Lloyds Banking Group plc (LYG) continues to trim its non-performing Irish loan portfolio. The leading UK-based lender sold £1.6 billion portfolio of Irish mortgages to The Goldman Sachs Group, Inc. (GS) and CarVal, a U.S.-based the private equity group, per a Financial Times report.
The purchase price of the Lloyds transaction, code-named Project Parasol, was slightly less than 50% of the face value of the underlying assets. The portfolio comprises both buy-to-let residential mortgages and commercial mortgages. Commercial mortgages include offices, retail properties and industrial sites.
The latest deal follows the offloading of Lloyds’ 4,000 Irish non-performing residential mortgages worth € 1.1 billion to U.S, based private equity fund Lone Star Funds in Oct 2014. Previously in Dec 2013, Lloyds disposed a portfolio of non-performing Irish retail mortgages to Tanager Limited, a company affiliated with Apollo Global Management, LLC (APO), for £257 million.
Lloyds is in the process of pulling back its loss making Irish operations, in line with the company’s efforts to shed non-core assets. The company had £19.7 billion of net exposure in its heydays back in 2010. With the latest deal, the company will have £1 billion of net exposure to Irish non-performing loans. Also, the company remains committed to gradually offload its performing Irish mortgages in its non-core division, which is currently worth around £5 billion.
During the October deal Lloyds said “Lloyds Banking Group has long stated that it is deleveraging its balance sheet and will do this by reducing its non-core assets. This includes its Republic of Ireland book, having announced its exit from the country and wind down of its book in 2010.”
Llyods further added, “Whilst we will not comment on individual transactions where there is no obligation to formally announce to the stock market, we can state that — in general — our non-core asset disposals involve assets where we have already largely provisioned for impairments and we continue to expect non-core reductions in aggregate to be capital accretive.”
After a government bailout of £20 billion during the 2008 financial crisis, Lloyds has been focusing on several restructuring initiatives including streamlining operations and job cuts. Currently the British government holds 25% of the bank’s ownership.
It seems that the gradual economic recovery in the U.K. and the improving housing market has attracted US financial institutions including Goldman and Apollo Global to purchase distressed mortgage loans. Notably, in Sep 2014, The Blackstone Group L.P. (BX) and TPG Capital LP inked a deal to buy U.K.’s sub-prime mortgage lender – Kensington – from its South African parent company, Investec Plc for £180 million in cash. The deal enhances Blackstone and TPG Capital’s presence in the lucrative U.K. housing market.
U.K. house prices in the three months ended Oct 2014 were 0.8% higher compared with the three months ended Jul 2014, as per Halifax.
Currently, Lloyds carries a Zacks Rank #3 (Hold).
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