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Toxic fears holding back investment in banks

The Investment Management Association has told MPs that its members are not prepared to invest in bank reconstructions as they believe institutions have yet to fully write down their exposures to toxic assets.

Speaking at a Treasury select committee meeting this week, IMA director Liz Murrall said she had written to members of the IMA board to ask whether they were going to invest in UK bank reconstructions.

She said that many IMA members believe the assets have not yet reached their bottom price.

Murrall read out one of the responses she received from a board member.

It said: “In our view, investors are sceptical about investing in banks because they do not believe the full impact of structured credit losses has been taken in the accounting. We feel that it is necessary for the banks to fully write down the toxic assets before any investor confidence can be brought.”

Speaking after the hear- ing, Murrall said fair value accounting, which marks assets down to current market prices, will help to restore investor confidence over time as the full scale of losses is disclosed under this accounting method.

She said: “Until losses are recorded in full, it is not possible for confidence to be restored or markets to recover.”

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