Toxic assets

Toxic assets

In the context of the 2007-2009 recession, the term refers to assets like mortgage backed securities and collateralized debt obligations that are illiquid and difficult to value. If the value of the underlying assets falls significantly, these securities could lose value rapidly (aggravated by the lack of liquidity and transparency in price) which could lead to significant write-downs (and hence losses) for holders of these toxic assets.
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Monetary Affairs Commissioner Joaquin Almunia said, on 2 February in Madrid, that participants in the G20 meeting, in April in London, would be exploring the possibility of creating bad banks' charged with recovering banks' toxic assets. The summit of EU heads of state and government in March will also review this issue, Almunia said at a conference in Madrid.
Several investors in the Royal Bank of Scotland Group Plc (RBS) (LSE: RBS) (NYSE: RBS-PP) have indicated that they will oppose the sale of the state-backed bank's more toxic assets, the Sunday Telegraph has reported, citing shareholders.
GEORGE Osborne will be urged to split RBS in two - scuppering his sell-off and leaving taxpayers liable for the bank's toxic assets.
The bank, which was compelled to give the Government power over its bonus pot as part of its entry into a scheme to insure its toxic assets, is thought to want to cool tensions over the level of rewards it is able to pay.
While G20 nations were unified in announcing $1 trillion in new financing to help the world's economy recover, their approach to dealing with toxic assets clogging bank balance sheets will be a local effort as conditions vary by country.
As for the lack of interest by Whitehall mandarins, who is picking up the tab for its toxic assets? The Treasury, which means us, the taxpayers, of which I'm sure are some of those who protested.
Treasury Secretary Timothy Geithner announced that low-interest loans and up to EUR100bn (pounds 69bn) of bail-out cash would be used to entice private sector investors into buying up around EUR500bn (pounds 345bn) of toxic assets.
Mr Dougan said the bank now had a stronger capital base than most of its peers thanks to a Tier 1 ratio of 13.3 per cent and less than 12 billion francs of toxic assets on its books.
Speaking at a conference in Brussels, on 27 January, the Commissioner for Economic and Monetary Policy, Joaquin Almunia, mooted the creation of a bad bank' in which to park toxic assets that have lost all value in the current financial crisis and are dragging good assets' down with them.
Officials worked throughout the weekend to finalise the second bail-out in three months which is expected to see the Government increase its stake in the banks while underwriting up to pounds 200 billion of so-called "toxic assets".
Citigroup, Inc's (NYSE: C) bad bank, a unit that is designed to hold toxic assets of the company, is said to be performing better.
It had been feared the EUR54billion needed for the toxic assets agency to work could be lumped in with Government borrowing.