Monday, Aug 24, 2009
Publicly owned banks buy their own assets
The Times: RBS and Lloyds sell repossessed properties to subsidiaries
Britain’s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market. Royal Bank of Scotland (RBS), which is part-owned by the Government, has set up West Register to buy properties taken over by RBS after borrowers had fallen into default. Lloyds Banking Group, which inherited billions of pounds of commercial property loans when it took over HBOS, is understood to have a similar subsidiary that buys assets from its owner.
Posted by quiet guy @ 08:38 AM (2042 views) Add Comment
44 Comments
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1. paul said...
It is truly outrageous that they are allowed to do this.
Could I argue that my car is worth £1m but that there is no market for it currently, so someone has to temporarily take it off my hands until the market supports the price I'm demanding?
2. flashman said...
paul: No, you can't argue that. Your car will definitely depreciate but there is a possibility that these assets will appreciate.
I still think the policy is wrong because it distorts the market and it smacks of government intervention, via pseudo private entities
3. mrflibble said...
Heads they win tails we loose... The smoke and mirrors game continues...
4. Jimmylad said...
I bet this helps make the figures for house sales better than they actually are.
So the banks have loads of money thrown at them & they buy houses with it on the quiet so if they do "manage" to re inflate the market they will have loads of properties to sell at huge profits. Profits not only through owning the asset but also the finance to it as well. Win - win.
Good old British Tax payer eh ?????
More evidence that this country has been built upon the housing pyramid scheme.
5. icarus said...
"The subsidiary pays what the property would fetch on the open market". Then why not sell it on the open masrket?
This is about commercial property. How much repossessed residential property is kept off the market by these or similar means? I believe the US figure is close to 700,000 dwellings.
6. Cynical_man said...
flashman,
If the government used £billions in taxpayers money to buy a large proportion of cars that are being sold and held on to them then surely they wouldn't depreciate (as quickly?). This is market manipulation where the government is now in control of alleged free market supply and demand.
7. mark wadsworth said...
The article doesn't suggest that the banks are showing the properties at inflated values - it just says that banks are hanging on to the properties in the hope that they go up in value again.
Which is fair enough, I suppose - if the bank sold them to somebody, they would only be able to sell them to somebody who hopes that the property will go up in value. As a general rule, people who own property hope that it will go up in value.
8. uncle tom said...
For a bank to have a subsidiary company that handles assets taken in lieu of debt does not in itself seem particularly remarkable. Property management and banking have very little in common.
The only thing that occurs to me is the matter of stamp duty; are they actually selling these assets, or simply assigning the job of managing them to the subsidiary?
9. paul said...
@flashman
Yes, you can argue that. This is 'mark to model' vs. 'mark to market'.
Their "model" says that the property is worth more than the current market value, but all of the evidence indicates that the 'mark to model' price will not be achieved for a long time, so the only valid price is the mark to market price.
10. flashman said...
uncle tom: Labour abolished stamp duty on inter group property transfers, shortly after coming to power
11. flashman said...
paul: you were comparing it to holding cars
12. wdbeast said...
Is it possible that the money from QE is being used to strengthen the bank's balance sheet which in turn is allowing this to take place?
13. monty said...
Cunning. I wish I'd thought of that. Keep the skeletons off the balance sheet until inflation puts flesh back on them bones. Fiendish.
14. flashman said...
Re my post @8: to be fair, property transfers have been possible without stamp duty for decades years and it was the Tories in 1995 that amended the legislation to make it even less onerous
15. will said...
In the 90s property crash the newspapers were always full of seriously reduced homes and lists of forthcoming auctions. In Devon at this time there are only a handful - a deliberate ploy by the banks to keep them off the open market?
16. Guiriduro said...
wdbeast - to a certain extent, it could be argued that government backstops and QE have together created an environment in which a bank with distressed assets is not forced into a firesale of its assets. Some people see this as a good thing; personally, I don't. The Lehmans episode was the closest we got to having a banking industry-wide forest fire that could have cleared out all the deadwood and quickly adjusted prices in a single, massively deflationary event. We could now be in the post-crash environment, albeit after enormous "wealth" (paper) destruction, with real and genuine green shoots. Instead the zombie banks got stuck on taxpayer-funded life support, one of the consequences of which is that they can maintain their DeBeer's style monopolistic/cartel hold on the property markets as in the article, and at our own expense!
Green shoots are an illusion, central bank QE funny money acting as growth, backstops are acting to remove risk and increase protectionism by banks in the markets they manipulate in order to make a profit (with zero value add.) Double-dip here we come!
17. nomad said...
Are they acting as landlords or letting the properties deteriorate - which can happen quickly? When they come to sell them will they decorate/refurbish them first?
Or, and this is the probable option, are they expecting the buying frenzy to recommence after a temporary lull?
18. andrew said...
If there wasn't really a property shortage then they will now engineer one, who said they weren't out to get us.
19. mystie010 said...
Who said 'Gordon was a Moron'. Nope he's definitely got a brain and because of that I think he is very dangerous. I am disgusted by this whole thing because if the state owned banks are doing this, then the reposessions ultimately belong to the government who can then manipulate the market to their hearts content. In terms of a strategy it is fantastic this governement has played a blinder! They have managed to get the poulation into masses of debt with the Kirsty and Phil 'lets keep up with the Jones's mentality', which in turn has led to the banks crumbling through defaults on morgages etc and the end result is the population that has lost their homes which ultimately have been transferred to the government through state owned banks. The labour government will have us all back in social housing and increase the wealth gap between rich and poor and increase their fan base - job done!
20. flashman said...
The banks are quite realistic and they certainly do not expect the buying frenzy to recommence. Their plan is to first strengthen their balance sheet with better profit margins and more sustainable business models and then to get rid of these properties when they are strong enough to withstand the consequences (and the markets are less jittery). A bank would never consider refurbishing or developing properties because that type of activity is anathema to them. I don’t think there are any great numbers of these properties so it is probably much ado about nothing.
21. the number cruncher said...
Have I got this straight - the banks are selling their foreclosed properties to a subsidiary that borrows the money from the bank. The subsidiary is an asset (at a 'calculated' value) on their balance sheet, rents out the property and returns the rental income is profit.
The questions I need answering is: what are the rules of valuing this property, what proportion is being released onto the market and
who do they rent to? I hear even more zombies moaning.
http://harryallen.info/wp-content/uploads/2009/04/338673695_8a56716f84.jpg
http://img.photobucket.com/albums/v303/Blitzkrieg119/11.jpg
22. will said...
So we all live and work for the state - scary Communist stuff.
23. will said...
flashman @ 17
Rumours in the city are that there are 10's or 100's of thousands of such properties.
24. a saver said...
From what I understand RBS and HBOS own huge amounts of properties. Seems totally wrong that they are not forced to sell these on the open market as one of the conditions of the taxpayer subsidy. But one set of rules for the gov and their banking buddies and another for us.
25. nomad said...
@20. Those figure do seem wild and, I feel, discredit the topic.
26. mystie010 said...
Is there anything we can do about this guys??? Is there some sort of monopolies and mergers legislation that could be brought into force here? I think that the time for talk is over - this whole manipulation of the market scam needs to be blown wide apart! Let's show them that although we are being taken for mugs we aren't actually mugs!
27. flashman said...
will: I've certainly never heard those rumours. There will only be about 60,000 repossessions this year and every auction house in the country has a fair number of them.. That doesn't make the 100's of thousands rumour plausible or even possible
28. bluebeach said...
I think we are all looking for something or someone to blame just because the crash ain't happening in the way that we want, and it never will... He has beaten us all guys...he's just too clever for us.. admit it!
29. devo said...
24. flashman said... That doesn't make the 100's of thousands rumour plausible or even possible
Just premature.
At the end of June this year, the number of borrowers in arrears by three months or more increased to 270,400, up from 264,700 in the first quarter or 2009 and substantially up from 152,700 at the same point in 2008.
Source: MoneyMarketing
30. will said...
Dear All
Re numbers of repos see link on todays postings titiled BBC:City Diaries:21 August
31. flashman said...
will: no data, no facts. Just the BBC slavishly printing the unsubstantiated mutterings of a supposed city worker. A 5-minute look up of the data and some thought would have prevented them from publishing this silliness. I wonder if this ‘city’ diarist even exists? All city workers have easy access to large amounts of data and I therefoe think a rumour like this would be still-born.
devo: it might well become a reality (see my post on the latest topic) but for now, giving credence to a rumour that is not mathematically possible, does this site and topic no favours
32. titaniccaptain said...
@Wadsworth
"The article doesn't suggest that the banks are showing the properties at inflated values - it just says that banks are hanging on to the properties in the hope that they go up in value again."........Or positioning themselves for catastrophic falls that will only take out their subsidiaries and not the main body if the poo hits the fan.
33. Tpbeta said...
The point being that the banks can charge themselves for the sale at a house price inflated by the very lack of supply they themselves are causing. It's a huge fiddling of their balance sheets to inflate their share prices.
Good news for the repossessed at least. At least they don't have the added debt burden they would otherwise have.
34. andrew said...
bluebeach @25
"he's just too clever for us.. admit it"
Admit what exactly ? He (if you are talking about GB) hasn't outmanouvered us at all, he just holds all the cards and we hold none at all. The whole point of this site was to try and decipher what was going on behind the scenes and try and roughly predict when the crash might happen because the whole thing was being so artificially supported, most of us want to buy but at a reasonable price only.
35. mystie010 said...
Post 30 to Andrew....yes most of us want to buy at a reasonable price, but with the kind of manipulation of this market that is going on behind the scenes then the odds of this happening are becoming more and more stacked against sensible prices. This crash should have happened years ago and we all know it; but everytime it got anywhere close things like interest rates were altered to keep the bubble inflated. So why has Gordon won? He has won because if we all want to buy our dream homes then we will have to enslave ourselves in years of debt (to the government as it now apprears). There will be no early retirement, no cash in the bank, just grind, grind, grind and of course throughout all of this grinding not only will you be paying the government interest, you will be paying them taxes as well! It's a stroke of pure genius! I personally can't see any way out and sadly reckon I'll be renting for the forseeable :-(
36. iguana said...
Hmmmm..... When Enron was found to have done this, the directors were persued and imprisoned.
37. bluebeach said...
Andrew & Mistie @30 &31.. I too just want a reasonably priced roof over my head, but the whole country seems to be duped into believing that high house prices are good for everyone and will eventually kick-start a revival... they are not good for anyone in the long run and I feel for my boys who will struggle for a lifetime to get this "roof". How do we allow a party to manipulate all things which in the end will bring sorrow to millions.. my boys and me included?!
38. mystie010 said...
Post 33 bluebeach I am completely with you on this. The country has gone nuts! We don't cheer when the price of food goes up, we don't cheer when gas bills increase and we don't cheer when our taxes go up, so it beggars belief that some people cheer when houseprices rise. I guess the only people doing the cheering are those with a vested interest and sadly there seems to be a lot of them. :-(
39. mountain goat said...
mystie010 @31 - good points about being enslaved to the government. However, clearly we are enslaved by our desire to own our home. As this post on HPC last week pointed out we can rent the dream home. Just don't give into the pressure to go into debt. Our savings are abused, we are called rent-boy. The price of freedom is not cheap.
40. andrew said...
bluebeach, mystie, I am almost in agreement with you both, I am just giving it 1 more chance, if in the next 18 months the whole thing is still afloat and prices do not look like coming down then my plans for the future will not be in the UK. It does look like the whole thing is being insanely engineered to favour the wreckless, but I think the media is now blatantly complicit, publishing headlines about the recession being over, growth returning and house prices are still the same, i think it looks like desperation.
The next 18 months is my deadline, the whole thing should have gone crash in 2005, life is too short.
41. wiltshire said...
I don't believe GB is smart enough to re-write the economic rulebook. All he (and Labour) are smart enough to do is convince the sheeple that they've never had it so good by simply selling them their own money at a ridiculous future interest rate. I bet you it's going to be a long autumn and winter in the housing market.
42. mystie010 said...
Post 35 mountain goat you have hit it straight on the head, I could not have said it better myself. The price of freedom is not cheap! I'm talking about freedom from dodgy landlords, lack of tenants' rights, overpriced rents an uncertain future about the roof over your head. However there is the expensive alternative of buying. To Andrew... I wish I could leave the UK too but sadly my cirumstances don't allow it - if I could, I would have left in 1997!
43. Yoss said...
I know a massive estate where nearly 70% of properties are empty and have been for over 2 years in Deepcut.
I have been tempted to request info on who owns the empty "homes", but frankly haven't been bothered.
Anyone know if these inter company (AKA non stamp duty paid) sales/transfers get registered with a price at the land registry?....coz if the company doing the transfer sets the price.....there is a massive incentive to "Do the revolver" and ramp the price up at each transfer to another subsidiary.
Thus creating the illusion that prices in that estate have been un-affected by the CC, although the same lender will probably refuse a mortgage on the same property without a massive deposit (AKA Theft).
This also avoids problems with FOI requests, as if the request is seen as having a "Commercial Interest".... then you won't get the information you are looking for.
44. mountain goat said...
mystie010 - I one of those who decided to settle in this country, whereas you want to leave! I suppose I would say moving is a good option if you are in your 20s or 30s, but there after one becomes set in ones ways and one's social networks are in place. These things make moving very hard indeed.
In terms of renting vs owning. The trouble with owning is if you have to move, you first have to find someone who wants to buy your house for around the price you bought it. But is the hpc over yet? At least if you rent and you have the landlord or neighbour from hell, you can just move.