Lloyds to Sell Loans to Cerberus Capital for $501 Million

Lloyds Banking Group Plc agreed to sell a portfolio of U.K. real estate loans to Cerberus Capital Management LP for 325 million pounds ($501 million) as the U.K. lender shrinks its balance sheet after its government bailout.

The loans have a face value of 527 million pounds and produced losses last year of 47 million pounds for Lloyds, the London-based bank said in a statement today. The bank said it had already made “significant impairment provisions” on the loans, so the effect of the sale won’t be material.

Lloyds Chief Executive Officer Antonio Horta-Osorio is seeking to strengthen the bank’s balance sheet by selling assets and cutting costs after receiving a 20 billion-pound bailout during the financial crisis of 2008. The loans were sold to Cerberus at 61 percent of face value, within about 2 percent of their estimated book value, according to Jason Napier, an analyst at Deutsche Bank AG in London.

“This is a very strong environment for non-core asset rationalization,” Napier, who has a buy rating on Lloyds, wrote in a report to clients today. The bank “will continue to beat its targets in non-core deleveraging and capital release.”

The stock was up 0.8 percent at 58.55 pence at 12:10 p.m.. in London trading, the highest in two years. Lloyds said it expects to complete the sale to the New York-based investment firm by the year-end.

The bank, which is 39 percent owned by the British state, agreed last month to sell its money-losing Spanish consumer-banking operations to Banco Sabadell SA at a loss of about 250 million pounds.

Lloyds said today that sale will allow it to repay the full 13.5 billion euros ($18 billion) it borrowed through the European Central Bank’s Long-Term Refinancing Operation by May 15. The bank paid off 10 billion euros of the loan in February and will redeem the final 3.5 billion euros following the sale of the Spanish unit.

To contact the reporter on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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