Just yesterday I described how the loan of nearly nationalised RBS to about-to-be-nationalised Bank of Ireland beggered belief. I'm left bemused and confounded, given businesses large and small and private customers in the UK can't get loans out of these people..
Our old friend Bank Vigilante, however, hoves into view and offers this explanation in mitigation. None of it though, it must be said, makes me feel any better, just more angry that what we've long suspected about their "mark-to-myth," concept of accounting is probably true. It is after all, what friends in the commercial property market have been saying for three years......... I'll let our Financial Jedi continue....
"On their sterling banking books Uk banks have 180bn of wholesale-funded CRE "investment" loans and 30bn of wholesale-funded CRE "development" loans - but non-bank funders don't want to fund this stuff on the banks' books as it is mostly wrongly marked. Irish and Spanish-style mis-marking of 50% could be the reality.
I hear the FSA and the BoE are on the case at last, scared partly by the Spanish banks scandalously being allowed to hide the true picture and the systemic risk then poses to the sovereign rating. This is especially the case in the UK as the two biggest culprits are Lloyds and RBS, 41% and 83% owned by the public sector, respectively.
Until this CRE stuff goes down, banks won't be able to lend more in this space.
"Real economy" manuf/service sector is more or less in balance re: deposits and loans. In any case, CRE is just financial/tax arbitrage and not proper banking.
If the unfunded (by deposits) CRE loans was the only problem then maybe not soooo bad. BUT there is also 1400bn of household loans (1200bn of mortgages and 200bn unsecured) against just 1000bn of household savings.
This is a 600bn "gap" (or deficit) for private sector UK plc. I temporarily forget the size of the public sector deficit the private sector is also ultimately responsible for.
Bottom line: deleveraging is painful (to some) but necessary.