Lloyds hires Deloitte to manage Irish exit sale

UK banking group set to launch sale of €5 billion portfolio as early as February

At the end of December 2016, 27.8 per cent of the Lloyds Irish loans were in negative equity. Photograph: Andrew Matthews/PA Wire

At the end of December 2016, 27.8 per cent of the Lloyds Irish loans were in negative equity. Photograph: Andrew Matthews/PA Wire

 

Lloyds Banking Group has hired Deloitte to manage the group’s planned sale of its remaining Irish portfolio of more than €5 billion of mainly-performing mortgage loans, according to sources.

It is understood that the UK banking group is working on the basis that the loan sale will be officially launched as early as February, though it is not yet clear whether the mortgages will be sold in one lot or divided into smaller portfolios.

Spokeswomen for Lloyds and Deloitte declined to comment. The bank carried out some pre-marketing of the deal in the UK recently, the sources said.

“We believe both private equity as well as the Irish retail banks – most likely Bank of Ireland – would have an interest in acquiring a residential mortgage portfolio such as this,” said Investec analyst Owen Callan on Wednesday, commenting on a report in The Irish Times that Lloyds was planning the loan sale. It would mark the bank’s final exit from the Republic more than seven years after it handed back its licence to the Central Bank.

Lloyds inherited Bank of Scotland (Ireland)’s then €32 billion loans after it agreed to take over Scottish group HBOS in a 2008 rescue deal engineered by the UK government. The group handed back its Irish licence two years later and started to sell down the portfolio at pace.

However, Davy analyst Diarmaid Sheridan said the remaining portfolio – which has a large portion of long-term interest-only mortgages issued to professionals during the property boom – would be “more attractive” to private equity over banks.

Negative equity

At the end of December, 27.8 per cent of the Lloyds Irish loans were in negative equity, meaning the size of the mortgage exceeded the value of the property. However, the figure had fallen from 31.4 per cent a year earlier, reflecting an increase in home prices during the period.

The figure is likely to have fallen further this year, with residential property price inflation running at an annual rate of 12.8 per cent in September, according to Central Statistics Office data.

Industry sources said interested parties in the Lloyds portfolio are likely to include bidders for a portfolio of €1.8 billion performing Irish mortgages Danske Bank agreed to sell last month. US investment bank Pimco and Goldman Sachs won out on that transaction.

US hedge fund Elliot Management, UK insurer Prudential and Bank of Ireland had also been involved in bidding for loans being sold by Danske, which also retreated from the Irish retail market following the crash.

Bank of Scotland, which introduced European Central Bank tracker mortgages to the Irish market in 2001, said last month it had identified 184 customers who were affected by an industry-wide overcharging controversy. All told, more than 27,500 Irish borrowers across 11 lenders were wrongly denied ECB-tracker mortgages going back almost a decade, or were put on the wrong rate.