Bloomberg News

Lloyds Says 71% of Corporate Property Unit’s Loans Impaired

February 26, 2012

(Updates with type, location of assets in sixth paragraph.)

Feb. 24 (Bloomberg) -- Lloyds Banking Group Plc, the U.K’s largest mortgage lender, said 71 percent of the loans in its corporate real-estate business support unit were impaired at the end of 2011 as tenant defaults hurt asset values.

Troubled loans accounted for about 15.2 billion pounds ($24 billion) of the unit’s 21.3 billion-pound book as of December, Lloyds said in a statement today. The division helps distressed businesses avoid closing by restructuring and selling loans.

“With a significant proportion of our assets supporting property investments, tenant default is an area of continuing vulnerability especially where the lending is underpinned by secondary or tertiary assets,” the bank said.

Lloyds booked provisions of 5.63 billion pounds for impairments at the unit last year. A year earlier it made 8.09 billion pounds of provisions, equal to 46.2 percent of the unit’s impaired loans. The unit sold 4.8 billion pounds of real estate through 2011 and has restructured 5 billion pounds of loans to give customers longer to repay them.

“Outside of London and the Southeast, activity in the corporate real estate market remains weak, in part due to declining values and the focus on only prime properties and prime tenants,” Lloyds said. “With a continuing high level of loan maturities due over the next few years, refinancing risk remains a market-wide issue.”

Properties outside London made up 80 percent of the unit’s disposals by value last year, Richard Dakin, its managing director, said by telephone. About 12 percent of all the assets sold by the unit in 2011 were valued at less than 5 million pounds each.

Lloyds reported a 2011 net loss of 2.8 billion pounds today, wider than the previous year’s loss of 320 million pounds. Chief Executive Officer Antonio Horta-Osorio announced an additional 200 million pounds in cost savings by 2014.

--Editors: Ross Larsen, Andrew Blackman.

To contact the reporter on this story: Neil Callanan in London at ncallanan@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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