Lloyds 'mulls demerger of commercial property arm'

Published on Sunday 14 March 2010 19:39

LLOYDS Banking Group is thought to be considering a possible demerger of a sizeable slug of its depressed commercial property arm into a tax-efficient investment trust.

It is understood such a move would see some of the 50 billion to 75bn of assets and loans inherited via Lloyds' takeover of the distressed HBOS commercial property portfolio spun off.

However, analysts said yesterday that complicating such a decision would be the fact that, with the taxpayer owning 41.3 per cent of Lloyds, any incoming government would need to keep a significant holding in the new property vehicle.

One analyst said: "The advantage of REIT (real estate investment trust] status for these assets is it would be great in terms of clarity for judging and analysing Lloyds.

"Last year's losses at Lloyds were largely due to writedowns on HBOS's commercial property portfolio, and it will overhang the group for a time.

"Stripping a large part of that property arm out would help distance the problem from the wider operations of the bank."

However, other analysts said the crucial factor would be just what assets might be put in any REIT and who would manage it.

A Lloyds spokesman declined to comment. Industry sources say the REIT option was just one of a number being discussed by the bank's board.

Lloyds made a loss of 6bn in 2009 following writedowns on assets of 24bn that chief executive Eric Daniels said was "principally due to the HBOS portfolios and their high level of exposure to commercial property".

It is thought the bank aims to cut back its loan book by as much as 200bn over the coming years.

Real estate investment trust status has mainly been adopted by traditional property giants such as British Land, Hammerson and Land Securities, but has also been investigated by other sectors, including pubs, where Enterprise Inns and Punch Taverns are understood to have looked at the possibility.

Mark Collins, former chief operating officer at Land Securities, joined Lloyds last autumn as "solutions director" at the bank's business support unit to look at ways of dealing with problems in the HBOS-inherited property portfolio.

The portfolio had previously been run by former Bank of Scotland employee Peter Cummings.