Bloomberg News

Lloyds Says Two-Thirds of Irish Loans May Not Be Repaid in Full

February 24, 2012

Feb. 24 (Bloomberg) -- Lloyds Banking Group Plc, Britain’s biggest mortgage lender, said two-thirds of its 24.8 billion pounds ($38.9 billion) of loans in Ireland are unlikely to be paid back in full following the country’s real-estate crash.

About 16.4 billion pounds of loans to Irish borrowers were impaired at the end of last year, London-based Lloyds said in a statement today. That’s up from 53 percent at the end of 2010.

Lloyds, which today reported a wider-than-estimated loss of 2.8 billion pounds for 2011, shut its Irish unit in 2010 as losses soared and is running down its remaining assets. The worst sector was commercial real estate, where 90 percent of the bank’s 10.9 billion pounds of loans were impaired at the end of 2011.

“This is by far the most troubled Irish loan book that we have seen so far” among universal lenders, said Karl Goggin, an analyst at Dublin-based NCB Stockbrokers. “The level of provisioning suggests they are kitchen-sinking the loan book as Lloyds looks to exit Ireland as quickly as possible.”

Ireland’s commercial property prices have tumbled 65 percent since 2007 and home prices have almost halved in the period. Lloyds losses can be traced to Bank of Scotland Plc’s entry into the country’s mortgage market in 1999, followed two years later by its purchase of state-owned lender ICC. The bank offered “substantially lower rates than domestic banks at the time,” according to an Irish government-commissioned report in April.

Further Declines

New provisions for bad loans in Ireland fell by 25 percent last year to 3.19 billion pounds, Lloyds said today. In all, the lender has set aside 10.2 billion pounds to cover loan losses, equivalent to 62 percent of impaired loans. That’s up from 54 percent at the end of 2010 because of further declines in the commercial real-estate market during 2011, Lloyds said today.

By comparison, Bank of Ireland Plc, the country’s largest lender, said about 17 percent of its Irish loans were impaired at the end of last year, according to Colm Foley, an analyst at Dublin-based Goodbody Stockbrokers. That figure excludes about 10 billion euros ($13.4 billion) of real estate loans the lender sold to the National Asset Management Agency, Ireland’s so called bad bank, in the past two years at an average loss of 44 percent.

Anglo Irish Bank Corp., nationalized in 2009, was forced to take a 62 percent loss on 34 billion euros of loans it sold to NAMA. The lender, since renamed Irish Bank Resolution Corp., said in August that 54.5 percent of its remaining 24.9 billion euros of loans were impaired at the end of June.

‘Most Aggressive’

“Lloyds appears to be the most aggressive institution in crystallizing impairments” in Ireland, said Foley in a note today. “Whether this is a strategy or a reflection of the quality of the loan portfolio is unclear.”

Lloyds and fellow British lender Royal Bank of Scotland Plc, which bought Dublin-based Ulster Bank in 2000, “competed aggressively” with local banks and introduced products that “posed new risks for both the borrower and the lender,” the Irish report said in April.

Lloyds, which received a 20 billion-pound government bailout in 2008, has transferred management of its Irish holdings to Certus, a company set up by the bank’s former Irish management.

Lloyds injected about 8 billion euros of capital into its Irish unit between late 2008 the end of 2010, when it subsumed loans made in the country into the London-based parent company.

‘Least Wise Decisions’

RBS, Britain’s biggest government-owned lender, has pumped as much as 10 billion pounds into its Irish unit since 2008 to absorb losses from the country’s real-estate bubble, a spokesman for the Edinburgh-based lender said yesterday.

“The most money that RBS lost, the least wise decisions were property lending in the U.K. and Ireland of which Ireland was the worst of all,” Chief Executive Officer Stephen Hester, 51, said yesterday. RBS has pumped “too much” money into the unit, he said.

Lloyds’s approach to Ireland, “is a positive development and suggests that Lloyds is ahead of other banks in recognizing losses, even though Ireland’s state-guaranteed banks have been recapitalized to cope with pretty severe losses,” said Goggin.

--Editors: Edward Evans, Francis Harris

To contact the reporter on this story: Joe Brennan at jbrennan29@bloomberg.net;

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


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