Lloyds to spin off billions in property assets
Sunday 14 March 2010
Lloyds Banking Group is believed to be considering plans to hive off a portion of its giant commercial property portfolio into a separate, tax-efficient company.
Senior figures within the bank are thought to have put forward the idea, which would see some of the £50bn to £75bn worth of assets and loans inherited by Lloyds following its merger with HBOS spun off into a real estate investment trust (Reit).
Any move would happen after the general election, and with the taxpayer owning 41.3 per cent of the bank, any deal would require the Government to retain a stake in the new property vehicle.
Sources said that the plan to move some of Lloyds' commercial property interests into a separate structure were at an early stage and other options to tackle the bank's troubled commercial property portfolio remain on the table.
"It's a sensible idea but the key will be who they get to manage it and what they put in there," said a source. "It will be much cleaner and will make it easier for Lloyds to sell off assets too."
Last September, Lloyds parachuted in Mark Collins, the former chief operating officer at Land Securities and a one-time adviser to a property fund backed by the Prince of Wales, to help restructure the bank's commercial property book. Mr Collins, who declined to comment on plans to create a Reit, has been working to clear up the property mess left by Peter Cummings, the discredited former head of property lending at HBOS.
Estimates suggest that around 20 per cent of Mr Cummings's deals by value, have turned sour and will not be recovered.
Mr Collins has been managing assets now under the control of the bank as part of the ending of loans that cannot be saved.
Lloyds' chief executive, Eric Daniels, was forced to admit last month that write-downs on assets at the bank rocketed to £24bn in 2009. Mr Daniels said the increase in impairments, which forced Lloyds to post an overall loss of more than £6bn for the year, was "principally due to the HBOS portfolios and their high level of exposure to commercial property".
Mr Daniels and the chairman, Sir Win Bischoff, aim to shrink Lloyds' huge loan book by as much as £200bn in the coming years.
The group raised £22.5bn from its investors in 2009 in the biggest rights issue of the year. However, some city analysts believe that the bank could be forced to raise additional capital if the dreaded "double dip" in markets becomes a reality.
A spokesman for Lloyds said: "We do not comment on speculation."
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