Friday 1 July 2011

A way out of the UK commercial property banking mess?

At last a deal has been struck in the long running saga of RBS's Commercial Real Estate portfolio. The bank has created a debt fund of £1.6 billion in loans and sold a stake in this to Blackstone. This deal has been a long time in fruition and all over the papers for nearly a year.

Why all the fuss? Well the vehicle created allows RBS to make a manageable write-down on loans that are at 90% loan to value or more. These have been unsalebale in the market to date, leaving RBS and Lloyds with big headaches as they have truly huge commercial property portfolio's and little way to move them on and free up their balance sheets. Lloyds has recently done a deal with Grainger which is a different model, but crucially the property remains the banks.

Here there is a model for a new type of distribution, there are risk to Blackstone in taking these loans on but they can see the upside too and are getting a good price; this deal should work.

As such, it provides a new route to market which will free up the Real Estate market and allow a work-out of this challenging banking issue.


Budgie said...

This looks a bit like factoring to me. If it gets the taxpayer off the hook all well and good.

I understood that about 60% of toxic loans 'owned' by RBS and lodged with GAPS (Gov Asset Protection Scheme) were foreign. Is this Blackstone deal UK property, overseas or a mixture? Also isn't the RBS total toxic debt more like £282 billion? £1.6 billion hardly compares.

Anonymous said...

Haven't we been here before with Northern Wreck?

CityUnslicker said...

Budgie,they have got ridof oveer £100 billion,this is all loanson UK property.

anon- how is this like Northern Wreck?

Budgie said...

CU, that's good then. We seem to be slowly sorting the Banks' toxic debts. But it looks rather like government debt is increasing faster (current deficit £140 billion) than bank debt is detoxed.

And then there is personal debt, nearly £1.5 trillion including mortgages. That is bad on the face of it, but most is mortgage debt and therefore secured (not necessarily secure - depending on house prices).

We need to get out of this 'happy with debt' frame of mind. The government could lead by example. Future government deficit should be prohibited. The government would then be forced to build up a sovereign wealth fund in the good times to use in the bad times.

Anonymous said...

Thta' what the politicos have been talking about since the Times of Maggie, one slight problem they might talk but nothing is done, they are always "gunner do it" (for southerners going to do it) but dodge the issue, as been mentioned on this blog before if UK had piled all that oil money into a soveriegn wealth fund who can tell what the UK would be like now.

CityUnslicker said...

agree- a debt ceiling would be good to enact for the next government.

Anonymous said...



Debt ceiling be buggered.

A debt limit can always be increased, see current US.

NO spending beyond taxation limits. legislate away the ability to borrow.
Voters immediatley aware of spending increases via increases in taxes.....
Vote the bastards out.
MPs personally liable for overspends!
Back up with a hard currency

Shrink the gov't to 20% GDP max.