Monday, Oct 26, 2009

Lloyds and Royal Bank of Scotland – both now among the largest land owners in the UK

Citywire: Lloyds considering handing land bank to house builders

Lloyds is talking to a number of house builders about plans to hand over much of its land bank as it seeks to reduce its holdings without taking another massive hit on valuations. According to the Guardian newspaper the management team at house builder Bellway has approached Lloyds to discuss a plan which would see builders – possibly also including Barratt Developments and Persimmon – developing land accumulated by HBOS in the boom years as part of a series of profit-sharing joint ventures. Lloyds would get a share of the proceeds once the houses have been sold.

Posted by jack c @ 09:45 AM (841 views)
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1. Dan said...

For Lloyds and the bombed-out housebuilding sector, "the land giveaway" plan is tempting as it would prevent a further crash in land values sparked by a mass sale of HBOS's vast land holdings, and so protect asset valuations on bank and construction firms' balance sheets.

HBOS's commercial loan book grew to £109bn by 2007, with a huge proportion linked to commercial property and housebuilding. It is likely HBOS owns enough land to build well over 150,000 houses – double the number that will be built in England and Wales this year.

For the building sector, which has laid off about 250,000 workers in the recession, the plan would also ensure steady work with little risk at a time when the UK is on course to see the lowest number of homes built since the second world war.

A senior source close to discussions between Bellway and Lloyds said: "There's been dialogue. Lloyds is trying to assimilate what it has got and is looking at forming joint ventures. And Bellway has made a success of working with Tesco on building homes, so it is interested."

Under Peter Cummings, its former head of corporate banking, HBOS became the property industry's bank of choice. It lent cash to private equity and management buyouts of building firms and took equity stakes in businesses such as Crest Nicholson and McCarthy & Stone.

The collapse of the property market was partly responsible for the forced sale of HBOS to Lloyds 13 months ago. Inheriting vast tracts of land could also cause problems for Royal Bank of Scotland, which could copy what Lloyds is doing, as neither bank has the internal expertise to maximise profits from property.

....Looks to me like we are irrevocably spiralling toward a Japan Style lost decade.....

Monday, October 26, 2009 11:59AM Report Comment

2. mark wadsworth said...

This is very strange.

At present, builders are hugely in hock to the banks, and some have already handed over their land banks in part payment.

So the solution is to sell back the land banks to the builders at original cost or valuation of two years ago, when land banks were worth twice as much, thus avoiding having to recognise the loss for the indefinite future? But the builders will have to recognise the loss sooner or later, then they end up in breach of lending covenants, then the banks snatch back the land again and so on and so forth.

I don't think they've thought this through properly.

Monday, October 26, 2009 12:12PM Report Comment

3. braindeed said...

They would have worried in normal times - they have effectively been granted diplomatic immunity from any sort of judgement....pass the bonus.

Monday, October 26, 2009 01:11PM Report Comment

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