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Lloyds May Raise $1.2 Billion From Scottish Widows, Numis Says

Lloyds Chief Executive Officer Antonio Horta-Osorio
Lloyds Chief Executive Officer Antonio Horta-Osorio is trying to shrink the bank’s balance sheet, sell non-core assets and raise capital with a view to repaying the government for its bailout in 2008 amid a sluggish U.K. economy. Photographer: Jason Alden/Bloomberg

April 19 (Bloomberg) -- Lloyds Banking Group Plc, the U.K.’s biggest mortgage lender, may reap about 800 million pounds ($1.2 billion) from selling fund-management unit Scottish Widows Investment Partnership, Numis Corp. said.

Large managers of index-linked funds such as BlackRock Inc. and Legal & General Group Plc are the most likely firms to bid for the division, which has 142 billion pounds of assets, London-based Numis analyst David McCann said in an interview. Lloyds, almost 40 percent owned by the British taxpayer, hired Deutsche Bank AG to advise on a potential sale, four people with knowledge of the talks said yesterday.

“It looks like there’s net outflows in the business and it’s low-margin stuff, so a buyer would need to have scale and the ability to cut costs,” McCann said today.

Lloyds Chief Executive Officer Antonio Horta-Osorio is trying to shrink the bank’s balance sheet, sell non-core assets and raise capital with a view to repaying the government for its bailout in 2008 amid a sluggish U.K. economy. Lloyds purchased Scottish Widows, the owner of a life-insurance business as well as the SWIP fund-management arm, for 7.3 billion pounds 2000.

Press officers for BlackRock, Legal & General, Lloyds and SWIP declined to comment.

Tied Assets

“A big hurdle in this deal is that a lot of the assets, about 85 percent, are tied to the Scottish Widows life assurance business,” McCann said.

Analysts put a lower value on assets managed on behalf of life-insurance companies because the owners of those assets could decide to switch to another fund manager.

Valuing SWIP is difficult due to the lack of publicly available information, said McCann, who said the division may be worth anywhere from 500 million pounds to 1 billion pounds. Numis’s 800 million-pound estimate was reached by putting a valuation of 2 percent on SWIP’s external funds, comparable to the market value of Schroders Plc, Europe’s biggest publicly traded fund manager, and adding 0.3 percent for the 118.5 billion pounds of internal funds tied to Scottish Widows’ insurance arm.

Among other analyst estimates released today, Citigroup Inc.’s Andrew Coombs and Ronit Ghose said SWIP may be worth 1 billion pounds. Panmure Gordon & Co., a London-based brokerage, estimated SWIP is worth 750 million pounds by applying a 0.5 percent value to its total assets under management.

SWIP had a pretax profit of 108 million pounds in 2012, up from 99 million pounds in 2011. It 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-based rival Standard Life Investments.

To contact the reporters on this story: Kevin Crowley in London at kcrowley1@bloomberg.net; Tim Farrand in Edinburgh at tfarrand@bloomberg.net.

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

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