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Rbs And Lloyds Sell Repossessed Properties To Subsidiaries

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http://business.timesonline.co.uk/tol/busi...icle6807490.ece

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.

The practice, which was popular towards the end of the recession of the early 1990s, enables banks to avoid selling assets that have fallen significantly in value and are in negative equity to an outside buyer, which would leave it nursing a loss.

Instead, the bank, through its subsidiary, is able to buy the asset, such as a shop or office block, at a knockdown price in the hope that it will benefit from a future increase in its value.

The details have emerged at a time when RBS and Lloyds are under pressure to demonstrate how they will generate returns for the taxpayer as soon as possible.

While selling repossessed assets to a subsidiary might result in bigger future gains in value, selling in the open market resulted in a quicker return, property agents said.

It is not clear in how many cases banks choose to keep the property rather than sell, although agents said that the option had become more appealing for banks after falls in value of about 45 per cent from the 2007 peak.

William Newsom, head of valuation at Savills, the property group, said: “Banks sell the property but, rather than selling into the market, they go into a workout vehicle. It is a model that we saw in the last downturn. The subsidiary pays what the property would fetch on the open market. It has to be a fair value.â€

RBS and HBOS were the biggest lenders to commercial property companies during the boom. All UK banks are thought to be facing £100 billion of paper losses from their exposure, according to Jones Lang LaSalle, the consultancy.

An estimated £42 billion of commercial property loans are due for repayment in 2009, with £31 billion due in 2010.

An industry source familiar with the practice said: “This is a legitimate strategy that was pursued at the end of the previous recession. It means that the bank is able to avoid crystallising the loss, although it is still on the balance sheet.

"They will do this with a small proportion of the total outstanding debts. All the banks must do to meet regulations is maintain capital lending.â€

RBS was not available for comment last night.

A spokesman for Lloyds Banking Group said: “Through the Business Support Unit, our priority is to ensure the successful turnaround of our business customers and to manage the assets for which we are responsible in a way that is of most benefit to all parties. We constantly review the options available.â€

Good ploy providing we have a quick stable recovery.

If we have another huge down, keeping these assets could generate a even bigger hole as the losses become crystallised.

Although to me this just seems like legal fraud enabling a bankrupt company stay in business.

This is like GM selling cars to a subsidiary in the vain hope in the future the cars will be worth more and it will make a profit. If GM did this it would be market manipulation and illegal, if it's a bank no fraud.

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http://business.timesonline.co.uk/tol/busi...icle6807490.ece

Good ploy providing we have a quick stable recovery.

If we have another huge down, keeping these assets could generate a even bigger hole as the losses become crystallised.

Although to me this just seems like legal fraud enabling a bankrupt company stay in business.

This is like GM selling cars to a subsidiary in the vain hope in the future the cars will be worth more and it will make a profit. If GM did this it would be market manipulation and illegal, if it's a bank no fraud.

This is a good strategy for a recession.......

A recession this is not.

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http://business.timesonline.co.uk/tol/busi...icle6807490.ece

Good ploy providing we have a quick stable recovery.

If we have another huge down, keeping these assets could generate a even bigger hole as the losses become crystallised.

Although to me this just seems like legal fraud enabling a bankrupt company stay in business.

This is like GM selling cars to a subsidiary in the vain hope in the future the cars will be worth more and it will make a profit. If GM did this it would be market manipulation and illegal, if it's a bank no fraud.

I thought that if a business knows the value of something to be less than they are marking it at, then that constitutes fraud.

Presumably everyone is pretending that they dont know here. And no one dare put something to the market as they would have to stop pretending.

Movement of assets between wholly owned companies sounds mighty suspicious to me. Why not sell and raise some cash?

I think we know why.

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And a lot of you were wondering what all the QE cash was being used for eh?

It's only a temporary bandaid for a much bigger future problem.

Taxpayers should be well pissed off, but we are too scared to do anything about this.

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Can someone please clarify if these "sales" will be generating tax revenues?

Surely if they are a legitimate purchase by the subsidiary company some form of transaction tax must apply? Or are they selling them at a loss to avoid the taxes and the real losses?

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Taxpayers should be well pissed off, but we are too scared to do anything about this.

When are these idiot banks going to learn? Pretty much toasted the system and at the first opportunity try to fix it the Enron way. Honestly, are these people looking to start a modern day peasants' revolt or something?

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Is this a good deal for the repossesed? Do they get more for their property than on the open market?

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And a lot of you were wondering what all the QE cash was being used for eh?

It's only a temporary bandaid for a much bigger future problem.

Taxpayers should be well pissed off, but we are too scared to do anything about this.

From the Dr Doom thread:

i mean rather than taking possession themselves, they're funnelling money to other intermediaries,

which will purchase the property from the numpty defaulting on the mortgage for an artificially inflated

price, which keeps the default off the balance sheet, makes the stats look good, and creates the

artificial mini boom,

Now I see.

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Has someone from the Times been getting ideas from This HPC Thread from Dr Doom?

I think so. I also posted an anecdote on that thread that implied these properties were being sold at 40 - 50% off peak. The OP of this thread seems to support this:

It is not clear in how many cases banks choose to keep the property rather than sell, although agents said that the option had become more appealing for banks after falls in value of about 45 per cent from the 2007 peak.

That is a hell of a discount compared to the drops reported by the indexes. If this is true, it is more than a scandal: it is clear fraud.

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This is surely blatant fraud! And also, what about all those first time buyers who are being denied a cheaper house because out taxpayers money is being used to directly uphold the price of houses.

Think I might to my MP for an explanation for the misuse of my taxes!

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The practice, which was popular towards the end of the recession of the early 1990s, enables banks to avoid selling assets that have fallen significantly in value and are in negative equity to an outside buyer, which would leave it nursing a loss.

Instead, the bank, through its subsidiary, is able to buy the asset, such as a shop or office block, at a knockdown price in the hope that it will benefit from a future increase in its value.

The 2 highlighted statement appear to conflict. If it's sold at a knockdown price, surely that leaves a loss for the bank.

The only thing I can think they are doing is having the subsidiary buy them at 50% off but list them on the books at 100% value so overall the bank looks zero-sum... although the debtor has obviously been screwed over... or does the debtor get their NE wiped out too, in which case, it can't be zero sum?

None of it makes sense, however, the paper DOES have the name of the subsidiary, which suggests SOME truth.

Edited by TaxAbuserOfTheWeek

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This is surely blatant fraud! And also, what about all those first time buyers who are being denied a cheaper house because out taxpayers money is being used to directly uphold the price of houses.

Think I might to my MP for an explanation for the misuse of my taxes!

Its called looting and I read a blog post somewhere about banks holding money off shore to buy distressed assets. I doubt if it will just be housing. It might even include commercial real estate and assets.

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Instead, the bank, through its subsidiary, is able to buy the asset, such as a shop or office block, at a knockdown price in the hope that it will benefit from a future increase in its value.

Where does the subsidiary get the money from or am I being thick? :o

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surely this is illegal as the rules state that any offer on a repossessed property has to be advertised for 30 days to achieve the best possible price or am i mistaken and how long can they keep a empty property before they have to pay the council tax etc, and then you've got the problems they will face if they keep them over the winter maintenance wise.

also the risks and costs associated with squatters

just seen on bloomberg that economists still expect property prices to fall another 12.7% so total from peak about 40% so whats the point of holding onto them now also did not see any mention of this on main news when they were talking about so called recovery ?

Edited by puppee

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Its called looting and I read a blog post somewhere about banks holding money off shore to buy distressed assets. I doubt if it will just be housing. It might even include commercial real estate and assets.

Looting: The Economic Underworld Of Bankruptcy For Profit

You mean like it's explained in this paper?

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This is surely blatant fraud! And also, what about all those first time buyers who are being denied a cheaper house because out taxpayers money is being used to directly uphold the price of houses.

Think I might to my MP for an explanation for the misuse of my taxes!

It's commercial properties, not residential.

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Nope it was a blogspot blog written by an academic. Indeed I think it was part of a submission to the Treasury Select Committe (IIRC). Just trying to find it...

Hope you can find it should be an interesting read.

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It's commercial properties, not residential.

You are right that the article in the OP only mentioned commercial.

But it is happening for residential too, as per Dr Doom's linked thread.

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Guest UK Debt Slave
http://business.timesonline.co.uk/tol/busi...icle6807490.ece

Good ploy providing we have a quick stable recovery.

If we have another huge down, keeping these assets could generate a even bigger hole as the losses become crystallised.

Although to me this just seems like legal fraud enabling a bankrupt company stay in business.

This is like GM selling cars to a subsidiary in the vain hope in the future the cars will be worth more and it will make a profit. If GM did this it would be market manipulation and illegal, if it's a bank no fraud.

Sweeping the $hit under the carpet

Filthy ba$tards

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