Banks are planning to take charge of troubled property developments to which they have lent millions of pounds - but they will not tell their shareholders.

Special purpose vehicles - similar to the off-balancesheet companies that helped aggravate the credit crunch - are being planned as emergency shelters for developments that become insolvent in the worsening economic downturn.
This is an alternative to formal proceedings in which an administrator would be appointed and is thought to have a better chance of rescuing the project concerned.

But the banks' shareholders would in many cases be kept in the dark about their exposure to insolvent property schemes. The SPVs would be listed in the accounts simply as investments.

Financial Mail has learnt that some of the SPVs would not show up at all. The bank concerned would officially hold only a minority of the equity, thus keeping the entity off its balance sheet.

Later, once the property market had recovered, the bank would exercise warrants allowing it to take control.

This is fully within accounting rules, but it is bound to be controversial.

Not only will shareholders be unaware of their exposure to deeply troubled property schemes, but the banks are likely to be lending more money to the SPV to try to safeguard their original loans.

Lee Manning, partner at accountant Deloitte, said: 'It is a form of double or quits. Each one is different. You can get it right, but sometimes it does not work out. There are as many successes as failures.'

One senior insolvency professional said: 'That has always gone on to some extent. Banks learnt their lesson from the late Eighties and early Nineties.'

A partner in the City office of a major law firm said: 'It is a way of not having an insolvency on their hands. This will not be easy to find in the accounts.'

SPVs have been controversial since last year when it emerged that many banks had used them to transfer risky loans off their balance sheets.


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