Guardian
Sunday 6 September 2009 15.09 BST

in Brief:

Taxpayers could foot bill for inflated valuations of assets in government's protection scheme amid talk of potential 'fraud'






Banks are significantly overvaluing assets to be included in the government's insurance scheme, which could leave the taxpayer footing the bill for any shortfall, experts have warned.

Property loans – which will be part of the £575bn government's asset protection scheme (APS) to ring-fence the most toxic assets of Lloyds Banking Group and Royal Bank of Scotland – will be dated as of the end of December 2008 although commercial real estate values have fallen by just over 10% since then, according to data from the consultancy Investment Property Databank.

Matthew Oakeshott, the Liberal Democrat Treasury spokesman, said: "The APS is a ticking time-bomb for the British taxpayer. These poisonous property loans must have an independent, up-to-date valuation in accordance with the Rics [Royal Institution of Chartered Surveyors] valuation 'red book' when taxpayers actually go on the hook.

"If not, the APS will be a fraud on the British taxpayer – just like someone insuring a car after it has crashed."

Oakeshott is writing a letter to the chancellor, Alistair Darling, raising his concerns about what he called "taxpayers being stung in an APS cover-up". According to him, Britain should follow the Irish government, which is contracting independent valuers to put a price on banks' property loans before they go into a so-called "bad bank".

Governments around the world have designed programmes to insure, protect or ring-fence toxic assets to help re-establish confidence in the financial system and encourage banks to start lending again. RBS is putting about £60bn of commercial property loans into the APS, out of a total £315bn of assets, while Lloyds' property loans in the scheme mount to £90bn, out of an overall £260bn, according to Credit Suisse estimates.

Other Key points:

The banks are paying a fee to the government for insuring their toxic assets and analysts differ over whether they will be forced to shoulder losses above that level. The government made a £25bn provision for APS-related losses in the budget.

Oakeshott believes it would be better to be more realistic and take the pain right away. "Japan's long agony in the 80s and 90s after a property price crash should teach us one single lesson – it's far better to take the pain up front and move on than trying to hide overvalued property off balance sheet for years on end," he said. "Our government must not sweep this £500bn problem under the carpet until after the election."

Full article: http://www.guardian.co.uk/business/2009/sep/06/banks-overvaluing-insured-property-assets

Fluff.......

We don't really think that banks would over value their toxic assets dump them on the tax payer and commit fraud surely not?