Banks paid too little for toxic insurance

Britain's bailed-out banks paid too little to get their toxic loans underwritten by the taxpayer, the National Audit Office has concluded, and could have afforded to pay another £4bn.Lloyds paid £2.5bn to pull out of the asset protection scheme (APS) in October last year after placing £260bn of its worst loans in the scheme's forerunner. The NAO estimates it should have paid between £3bn and £4.5bn as an exit fee.RBS, which is still in the scheme, will also pay £2.5bn when it leaves the scheme but the NAO says it should be paying an exit fee of £4.4bn. RBS placed £282bn in the APS in November 2009. The bank, which is 84% owned by the taxpayer, must absorb the first £60bn of losses on these loans before the insurance kicks in and 10% thereafter.The NAO estimated that Lloyds and RBS's cost of capital for the loans underwritten by APS was about 16%, whereas Barclays had to pay 30% for the private fund raising it carried out to shore up its balance sheet in 2008.