When The Slog was still at Blogspot – way back in May 2010 – I posted (not for the first time) about the madness of so many financial institutions and pension funds investing heavily in the UK’s commercial property sector. In the EU at that time, there was three times more capital chasing commercial property than the buildings available for sale. I wrote, ‘It’s all very well for cash-rich conglomerates to buy into a sector that’s going nowhere except down the toilet. But when pension and assurance providers start doing the same thing….well, you know two things are coming: balance sheets riddled with sub-prime retail business loans; and credit default swaps backed almost entirely by worthless retail property as security.’
In this morning’s FT (the link is pointless as it won’t let you through) there’s a piece by Daniel Thomas headed ‘Banks in race to shed commercial property debt’. Since that Slog post of a year ago, says Thomas, lenders repossessed and sold property worth £500m during the year, and wrote off a further £500m.
Half a billion quid. Just like that.
But think about this: only about £5bn of the total debt has been repaid. Within the £204 billion of outstanding commercial property debt owed to UK lenders, a bowel-loosening £128bn of sub-prime debt is either in arrears, on the cusp of write-off, or effectively toxic. In a masterpiece of understatement, Daniel Thomas refers to this sum as the ‘area of greatest concern in future’.
I’m no Warren Buffet or Jim O’Neill. I’ve a reasonable nose for a good investment, and am blessed with enough common sense to ignore idiots who tell me up is down. But I’m a rank amateur in these matters. How come I could see this coming, and all those Masters of the Universe couldn’t? And do any of us really think these clowns should carry on being regulation-free zones?
This is nothing to do with politics, and everything to do with competence assessment. These people should not be allowed out alone, never mind allowed to trouser megabonuses.