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King defends banks’ loss-making asset sales

Bank of England governor Mervyn King has defended moves by UK banks to sell assets at a loss when he appeared in front of the Treasury Select Committee this morning.

A number of banks have recently sold healthy assets to bolster their balance sheets. These disposals often involve large haircuts of more than 50 per cent, after which purchasing equity funds turn the assets around at 80p in the pound.

King (pictured) told the TSC that this hit to profitability is justified because, in reducing the size of the balance sheets through the sale of performing assets, the banks are offering much-needed reassurance to the markets.

The governor also claims it is impossible to say how much capital banks should be required to hold. The discrediting of the pre-crisis belief that minimal capital levels would be sufficient has robbed markets of the ability to judge what is needed, he argued. (article continues below)

“Markets are very nervous as they have no experience to calibrate how much banks are required to have,” King says.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. So what this means is that the banks have sold the good assets at a loss and kept the bad assets that contin ue to suck up the cash generated by selling the good assets – this does not make sense and highlights why UK regaultors are not up to the job and like Fred Goodwin should have all their gongs taken back

  2. A remarkably astute comment from Mr King about ‘the markets are very nervous’…Was this the same man who was on top of his game when the credit markets dried up in 2007 and yet a full 18 months later when the banks needed bailed out he protested ‘we didnt see it coming’…

  3. I hope that taxpayer owned banks are not included in this giveaway.

    And how exactly are the purchasing equity funds turning the assets around at 80p in the pound? Why didn’t the banks themselves do this turn-around?

    Whose side is the Governor on?

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