Lloyds Said to Plan $8.7 Billion Sale of U.S. Mortgage Bonds
Lloyds Banking Group Plc (LLOY) plans to auction about $8.7 billion of U.S. mortgage securities without government backing that were issued before the credit crisis, according to a person with knowledge of the offering.
The home-loan bonds are being sold next week by Britain’s biggest mortgage lender, said the person, who asked not to be identified because the transaction isn’t public. Lloyds acquired a portfolio of mortgage debt as part of its takeover of HBOS Plc in 2009.
Lloyds and Royal Bank of Scotland Group Plc, the U.K.’s largest state-owned lenders, said yesterday that they plan to address capital shortfalls by shrinking their balance sheets and through other previously announced measures rather than with equity sales. U.S. home prices jumped 10.5 percent in March from a year earlier, the fastest pace in seven years, according to CoreLogic Inc.
“This is probably the best timing for a deal of this kind since the start of the credit crisis,” said Stefano Loreti, the London-based head of structured credit investments at Haymarket Financial LLP, which oversees about 3.5 billion euros ($4.5 billion) of assets. “The decision by Lloyds and other banks not to panic sell at the start of the crisis was proven right.”
The auction is the biggest widely marketed sale of securitized debt since at least March 2010, according to Empirasign Strategies LLC, a New York-based provider of data on securitization-market trading. Eight of the 10 largest auctions were sales by the Federal Reserve of debt acquired from Bear Stearns Cos. and American International Group Inc. during the crisis.
Central banks worldwide have announced more than 511 interest rate reductions since June 2007, according to Bank of America Corp. (BAC) data. Efforts to deal with the worst credit crisis since the Great Depression are forcing investors to accept lower returns for their securities.
“The U.S. MBS market’s recovery has been aided by improvements in the underlying housing market, as well as the search for yield,” said Harpreet Parhar, a strategist at Credit Agricole SA (ACA) in London.
U.S. subprime-mortgage securities composed of loans made to the weakest borrowers have returned 12.7 percent this year on average, after rallying more than 41 percent in 2012, according to Barclays Plc index data.
Matt Young, a spokesman for Lloyds in London, declined to comment.
Separately, Lloyds said in a statement today it raised about 450 million pounds ($679 million) by selling 77 million shares of investment adviser St. James’s Place Plc. The lender said it’s getting a capital gain of about 40 million pounds, which will be used to bolster capital ratios.