By Max Colchester
LONDON--Lloyds Banking Group PLC (LYG) Monday said it sold off
GBP1.5 billion of Irish commercial real estate loans for around 10%
of their value, a reminder of the huge cost involved for banks
unwinding soured loans in the country.
The bank, which is 40% owned by the British government, said it
had agreed to sell GBP1.5 billion of "particularly distressed"
loans for GBP149 million to Risali Ltd., an entity affiliated with
investment manager Apollo Global Management LLC. The deal is likely
to be completed in the first quarter of 2013, Lloyds said.
As of June 30, Lloyds had put aside GBP6.2 billion to cover
write-offs on its GBP10 billion book of Irish commercial real
estate loans. On Monday, the bank said that the sale of the GBP1.5
billion of loans wouldn't have an impact on the lender's balance
sheet as there is a significant provision held against the loan
portfolio.
Analysts said the loss was planned for. "Investors should not be
unduly alarmed by the scale of discount given the level of
provisions already held, and it represents a further small step
towards exiting Ireland," Ian Gordon, a banking analyst at
Investec, wrote in a note.
Before the 2008 crisis, HBOS and Royal Bank of Scotland Group
PLC (RBS) piled into Ireland's commercial real estate market. The
decision proved costly for both lenders.
Lloyds merged with a crippled HBOS during the height of the
crisis, and took on the responsibility of grinding down its giant
Irish loan book and exiting the country. Both banks have sold on
loans at steep discounts.
While Lloyds has taken the decision to get out of Ireland, RBS
continues to have a presence in the country. It has GBP44.8 billion
of gross loans against which GBP10.1 billion provisions are held.
Troubled Irish real estate loans will continue to weigh in RBS'
"bad bank" for years to come. Executives estimate that even after
the bank's five-year turnaround plan is complete, a rump of around
GBP40 billion in assets--a large chunk of which are in
Ireland--will have to slowly burn off over many years.
RBS has taken some unusual steps to deal with its Irish
assets.
For instance, it recently put about GBP1.4 billion of property
assets, including nursing homes and shopping centers, into a fund
run by buyout firm Blackstone Group LP. Many of these assets
actually remain on the bank's books. RBS is simply paying
Blackstone to manage the assets, with the goal of eventually
finding buyers.
The outlook on Irish banks, meanwhile, remains clouded. The
Irish central bank Monday said it reprimanded and fined Ulster Bank
Ltd., a unit of RBS, 1.9 million euros ($2.4 million) for failing
to apply haircuts, or discounts, correctly to some deposits and
therefore mis-reporting its level of capital holdings.
Also Monday, Fitch Ratings upgraded Irish banks to a stable
rating, but mainly because the agency believes that the banks would
be bailed out by parent companies or the government if they ran
into trouble.
-Write to Max Colchester at max.colchester@wsj.com
(Eamon Quinn contributed to this article.)