toxic assets

Chris Giles

Gordon Brown has staked his claim to be the saviour of advanced economies in the crisis, by claiming in his new book that he pressed the case for recapitalising banks around the world. For this foresight, the former British prime minister has received adulatory reviews by nobel prize-winning economists.

“Hang on a second,” Mervyn King, governor of the Bank of England, has a right to say. One of the latest Wikileaks US embassy cables shows King was pressing in March 2008 for significant bank recapitalisations and a stigma-free method to allow banks to get rid of their unwanted toxic assets without resorting to central banks. That is well before Brown’s actions that Autumn.

Here is the summary from the 17 March cable:

“King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there’s a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the US, UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks.”

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Breathtaking research from an ECB paper, stacking up the measures taken and bodies set up by central banks around the world. An invaluable resource – high praise to authors Stéphanie Marie Stolz and Michael Wedow.

For data junkies, see tables on pages: 25, 30, 37 and 58.

Nigeria is a step closer to setting up an Asset Management Company, after ten banks were rescued last year with bad debts of about $6.7bn. The Senate will now produce a version of the bill, before the two houses form a common document. The ten banks will have to pay back their loans through the new company. The bill’s passage has been swift: the proposal only became official in January.

The Irish government has today received a 15.73 per cent direct stake in Bank of Ireland, in addition to 25 per cent held indirectly through warrants and preference shares. The 200m ordinary shares were given in lieu of a €250m payment that was due by the bank.

Analysts had doubted the stock transfer would take place. It could have been waived by agreement at a special shareholder meeting, but such a meeting could not be organised in time for the payment deadline today. Finance Minister Brian Lenihan said in a statement he welcomed the stake, saying: “This ensures that taxpayers are remunerated in a timely fashion for their investment in the bank.” Read more

The Central Bank of Nigeria hopes to pass the Assets Management Company bill within the next six weeks. Bank governor Lamido Sanusi also disclosed that the monetary authority was targeting a lending rate of between 14 and 15 per cent, assuming an improved lending environment for banks.