Lloyds speeds up sale of toxic loans

Bank pushes ahead with plan to shed billion-pound property debt inherited after HBOS takeover
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The Independent Online

Lloyds Banking Group is speeding up the sale of its billion-pound commercial property loan book which it inherited from the disastrous HBOS takeover.

The state-backed bank's total property loan book is worth £78bn – about £26bn of which is considered bad loans and being "worked out" – either by being sold or refinanced.

This is the first time Lloyds has considered selling loans, rather than properties, while its part state-owned rival Royal Bank of Scotland is due to finalise a deal to sell a £1.6bn property loan portfolio to Blackstone.

But over the past few months Lloyds has been approached by a number of private equity businesses interested in buying parts of this property debt. Lone Star, Patron Capital and Angelo Gordon are all thought to have made approaches. A Lloyds spokesman said on Friday: "We regularly review our options. The current varied approach of sales has so far served us well."

Antonio Horta-Osorio, the new chief executive has already taken sweeping action to clear out Lloyds, announcing big changes at the bank last week which included 15,000 job cuts. He wants to make £2bn savings by 2014, money which will be used to improve its Halifax brand.

Mr Horta-Osorio is also known to have put Lloyds' property bosses under pressure to speed up sales as part of the bank's clear-out. Lloyds sold around £4bn of property assets last year, a successful rate of disposal according to property analysts.

It is now selling assets such as Project Flagstaff – a £63m mixed property portfolio – among others. It has also been putting property companies into administration and then selling them off.

RBS, which is selling its £1.6bn portfolio to Blackstone, is now looking at further sales of its property loans. Next up for sale will be a portfolio of debt lent against German offices – mainly in Frankfurt and Berlin – and after this will be a debt portfolio lent against Spanish retail, which could be sold for between £500m-£800m.

RBS also has a portfolio of commercial property loans in the US and in Ireland.

The UK portfolio which Blackstone is buying is thought to have been sold for between 50p to 70p in the pound, but no details have been released.

A RBS spokesman said: "RBS has made substantial progress in running down those non-core assets and businesses, and reducing assets by more than £100bn from £258bn at inception. We are always looking at options to accelerate the rundown of these assets and our commercial real estate portfolio."

But the sale of property debt is not straightforward: RBS had to slash the size of its portfolio from £3bn to £1.6bn to enable a sale.

The Lloyds jobs cuts announced last week prompted outrage at Unite. David Fleming, Unite's national officer, said that the union would be seeking talks with Mr Horta-Osorio "within the next two weeks".

He added: "With these levels of job losses, we have to see if this is in the best interests of communities and local economies. Is this slash and burn? Is this fire and forget?"