Investec Weighs U.K. Mortgage Unit Sale as Market Recovers

Investec Plc, the owner of a bank and money manager in South Africa and the U.K., said it’s considering the sale of its London-based mortgage business after a recovery in the British home-loan market.

Investec appointed Fenchurch Advisory to look at a sale after receiving “expressions of interest” in Kensington, the Johannesburg- and London-based firm said in a statement today.

Investec bought Kensington in August 2007 for 283 million pounds ($461 million) as the subprime market ground to a halt after record U.S. mortgage defaults. While Loan losses at the business rose by more than two-thirds to 93.2 million pounds in the 12 months through March 2009, Investec said the unit has posted a cumulative pretax profit since 2007.

“Like almost all mortgage providers, Kensington is a bad business and the removal of it would structurally reduce the duration of the back book and increase the bank’s return on equity,” James Hamilton, an analyst at Numis Securities in London, said in a note to clients today. “Investec could deliver at least a high teens return on equity even without economic recovery.”

Investec stock rose 4.1 percent, the biggest intraday gain in more than seven months, to 413.2 pence as of 3:24 p.m. in London. It closed 4.1 percent higher at 74 rand by the close in Johannesburg.

Markets Recover

Investec’s exposure to Kensington’s loan book totals 814 million pounds, the bank said.

“Having received certain expressions of interest and with the ongoing recovery in mortgage lending and wholesale funding markets, Investec believes that Kensington is now well placed to continue growing and Investec believes that this growth potential may be better realized under different ownership,” said Ursula Nobrega, the bank’s head of investor relations.

Investec said it will provide an update by the end of March on the possible sale or joint venture of its Australian asset finance and leasing business and professional finance division, which lends to doctors, dentists and lawyers.

Operating profit rose 12 percent in the nine months through December from the year-earlier period, Investec said today, without giving details. Assets under management fell 2 percent to 108 billion pounds after a weaker South African currency eroded the value of funds managed in rand.

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