economic situation is dire

[Gringo]

Holy crap, that can't be a very realistic scenario, can it?!? I know the article focuses on finance but if that came to pass I'd be expecting four horsemen to be following close behind.

I think it matches with some of the scenarios people have been suggesting could unfold. We've had a 50% bounce in the ftse since march, all on the back of what? No growth, half the banks in profit, half the banks hemorrhaging. I can't believe that half of the fraud that went on during the boom has been unwound.

Public finances are screwed - tony's article refers to the october tax income - but that is for the financial year ending december 2008 - profits haven't improved, more firms have gone bust so next years revenues will be worse. Plus you have to add on the committed PFI repayments so debt actually rises from 130% to over 200% of GDP. With no manufacturing or other primary services in place to rebound in response to global growth, I can't see where the UK growth is going to come from. With a growing unemployment bill the only way out will be hyper inflation and massive erosion of asset value. But I can't see osborne sticking that in the manifesto.

[Awol]

With a growing unemployment bill the only way out will be hyper inflation and massive erosion of asset value.

Oh dear, team DPRGB for London 2012 then. Does this mean we're all going to have to grow moustaches?

[Gringo]

Biting the hand that fed

HBOS and RBS received secret bank rescue loans The Bank of England has revealed for the first time that it lent Royal Bank of Scotland (RBS) and HBOS £61.6bn in emergency funding last autumn.

Bank governor Mervyn King told a committee of MPs it "was to prevent a loss of confidence spreading through the financial system as a whole".

The money was repaid in full by January this year, he added.

A spokesman for the prime minister said it was "a powerful reminder" of how the banking system had nearly collapsed.

Why on earth did the Bank, Treasury and FSA think it was a good idea to keep the £61.6bn of lending secret?

Robert Peston

It was also revealed that Chancellor Alistair Darling had agreed to underwrite any losses which the Bank may have made on the loans.

The Liberal Democrats have called on Mr Darling to explain to the House of Commons why the Treasury guarantees were kept secret.

Vince Cable, the party's Treasury spokesman, called it a "shocking cover-up".

Shadow Chancellor George Osborne said the revelations about the secret loans showed the need to reform the system of banking regulation.

"The scale of these loans raises the question of how Labour's tripartite regulatory structure allowed these banks to come so close to collapse in the first place, and underlines the need for fundamental reform to put the Bank of England back in charge," he said.

Secrecy

It is the first time that the central bank has detailed this support for the two institutions.

Mervyn King said the Bank was acting in its capacity as the lender of last resort.

The loans, which were given in October and November of 2008, were in addition to other financial support measures extended to the banks by the government.

The chairman of the Treasury Committee, John McFall, said that when he saw the amount there had been "a little bit of an intake of breath thinking how many universities, how many colleges, how many jobs you could support with this".

The Bank of England said it had carefully considered the public interest case for disclosure but decided that the assistance should only be revealed "once the Bank considers that the need for secrecy has ceased".

RBS has since signed up for the government's Asset Protection Scheme while Lloyds Banking Group - which took over HBOS - has announced plans to raise capital from its shareholders.

The BBC's chief economics correspondent Hugh Pym said that the £62bn of emergency loans were agreed just as shareholders were being asked to approve the takeover of HBOS. He suggested that shareholders might be unhappy at not being told earlier.

Well okay ltsb were "encouraged" to take over hbos, but buyer beware and all that. But when they are announcing a rights issue to raise the capital to get them off the govt hook and avoid the costs of the UK TARP scheme, and when the largest shareholder, ie the uk people are stumping up £7bn to allow the bank to avoid the govts scheme, something is a bit squiff. UK taxpayers are providing the money to enable a corporation to avoid pay fees to the UK govt.

The whole economy is built on some bizarre ponzi scheme with imaginary money floating around to keep it moving.

ANALYSIS by Hugh Pym, chief economics correspondent

We may feel numbed these days when there is talk of the hundreds of billions of pounds in taxpayer support to the banks.

Even so, the revelation of these secret emergency loans to RBS and HBOS a year ago is breath-taking.

The Bank of England only felt it was safe to reveal this covert support now, once the ink was dry on longer-term bailout deals agreed with the banks a couple of weeks ago.

Lloyds shareholders were being asked to approve the takeover of HBOS. Yet they were not told about a Northern Rock-style cash bailout of HBOS.

The authorities argue that disclosing the loans would have caused greater disturbance to the whole system. But bank shareholders might well see it differently.

Or were LTSB lied to (shareholders in general not the board) and the owners of the company duped into stage managing a govt rescue of a bank. Which the govt knew was in a lot worse shape than the prospectus announced?

[tonyh29]

more important ..if they can borrow £61 bn and then pay it back within a few months , let them carry on doing what they are doing and we will soon be out of debt

oh wait ...

[LondonLax]

Holy crap, that can't be a very realistic scenario, can it?!? I know the article focuses on finance but if that came to pass I'd be expecting four horsemen to be following close behind.

It reads like it was written by someone holding a lot of gold stock.

[leviramsey]

Holy crap, that can't be a very realistic scenario, can it?!? I know the article focuses on finance but if that came to pass I'd be expecting four horsemen to be following close behind.

It reads like it was written by someone holding a lot of gold stock.

Gold is the ultimate greater fool investment (at least at these price levels) and even better, one that has a negative dividend (since you pay to store it). The flood of money into gold is (one of) the new bubble(s). It will end like the last bubble in housing did, only with governments not concerned at all about keeping the price up.

[LondonLax]

Holy crap, that can't be a very realistic scenario, can it?!? I know the article focuses on finance but if that came to pass I'd be expecting four horsemen to be following close behind.

It reads like it was written by someone holding a lot of gold stock.

Gold is the ultimate greater fool investment (at least at these price levels) and even better, one that has a negative dividend (since you pay to store it). The flood of money into gold is (one of) the new bubble(s). It will end like the last bubble in housing did, only with governments not concerned at all about keeping the price up.

Yes, I agree. That's why I think the article reads like someone trying to further inflate the bubble.

[tinker]

Gold is the ultimate greater fool investment (at least at these price levels) and even better, one that has a negative dividend (since you pay to store it). The flood of money into gold is (one of) the new bubble(s). It will end like the last bubble in housing did, only with governments not concerned at all about keeping the price up.

IMO The UK pound will go in one direction, down, and at a faster rate than Gold over the next few years, the real problem with gold will be the capital gains tax.

[snowychap]

I see that bank shares have taken a tumble today with the news about Dubai World.

Seconds out: round 2?

[Gringo]

It's just a normalisation of price expectations to more realistic valuation levels

[johnvillan]

I see that bank shares have taken a tumble today with the news about Dubai World.

Seconds out: round 2?

The Register

London's stock exchange crashes again

Who's to blame this time?

By John Oates • Get more from this author

Posted in IT Director, 26th November 2009 12:23 GMT

Updated The London Stock Exchange has suffered yet another systems crash, leaving brokers high and dry since 9.30 this morning.

The Exchange last went down in September 2008 and took almost the entire day to get back online. That outage, on one of the Exchange's busiest days, was the day after the $200bn bailout of US housing giants Freddie Mac and Fannie Mae, leading to lots of conspiracy theories.

The TradElect platform on which trading depends has a flakey history despite a .NET upgrade overseen by Accenture. Microsoft and Cisco were blamed for the last failure, but the Exchange chose not to reveal what the problems were.

From 9.33 this morning customers had problems connecting to two Trading Gateways, problems which lasted an hour.

By 10.35 the Exchange gave up and put all orders in to an auction call period - buy orders are matched to sellers, but the deal does not actually go through until the period ends. LSE has yet to announce when this "uncrossing time" will be.

The update page is here.

Updated:

The Exchange restarted continuous trading at 14.00. A spokeswoman was uable to tell us what caused the failure. ®

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Bloomberg

U.K. Stocks Drop Most Since May; LSE, HSBC, Barclays Decline

Share Business ExchangeTwitterFacebook| Email | Print | A A A

By Adam Haigh

Nov. 26 (Bloomberg) -- U.K. stocks plunged the most since May as Dubai’s move to delay debt payments risked triggering the biggest sovereign default since 2001.

London Stock Exchange Group Plc, whose largest shareholder is Borse Dubai Ltd., dropped the most in almost eight months. HSBC Holdings Plc, a lender to Dubai World, the government investment company burdened by $59 billion of liabilities, led a retreat among bank shares. Anglo American Plc and Rio Tinto Group led mining companies lower as copper fell in London.

The benchmark FTSE 100 Index lost 146.68, or 2.7 percent, to 5,218.13 as of 3:34 p.m. in London, heading for the steepest drop since May 21. Technical problems halted trading on the London Stock Exchange for more than three hours earlier today.

“Certainly the Dubai debacle and the uncertainty that it has created has had a severe knock-on effect on European equity markets,” said David Buik, a markets analyst at inter-dealer broker BGC Partners. “This is not the end of the world for Dubai but it is a hammer blow.”

The FTSE 100 has soared 48 percent since March 3 amid government stimulus programs and record low-interest rates. The FTSE All-Share Index slid 2.7 percent today and Ireland’s ISEQ Index dropped 2.6 percent. U.S. exchanges are closed for the Thanksgiving holiday.

LSE Retreats

The cost of protecting government notes from Qatar to Saudi Arabia rose the most since June yesterday as Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors. Dubai borrowed $80 billion in a four- year construction boom that reduced its reliance on falling oil supplies and created the region’s tourism and financial hub.

London Stock Exchange slid 6.9 percent to 758.5 pence, heading for the steepest drop since April 7. Borse Dubai has a stake of almost 21 percent in the company, according to Bloomberg data.

HSBC, Europe’s largest bank, declined 5.3 percent to 702.1. The FTSE 350 Banks Index slid 5.8 percent, the steepest decline since May. Dubai World’s lenders trading in London include Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays, which all dropped more than 4 percent.

Legal & General Group Plc, the U.K.’s second-biggest insurer by assets, slid 6.7 percent to 79.05 pence as Citigroup Inc. cut its recommendation on the shares to “sell” from “hold,” citing “business model challenges.”

Anglo American dropped 3.8 percent to 2,586 pence. Rio Tinto, the third-largest mining company, lost 4 percent to 3,020.5 pence.

Copper fell from a 14-month high in London on speculation rising stockpiles and a rebound in the dollar signal slower demand for the metal.

Severn Trent Plc, the U.K.’s second-largest water company, led gains in U.K. water utilities after industry regulator Ofwat said it would reduce household bills by less than previously estimated over the next five years. Severn Trent rose 3.2 percent to 1,038 pence, Pennon Group Plc advanced 1.2 percent to 492.6 pence and Northumbrian Water Group Plc climbed 3.6 percent to 265 pence.

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The British taxpayers about to get mugged again. The market nearly crapped itself there.

[Awol]

Morgan Stanley fears UK sovereign debt crisis in 2010

Britain risks becoming the first country in the G10 bloc of major economies to risk capital flight and a full-blown debt crisis over coming months, according to a client note by Morgan Stanley.

The US investment bank said there is a danger Britain’s toxic mix of problems will come to a head as soon as next year, triggered by fears that Westminster may prove unable to restore fiscal credibility.

“Growing fears over a hung parliament would likely weigh on both the currency and gilt yields as it would represent something of a leap into the unknown, and would increase the probability that some of the rating agencies remove the UK's AAA status,” said the report, written by the bank’s European investment team of Ronan Carr, Teun Draaisma, and Graham Secker.

It is Japan we should be worrying about, not America “In an extreme situation a fiscal crisis could lead to some domestic capital flight, severe pound weakness and a sell-off in UK government bonds. The Bank of England may feel forced to hike rates to shore up confidence in monetary policy and stabilize the currency, threatening the fragile economic recovery,” they said.

Morgan Stanley said that such a chain of events could drive up yields on 10-year UK gilts by 150 basis points. This would raise borrowing costs to well over 5pc - the sort of level now confronting Greece, and far higher than costs for Italy, Mexico, or Brazil.

High-grade debt from companies such as BP, GSK, or Tesco might command a lower risk premium than UK sovereign debt, once an unthinkable state of affairs. [!!!!!]

A spike in bond yields would greatly complicate the task of funding Britain’s budget deficit, expected to be the worst of the OECD group next year at 13.3pc of GDP.

Investors have been fretting privately for some time that the Bank might have to raise rates before it is ready -- risking a double-dip recession, and an incipient compound-debt spiral – but this the first time a major global investment house has issued such a stark warning.

No G10 country has seen its ability to provide emergency stimulus seriously constrained by outside forces since the credit crisis began. It is unclear how markets would respond if they began to question the efficacy of state power.

Morgan Stanley said sterling may fall a further 10pc in trade-weighted terms. This would complete the steepest slide in the pound since the industrial revolution, exceeding the 30pc drop from peak to trough after Britain was driven off the Gold Standard in cataclysmic circumstances in 1931.

UK equities would perform reasonably well. Some 65pc of earnings from FTSE companies come from overseas, so they would enjoy a currency windfall gain.

While the report – “Tougher Times in 2010” – is not linked to the Dubai debacle, it is a reminder that countries merely bought time during the crisis by resorting to fiscal stimulus and shunting private losses onto public books. The rescues – though necessary – have not resolved the underlying debt problem. They have storied up a second set of difficulties by degrading sovereign debt across much of the world.

Morgan Stanley said Britain’s travails are one of three “surprises” to expect in 2010. The other two are a dollar rebound, and strong performance by pharmaceutical stocks.

David Buik, from BGC Partners, said Britain is in particularly bad shape because the tax-take is highly leveraged to the global economic cycle: financial services provided 27pc of revenue in the boom, but has since collapsed.

The UK failed to put aside money in the fat years to offset this time-honoured fiscal cycle. It ran a budget deficit of 3pc of GPD at the peak of the boom when prudent countries such as Finland and even Spain were running a surplus of over 2pc.

“We need to raise VAT to 20pc and make seriously dramatic cuts in services that go beyond anything that Alistair Darling or David Cameron are talking about. Nobody seems to have the courage to face up to this,” said Mr Buik.

So UK PLC is soon to have a credit rating below that of a supermarket, outstanding.

Welcome to 1929.

[Gringo]

Governance Quiz:

You own 84% of a company. The board of directors of the company refuse to direct the company as you wish. Do you:

a) sack the board and appoint a set of people who will; or

take legal advice and see them in court; or

c) back down as the directors must be right;

RBS board to quit if chancellor vetoes £1.5bn in bonuses

The directors of Royal Bank of Scotland have been given legal advice that they would have to resign if the chancellor of the exchequer were to block them from paying the bonuses they regard as essential to maintain the competitiveness of the group.

RBS logoI have learned that they sought this legal advice after the Chancellor, Alistair Darling, insisted last month that the Treasury will have the "right to consent" to how much Royal Bank pays in bonuses and how it pays those bonuses.

Or to put it another way, the chancellor - as represented by UK Financial Investments, the investment arm of the Treasury - has insisted on a right of veto over bonuses to be paid by Royal Bank.

The scene is therefore set for brinkmanship of a potentially devastating sort for both Royal Bank and the government.

The stakes are so high because of the sheer amount that Royal Bank - currently 70% owned by taxpayers - feels it needs to pay in bonuses to maintain the competitiveness of its investment bank.

I have also learned that Royal Bank has informed Mr Darling that - on the basis of the profits it has generated so far this year - it would expect to pay bonuses 50% greater than last year.

Last year Royal Bank paid £900m of bonuses in its investment bank. So right now it expects to pay up to £1.5bn in bonuses to its investment bankers.

Including bonuses it would want to pay to retail bankers and to employees in the rest of the group, it would intend to pay £2bn in bonuses for its performance in 2009.

Such payments will be hugely contentious, given that Royal Bank of Scotland is only alive as a group thanks to hundreds of billions of pounds of loans, guarantees, insurance and investment provided to it by taxpayers.

However, Royal Bank's directors believe that if they don't pay the "going rate" for bonuses, its top bankers will desert to rivals - thereby destroying a vital part of the business.

In the current year's exceptional conditions, Royal Bank's investment bank has generated some £6bn of profit.

[snowychap]

I'd like to see it go to court, actually. I think we could do with some sort of test case on exactly how directors' general duties (CA 2006 s172 but specifically ...have regard to...the impact of the company’s operations on the community and the environment...) ought to be carried out and how directors ought to be held to account.

[tonyh29]

Did I not see a headline in yesterdays Times that the French believe they can now control how much is paid in bonuses to the bankers in the city ?

Only saw it in a pub briefly , the person left before i could read the whole article :-(

[Gringo]

Did I not see a headline in yesterdays Times that the French beleive they can now control how much is paid in bonuses to the bankers in the city ?

Only saw it in a pub briefly , the person left before i could read the whole article :-(

Don't be ridiculous - in what sort of parallel universe would some french bureaucrat be able to preside over UK legislation?

[Awol]

Tone,

I think you're on about Sarko's recent comments giving the lie to EU solidarity: Sarkosy declares victory over Britain

John Major, the luckless British Prime Minister of the early 1990s, is serving as a model for Nicolas Sarkozy this week. In 1991, when European leaders tied up the last big treaty, at Maastricht, Mr Major rashly declared victory for Britain, saying it was "game set and match". This time, saluting Europe's new dawn under the Treaty of Lisbon, which took effect today, Mr Sarkozy has proclaimed a grand slam for France.

The French President believes that he came out on top in the carve-up of senior jobs in the new streamlined European Union. Unlike Mr Major's claim, the boast seems justified.

Mr Sarkozy has spent the past few days gloating over the way he outmanouvered Gordon Brown and other EU leaders. "The English are big losers in this affair," he told Le Monde. He is especially thrilled to have landed Michel Barnier, his candidate, the post of boss of the internal market, with additional responsibility for policing financial services.

The arrival of a commissioner from regulation-minded France was grim news for the City of London, Europe's financial centre. Mr Sarkozy said that his achievement was proof that "French ideas for regulation are triumphing in Europe". France had never run the internal market in 50 years, he noted.

Mr Sarkozy's artistry was evident when he imposed Herman Van Rompuy of Belgium as the new permanent President of the Council of 27 member states. No one else except the Belgians was keen on anointing the little-known prime minister as the first Mr Europe. Gordon Brown blew his hand by insisting on Tony Blair for the job while knowing that the former Labour prime minister faced too much hostility to stand a chance.

Mr Sarkozy then ensured that Pierre de Boissieu, a wily French diplomat, retained his job as the Council's Secretary-General, its manager.

What Britain got was the appointment of Catherine Ashton, a Labour party apparatchik with no diplomatic experience, as the union's new foreign policy representative. The upshot is that the Union Council is in the hands of two lightweights who will be unlikely to cramp the style of the EU's paramount leader, as Mr Sarkozy casts himself.

Having Mr Barnier running the market gives France more power than landing the jobs of chief diplomat or chairman of the council, in Mr Sarkozy's thinking. Brussels insiders agree.

The icing on the cake was the success of a barrage of telephone calls last week in which he persuaded José Manuel Barroso, the President of the European Commission, not to listen to British objections to Mr Barnier taking the financial portfolio. This appointment had brought him "satisfaction and joy", Mr Sarkozy told leaders of his Union for a Popular Movement.

Mr Sarkozy dispatched Mr Barnier, a former Farm and Foreign Minister from the Gaullist Party, to soothe the City yesterday.

Mr Barnier flattered the financiers on their important role, but also served up some Sarkozy-style rhetoric on the evils of speculation and the need to put capital at the service of entrepreneurs. Mr Sarkozy could not resist rubbing in the message at his weekend session with his party. "We will both go and reassure the City, but I prefer the worry to be on that side of the Channel than chez-nous," he said.

But, *splutter* but, we're all on the same team now..

Muppets.

[tonyh29]

Rescuing the banking system has cost the equivalent of more than £5,500 for every family in the country, an official audit has found.

The Government spent £117 billion buying shares in banks and lending directly to financial institutions, the National Audit Office calculated. That represented a liability of £5,530 for every one of the 21.1 million families in Britain.

It was the first time that a definitive figure had been put on the amount spent by the Government in rescuing the banks following the near-collapse of the financial system.

The audit office also suggested that the bill could rise further, as the total of investments, guarantees, loans and insurance schemes established to support the banks meant that the taxpayer was liable for up to £850 billion — £40,000 for each family.

[snowychap]

Chris Dillow on Bonuses & ideology

Why is there still a row about bankers’ bonuses? What I mean is that the issue should by now be settled against them. There’s abundant evidence that large bonus “incentives” are not only not justified by efficiency considerations, but can actually backfire, with the result that intelligent observers are demanding an end to them.

If we were serious about designing high-powered incentives, we’d consider abandoning bonuses and instead simply killing under-performing bankers. After all, the threat of death works perfectly well in motivating airline pilots or soldiers. So why not apply it more generally?*

Let’s be clear. Bankers’ bonuses have less to do with rational incentive mechanisms than with the fact that bankers have power. It’s a form of legal extortion.

Which raises the question; why is this not more clear? It’s because any power structure is sustained by ideology - a set of cognitive biases which might have a grain of truth but which serve to defend vested interests. In the case of bonuses, there are four such biases:

1. The fallacy of composition. If any one banker doesn’t get a big bonus, it’s possible he might flounce off in a huff to another firm. But it’s not possible for all bankers to do so; only a tiny handful of British bankers could get good jobs in New York or Switzerland. In this sense, a blanket nationwide ban on big bonuses wouldn’t do much harm.

What’s true for an individual needn’t be true for a group.

There’s a parallel here with one of the errors that got us into this mess - what Keynes called the “fetish of liquidity”. An asset might be liquid from the point of view of an individual, but there is no such thing as liquidity for al investors.

2. Mental accounting. Last year’s banks’ losses seem to have been put into a separate mental box, and are regarded as an exceptional item now that business is back to normal. But this shouldn’t be the case. Those losses vindicate Nassim Nicholas Taleb’s point that banks, on average, don’t make money because occasional huge losses wipe out years of profits. Which suggests bankers don’t have the skill they pretend to.

3. The fundamental attribution error. The belief that banks’ profits come from skilled individuals is in part due to the common error of attributing to individual agency what is in fact the result of situational or environmental factors. It’s trivially true that today’s banks’ profits are due to cheap money, government guarantees and state bail-outs. But it’s always been the case that profits have risen and fallen according to environmental forces such as monetary policy, waves of takeovers and general investor sentiment.

4. The impossible/difficult conflation. Throughout history necromancers, witch-doctors alchemists and ju-ju men have extracted high incomes. They’ve done so because their patrons have believed their job to be very difficult, demanding supreme skills. But in truth, the jobs of foretelling the future, controlling the weather and turning base metals into gold haven’t been difficult ones. They’ve been impossible.

So it is, perhaps, with banking. Making high risk-free returns isn’t difficult, but impossible. In failing to see this, we give bankers the fortunes our ancestors gave other charlatans.

* Of course, the same reasoning applies to politicians, as they too can make huge errors which cost society dearly. This probably explains why they are not proposing the idea.

[johnvillan]

telegraph.co.uk

UK backs £167bn of overseas bad debt

Treasury reveals taxpayer is insuring more of RBS’s foreign toxic loans than British ones.

By Edmund Conway and Philip Aldrick

Published: 9:37PM GMT 07 Dec 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 on monday, 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.

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