National Australia Bank Ltd., the nation’s biggest lender by assets, agreed to sell a 625-million-pound ($1.1 billion) parcel of mostly non-performing commercial property loans in the U.K. to an affiliate of Cerberus Global Investors.
The sale will result in a small gain above the loans’ net book value and release about 127 million pounds of capital for the bank when it settles, NAB said in a regulatory filing today. It will shrink the gross loan balance of the bank’s U.K. commercial property portfolio by 20 percent to 2.38 billion pounds, it said.
NAB’s shares have been weighed down by its U.K. operations, where mounting bad debts triggered the first drop in full-year earnings in 2012 for three years. Britain’s foundering economy torpedoed the bank’s plan to sell the business or expand through acquisitions, leading to the transfer of U.K. real estate loans to the group balance sheet.
“The fact that economic conditions in the U.K. are now improving, particularly in commercial real estate, is increasing interest from funds that buy distressed loan books,” said David Ellis, Sydney-based analyst at Morningstar Inc. “I expect that within 12 months, the 2.3 billion pounds remaining will have been fully runoff.”
NAB shares rose 0.3 percent to A$34.69 at the close of trading in Sydney. That compares with declines of about 0.3 percent for Commonwealth Bank of Australia and Westpac Banking Corp., and 0.7 percent for Australia and New Zealand Banking Group Ltd.
The sale reduces gross impaired loans in the U.K. by 48 percent, NAB said today. It will allow the bank to increase provision coverage on impaired assets on its remaining U.K. commercial property portfolio to 60 percent from 51 percent, it said.
“We’ve progressively reduced our exposure to U.K. commercial property loans,” incoming Chief Executive Officer Andrew Thorburn said in the statement. “We continue to look at opportunities to optimize return on equity by accelerating the sale of non-core assets.”
NAB shares have fallen 0.4 percent this year, compared with a 4.2 percent gain in the benchmark S&P/ASX 200 index.