The real estate arm of insurer Legal & General is in talks to cherry-pick troubled assets from Lloyds Banking Group in deals that could generate millions of pounds for the lender, sources close to discussions told Reuters.
Legal & General Property is weighing potential joint ventures and acquisitions of some of Lloyds’ moderately distressed real estate assets, as cash continues to roll into its open-ended funds, the sources said.
Bill Hughes, Legal & General’s property head, declined to confirm the talks with Lloyds, but said his team was talking to several banking organisations with a view to helping them lighten their property burdens.
“The banks need long-term investors with free capital, who can get their heads round complex deals and have first-rate property skills in house,” Hughes told Reuters in an interview.
“They are clearly willing to spend time with organisations that they believe they can work with,” he said.
Lloyds was not immediately available for comment. Its shares were trading 4.2 percent up at 99 pence by 1243 GMT, while Legal & General gained 1.3 percent to trade at 85.9 pence.
Last week, Legal & General Property said it had around 600 million pounds in cash to invest on new real estate as the two-year depression in Britain’s commercial property market neared an end.
Since May, the company has notched up 110 million pounds of buys for investors in its four open-ended property funds. Its 17 real estate funds hold assets worth around 8.5 billion pounds.
In contrast, part-nationalised Lloyds is in the throes of an asset sale spree and multi-billion pound rights issue plan which could enable it to escape from a government scheme for bad debts.
It fears European antitrust watchdogs could demand further heavy restructuring if it goes ahead with its planned participation in the UK Asset Protection Scheme.
The bank offloaded its loss-making Halifax estate agency business for 1 pound last Friday and sold the bank of Scotland investment portfolio management service to wealth manager Rathbone Brothers (RAT.L) for 35.4 million pounds on Tuesday.
Hughes said most banks’ property loan books could be divided into quadrants — good assets, ordinary assets, assets that were moderately impaired and assets that were massively impaired. The optimum restructuring solution was different for each, he said.
“We can help with assets that are moderately impaired, in a structure that bridges the difference between the value of the property and the loan by way of an equity injection, in exchange for a share in the upside. That sort of deal is appealing to us,” he added.
Banks like Lloyds and Royal Bank of Scotland are still trying to find partners for the most distressed portions of their loan book but L&G was steering clear of lost causes.
“When something is flagrantly beyond saving, let’s say when the debt-to-value ratio beyond 150-200 percent, then we walk away. We’re not magicians. Obviously the $64,000 question is how much of the banks’ loan book is in that state because there is very little any white knight can do about that,” Hughes said.
With Reuters
