 times leverage, which is about average for a bank. In an organisation 25 times leveraged, a loss of 5 per cent in the value of the assets would equate to 125 per cent of equity capital. In other words, it only requires a quite small loss in the value of the assets to produce a total wipeout in the equity and a consequent insolvency.

 

Trouble is this doesn't get the Treasury out of the hole, was it too had to run through a few scenarios? I'm sure in private the Treasury has grave concerns over the economy.


If DEBT is the problem REPAYMENT is the solution

 

Debt revenue doesn't equal tax revenue

 

I will pay for my own stupidity but not for the stupidity of others.

 

Remember, profits are privatised, losses are socialised.

That's the 21-century Free Market.

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