Spanish sale lands Lloyds with £250m loss

Lloyds Banking Group, which is expected to unveil a sharp rise in underlying profits today, has agreed to sell its loss-making Spanish retail arm for up to €104 million (£87.8m).

The state-backed lender said the sale of the division to Banco Sabadell was in line with its strategy of “rationalising its international presence and ensuring best value for shareholders”. However, it will book a £250m loss on the cash and shares deal.

As part of a strategic review launched two years ago, Lloyds is cutting its international presence from 30 countries to fewer than 15 by the end of 2014. In the past year it has sold operations in Dubai, Japan and Uruguay.

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Sabadell is paying about €84m in shares for Lloyds’ retail operations in Spain, which mainly serve expats and those who bought holiday homes before the country’s property market collapsed. A further cash payment of up to €20m may be due within the next five years, depending on the performance of the mortgage book.

Subject to regulatory approval, the deal is expected to complete this year and will give Lloyds a 1.8 per cent stake in Spain’s fifth-largest bank. The two groups said they would also look to develop a range of business opportunities in areas such as asset finance and commercial and private banking.

Shore Capital analyst Gary Greenwood said: “It is interesting to note that Lloyds has been unable to offload the business for cash, which perhaps highlights the difficulty of selling such assets at present.

“That said, given the low value of the equity stake in Sabadell, the downside risk from owning this stake to Lloyds is relatively limited, while it perhaps provides an option on the upside risk should the Spanish bank’s equity ever recover.”

Lloyds said it planned to be “a supportive shareholder” of Sabadell and would keep the shares for at least two years.

The businesses being sold had assets of about £1.5 billion, made up almost entirely of customer loans, plus deposits of about £670m. The division racked up a loss of £43m last year following an increase in bad loans. Its Spanish corporate banking operations, serving business clients, are not included in the deal.

Lloyds was dealt a blow last week after the collapse of its planned sale of 632 branches in the UK to the Co-operative. It now plans to offload the estate, to be branded TSB, through a stock market flotation.

Bottom-line pre-tax profits for the first three months of this year are expected to come in at £1.1 billion, up from £288m for the same period last year.

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The group is also expected to announce this week that it has appointed Matthew Elderfield, the Cental Bank of Ireland’s outgoing deputy governor in charge of financial regulation, as head of compliance. Former

Financial Services Authority chief Sir Hector Sants recently joined rival Barclays in a similar role.