Bernard Ginns: Victims still counting the cost of the property crash

"You're on," said the first man, a senior banker with a Scottish accent, "it's a deal."

The second man, a property entrepreneur, grinned and drained his glass. He was about to get even richer.

The pair had spent the last two hours discussing a major opportunity for a big residential property development in a Yorkshire city over a very expensive lunch of lobster.

It had been a detailed discussion. The entrepreneur had told his friend of the commercial merits of the development. He had illustrated the likely development costs, the timescale and the value of the deal.

What they had not discussed was any schedule for detailed due diligence. There was none. Nor was there anyone independent to come in and scrutinise the proposal as you might have expected with this sort of lending arrangement.

The agreement was to provide 100m of bank debt. It was agreed against the background of a continually rising property market. By the time of completion, the development would be worth at least 150m, it was reckoned.

From the bank's perspective, this was a very safe bet. The bull market for property was seemingly without end.

That's why the banker had the authority to sidestep the normal processes. In the smaller deals, underlings at the bank usually had to present to the credit committee, which typically asked for more information before rubber-stamping transactions.

Back in England, the entrepreneur quickly got to work with his new credit line. In went the planning application for the new city centre apartments with some office space and car parking.

The application was a formality; city councils loved these kind of developments because they fitted their image of dynamic urban life.

And so the work started, the latest tower crane on the landscape.

This was so much easier than previous deals, reflected the entrepreneur. In the past, he'd had to get a development funding facility, which required lots more paperwork.

In the past the bank had insisted on a quantity surveyor to go over his plans and convert those into likely costs before the lender agreed to anything. This time, he could draw down on the facility at will.

In fact, he could even use the facility to buy himself a new Maserati or channel some cash into another of his business ventures.

The bank wouldn't find out and with property prices continuing to rise probably wouldn't mind, he reasoned.

THIS, of course, is a piece of fiction. What is real though is the number of residential and commercial developments in city centres across Yorkshire that are now worth a fraction of the value that entrepreneurs had said they would be, resulting in massive losses for banks.

For example, Lloyds Banking Group said in 2009 that 13bn of loans and investments had gone bad, most of them from Halifax Bank of Scotland, the bank it rescued nearly a year earlier.

Banks are still going through their property books, working out exactly how much their individual investments are worth.

It is a painful exercise, particularly in cities in the North of England where significant lending was carried out.

In anecdotal terms, most of the deals were done properly. There were some glaring omissions though, as illustrated in my example about an imaginary entrepreneur and an imaginary bank. But following the correct processes has not provided surety either, as exemplified by the losses announced by those lenders that went heavily into property.

As a bitter aside, we've seen the tens of thousands of jobs losses at those banks that needed the taxpayer to come to their rescue.

What has been the upshot for the entrepreneurs? Those that held personal guarantees on their debts are being wiped out.

But the savvy ones who managed to obtain bank debt without personal liabilities are escaping more or less unscathed, other than a less-than-favourable report on their conduct as a director.