The City of London… sitting on a debt time bomb?
A leading consultancy group, PIRC, has reported that Britain’s top five banks are sitting on more than £40bn of undeclared debt.
Having analysed all of HSBC’s and Standard and Chartered’s 2011 accounts and 40% of nationalised Lloyds Banking Group and 80% of nationalised Royal Bank of Scotland (RBS) accounts of the same year, PIRC reported that each had billions in losses they had yet to declare on their balance sheets.
RBS is in worse shape with over £18bn losses stacked up which could obliterate more than 37% of the bank’s assets.
HSBC losses amount to £10bn, 10% of the bank’s capital buffer. Whilst Barclays (£6bn), Standard and Chartered (£2bn) and Lloyds (£4bn) are all in a perilous position as well. None of the banks disputed these figures.
The loses could be severe for RBS, with the Telegraph reporting it could force the bank back to the government for another bail-out.
Controversial accounting standards the International Financial Reporting Standards (IFRS) have flattened the profits in an upturn and losses in a downturn.
Writing in a magazine Economia Andy Haldane said IFRS gave a ‘hit and miss’ view of a banks accounting. Haldane, executive director of financial stability at the Bank of England, said IFRS adds ‘fuel to boom and bust.’
PIRC said it was ‘masking the true position [of the accounts] by including fictional assets and fictional profits.’