The dreadful results from RBS more than confirmed the analysts forecasts of huge losses that I have been running on this site for sometime. As feared, RBS has lost more than the £20 billion of capital the government put in just a few weeks ago. It opens up the question again Why on earth didn’t the government make some sensible enquiries when they were buying the shares, and insist on proper disclosure of the losses at that stage? It is not good enough for them to say they had to take the action quickly. Even if you accept that debatable proposition, they could have announced they were going to the aid of the bank, and settled the terms once they had made proper enquiries into the health of its accounts.
Today we learnt that the government is planning a big insurance scheme for bad debts owned by the banks.
We also learnt that the government does not know how many bad loans will be covered by this scheme, how much they will charge the banks for the insurance or how much money the taxpayer will have at risk. They have not even settled whether the scheme applies to overseas loans by overseas banks owned by UK banks, or to financial instruments banks own other than loans.
In response to a question I put to him the Chancellor spelt out his problem clearly. If the scheme does not apply to the foreign activities of the UK bank Groups it cannot tackle enough of the bad debts to resolve the problem. If it does apply to them, UK taxpayers will be doubly cross if and when we lose money, as we are subsidising foreign businesses and competitors. The issue of whether gurantees apply to the investment banking activiities of our large banks cannot be ducked either. RBS for example has almost twice as much at risk in derivatives as it does in loans to UK people and companies.
The plunge in UK bank share prices just confirms how much UK taxpayers have lost so far from the mistaken share buying policy.