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Abu Dhabi, UAEThursday 20 September 2018

Lloyds to Sell $5.8bn of Irish mortgages to Barclays

Chief executive Antonio Horta-Osorio is on a drive to transform Britain’s biggest mortgage lender into a UK-focused bank.

A sign hangs outside a Lloyds Bank branch in London. Barclays paid Lloyds about £4bn for the loans. Toby Melville / Reuters
A sign hangs outside a Lloyds Bank branch in London. Barclays paid Lloyds about £4bn for the loans. Toby Melville / Reuters

Lloyds Banking Group agreed to sell £4.3 billion pounds ($5.8bn) of Irish residential mortgages to Barclays, all but completing the lender’s decade-long exit from the country.

Barclays is likely to bundle the loans and sell them on to other investors, according to a person familiar with the matter, who asked not to be identified because the matter is confidential. The deal is another milestone in Lloyds chief executive Antonio Horta-Osorio’s drive to transform Britain’s biggest mortgage lender into a UK-focused bank.

The transaction will leave Lloyds with “minimal exposure” to Ireland and while the bank will take a pretax loss of about

£10 million on the deal in the second quarter, the disposal should boost its capital buffer, it said in a statement Friday.

Barclays, which paid Lloyds about £4bn for the loans, is likely to securitise the mortgages and sell them on to one or a number of other investors, analysts at Keefe, Bruyette and Woods and Shore Capital said. Barclays spokesman Jon Laycock declined to clarify the bank’s role in the deal or plans for the mortgage portfolio.

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Lloyds has steadily reduced its presence in Ireland after inheriting 32bn euros ($38bn) of assets in the country when it acquired HBOS at the height of the financial crisis in 2008. Many of those loans turned out to be bad and caused Lloyds more then 10 billion euros of losses, according to a UK. government report in 2015.

“This looks to be a very good transaction for Lloyds,” Edward Firth, an analyst at KBW, said in a note to clients. Barclays may opt to “warehouse” the loans in its investment bank before reselling them, he said, but cautioned “the market for non-performing Irish loans is very much a buyer’s one as the domestic banks struggle to achieve European non-performing loan targets".

Last month Barclays played a role in a similar loan portfolio sale, leading a group of investors that bought £5.3bn of mortgages from the UK. government. Pacific Investment Management provided funding for that deal, with Barclays and five other banks committing to buying bonds to help finance the acquisition.

When finalised, the Irish transaction should increase Lloyds’s common equity Tier 1 capital by 25 basis points and leave the bank with about £4bn of loans in run-off mode, less than 1 per cent of its total lending, according to the statement. Lloyds said the deal should be completed in the second half of the year.

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