Lloyds Banking Group Plc, Britain’s biggest mortgage lender, is weighing a sale of its Scottish Widows Investment Partnership unit to boost capital, four people with knowledge of the talks said.
The company hired Deutsche Bank AG to advise on a potential sale of the asset manager, which oversees about 142 billion pounds ($217 billion), said the people, who asked not to be identified because the talks haven’t been made public. Deutsche Bank has been gauging interest from potential bidders, though hasn’t started a formal sale process, one of the people said.
Lloyds Chief Executive Officer Antonio Horta-Osorio is trying to shrink the lender following its government bailout in 2008. The Bank of England also told lenders last month that they needed to raise 25 billion pounds of additional capital to cover bigger potential losses on commercial real estate and from the euro area, possible fines for mis-selling and stricter risk models. The same month, Lloyds sold a 20 percent stake in wealth manager St. James’s Place Plc.
The lender may also be seeking to take advantage of the rising appetite for British fund managers as some of them show strong performance, one of the people said. Jupiter Fund Management Plc, the U.K. money manager run by Edward Bonham Carter, said earlier today assets under management grew 11 percent in the first quarter as its funds outperformed rising equity markets.
Officials at Lloyds and Deutsche Bank declined to comment on the talks. Lloyds stock fell 2.4 percent to 47.09 pence in London trading today.
Takeover in 2000
Lloyds paid 7.3 billion pounds for Scottish Widows, the asset manager’s parent company, in 2000 as part of a plan to boost sales of life insurance and savings products. The bank considered selling all of Scottish Widows in 2009, two people familiar with the matter said at the time. The lender decided against a sale of Scottish Widows’s insurance unit after Horta-Osorio’s appointment as CEO in March 2011.
Lloyds isn’t the only bank selling stakes in asset-management arms to raise capital. Rabobank Groep of the Netherlands agreed in February to sell its asset-management unit, Robeco Groep NV, for 1.94 billion euros ($2.5 billion) to Japan’s Orix Corp. Dexia SA, the bank rescued by Belgium and France, said in December it agreed to sell its asset management unit to GCS Capital.
Scottish Widows Investment Partnership was the only fund company of the four largest in Scotland to post a decline in assets during the fourth quarter, the most recent reported period. The drop of 0.1 percent compared with a 2.6 percent increase for Edinburgh rival Standard Life Investments.
The asset manager made a pretax profit of 108 million pounds last year, up from 99 million pounds in 2011. CEO Dean Buckley, 52, has been trying to turn around SWIP’s stock funds after taking the job in January 2008. Buckley wasn’t immediately available to comment, his secretary in Edinburgh said.
He first had to contend with an exodus of more than a dozen money managers, including its heads of bonds and emerging markets, before hiring new people. The departures came amid questions about whether Lloyds would keep Scottish Widows at the heart of its fund business following the bank’s government-brokered takeover of HBOS Plc in September 2008.
In April last year, the company said it was axing 27 of its 38 stock managers and turning to more computer-generated strategies and index-tracking. James Clunie, who remained at the firm to run U.K. stock funds, quit this month to join Jupiter Fund Management Plc. The U.K. Growth Fund has returned 15 percent over the past year, in line with the average for its peer group, data compiled by Bloomberg show.
Scottish Widows traces its origins to 1812, when a group of Edinburgh businessmen set up a fund to provide for the wives of British soldiers killed in the Napoleonic wars. The firm set up the Scottish Widows Fund Life Assurance Society in 1815, and early clients included Walter Scott, author of the Waverley novels. The company had considered going public before Lloyds acquired it from its customer-owners.