Banks cling to £100bn of surplus assets
Pension funds want to buy infrastructure loans and banks want to sell – but not at a loss
British banks are holding £100bn of infrastructure and housing association loans on their books, which are draining their ability to lend but cannot be sold because they are overpriced.
Pension funds and other investors are keen to get their hands on the assets, which include investments in private finance initiative projects such as hospitals, schools and roads. Even though selling up would take some of the pressure off the banks' balance sheets, freeing up capital to lend and get the economy going, they would incur around a 20 per cent loss.
Banks are unwilling to take the writedowns, even though they privately admit that the market value of the assets are significantly below the amount they paid and currently hold them at in their accounts.
Ultimately, this could also hit Government hopes that pension funds will be one of the main investors behind a plan for £200bn of infrastructure development to kickstart the economy.
Pension funds invest very little in early stage infrastructure, such as the construction phase, at present, but may start to do so if they had built up expertise in running the operational, safer assets that banks such as Royal Bank of Scotland, Lloyds and Commerzbank currently hold.
The Pension Corporation, which buys out company's pension liabilities and was founded by veteran dealmaker Edmund Truell, below, has approached a number of banks to but their infrastructure investments.
Mark Gull, the co-head of asset and liability management at the Pension Corporation, said: "The frustration is that the demand for infrastructure assets is there, but not at the prices that the banks have them at. What they're having to do is fund these assets at, effectively, a loss, because they don't want the upfront capital hit [of selling them on]. Yet pension funds can help by buying the assets which will put their [the banks'] balance sheets in better shape."
Mr Gull pointed out that PFI assets represent practically guaranteed income over a long period, which would therefore be very attractive to pension funds looking to finance their schemes.
If the Pension Corporation could persuade banks to sell at a loss, it would represent welcome news for Mr Truell. Last month, he had to pull the plug on a flotation of Tungsten, an acquisition vehicle that would have raised £200m for a spending spree.
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