Bank bailout cost £850bn in total
Updated on 04 December 2009
The Treasury was "justified" in using taxpayers' money to rescue the banking system at a total cost of £850bn, according to the National Audit Office.
The rescue was crucial to safeguarding the wider financial system, a report by the NAO said today as it announced the figures behind the banking bailout.
The "unprecedented level of support" reached £850bn after the government purchased shares and offered guarantees of insurance and loans to banks. The total would cost every family in Britain £40,000 and the final details are unlikely to be known for years, the public spending watchdog said.
The cost of financial advice to the Treasury since September 2007 is expected to balloon to £107m by next April.
Banking giant Credit Suisse is expected to earn up to £15.4m in fees for emergency advice to the government about the crisis, the report detailed.
The investment bank is being paid up to £300,000-a-month to provide financial advice to the Treasury as one of a raft of consultants drafted in amid the crisis.
Although the report found the Treasury was "justified in using taxpayers' cash they were criticised hiring advisers on expensive contracts for up to a year that included undefined success fees.
Credit Suisse and its fellow investment bank Deutsche Bank were brought in on contracts paying £200,000 a month each for a year - as well as a potential further £5.8m in success fees.
Credit Suisse was also hired on another contract to advise on the toxic asset protection scheme, which increased to £300,000 a month from June, with a potential £3;3m success fee. Its total fees could reach £15.4m by next April.
The NAO was highly critical of the lengthy contracts and failure to include a definition of "success", although it stressed that just under £100m of adviser costs will be refunded largely from part-nationalised Lloyds Banking Group and Royal Bank of Scotland in return for state support.
"In instances such as this, where criteria for success will be unclear, it is not good practice to enter into such an agreement in the first place or to leave payment solely to the discretion of the procuring authority," said the NAO.
The report noted that in addition to the support for Northern Rock the Treasury has:
- Purchased £37b of shares in RBS and Lloyds Banking Group and, in November 2009, agreed to purchase up to an additional £39bn of shares in both banks.
- Indemnified the Bank of England against losses incurred in providing over £200bn of liquidity support.
- Agreed to guarantee up to £250bn of wholesale borrowing by banks.
- Provided approximately £40bn of loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme.
- Agreed in principle to provide insurance covering over £600bn of bank assets, reduced to just over £280bn in November 2009.