Lloyds boosts balance sheet with sale of £800m bad mortgage debt

LLOYDS Banking Group beefed up its balance sheet yesterday when the 40 per cent taxpayer-owned bank sold more than £800 million of bad debts linked to Australian property loans.

AET SPV Management, a joint venture run by investment bank Morgan Stanley and private equity giant Blackstone, paid £388m for the loan portfolio.

Lloyds said the impact of the transaction on the group was not material “due to the existing provisions taken against these assets”. The bank said sale proceeds would be used to pay down debt.

Dave Smith, chief executive of Lloyds’s international arm, said: “This transaction further de-risks the Australian business, and results in a cumulative 92 per cent reduction of our real estate non-performing loan portfolio.”

He added: “We continue in parallel to focus on growing the profitable part of our business.”

Lloyds’s international and wholesale banking business, which includes significant exposure to Ireland after the group’s takeover of HBOS in early 2009, accounts for about one-fifth of the bank’s total income. That compares with 47 per cent from UK high street banking.

The Australian portfolio made a loss of £183m in 2011, with closure of the sale expected in the third quarter of this year.

The retreat by European banks from the Australian loans market has received a fillip as they seek to bolster their capital cushions in the face of the chronic eurozone debt crisis.

Lloyds sold £1.1 billion of bad and doubtful Australian property loans to Morgan Stanley and Goldman Sachs last November.