Monday, July 4, 2011

Dumping rubbish

Lloyds speeds up sale of toxic loans

Banks, including Lloyds and RBS, selling off their toxic loans to private equity companies -possibly a good deal if property prices continue to slide. In Lloyds' case, of £78bn of property loans on its books, one third, £26bn, are considered 'bad' One wonders if the private equity firms will as 'forbearing' over deferred payments as the state-backed bank. I suspect not. But, the discount the private equity firms will buy the loans at will, if they've done their sums right, allow them to foreclose that much quicker and without any government interferance. Expect more big name firms to close or downsize significantly, along with it the resultant redundancies, and a greater number of repossessions soon.

Posted by stuartking @ 12:33 AM (1977 views)
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8 thoughts on “Dumping rubbish

  • mark wadsworth says:

    Strange.

    If Lloyds really sell these with no strings attached to third parties*, then they will be selling them at a sizeable book loss, which they will have to show in their profit and loss account. If £26 bn of loans are somehow ‘bad’ then let’s guess that the collectible amount is two thirds of that i.e. that the loss (from Lloyds point of view) is about £8 billion.

    * Unlike the idiocy which Barclays did with “Proteon” or whatever the fancy name was, where Barclays had given all sorts of guarantees and provided the loan finance to buy the loans from itself in the first place and ended up buying them all back again.

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  • The state-backed bank’s total property loan book is worth £78bn – about £26bn of which is considered bad loans

    Did anyone else do a double take there? Only a couple of years ago when the government bought Lloyds, we were told that their loan book was of excellent quality and the percentage of bad loans was zero-point-something percent. Now it appears to have increased over a hundred-fold!

    Doesn’t this mean we should expect some kind of apology for being right all along while vested interests stood by dismissing our predictions that dodgy valuation practices were hiding true loan book values??!

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  • I thought we had an article on here recently saying they were selling good loans (as these were the only loans they could sell) in order to keep their capital ratios at the right level.

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  • And if firms are buying duff loans that’s surely as debt collecting agency would rather than an investment company of some type ?

    Ie the price must be 30 odd percent less than what is owed to make a profit after repo and sale. Assu
    Ming the bad loans are mainly those with little or no equity.

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  • Not clear from the article if this fire sale relates to duff mortgages or just duff commercial loans.

    What they do with bad loans to commerce is of little significance to house prices; but if they start offloading bad mortgages to companies that have no concern for their social reputation, and minimal interest in protecting the housing market; then one can expect a lot of over-indebted home owners to start receiving brutal ultimatums in the post..

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  • mark wadsworth says:

    The article is not clear, but it appears to relate specifically to commercial loans secured on L&B. The story put about at the beginning of June was that Lloyds has about £540 in total mortgages (commercial or resi), of which up to 27% are in arrears or nequity.

    As background, I saw a statistic a while back saying that commercial loans secured on L&B had increased from £50 bn total to £250 bn total over the last ten years or so.

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  • The debt will still be debt though.

    Even if it is bought by a third party the debt will still ultimately be underwritten by a bank, possibly even the bank selling the debt, we have seen that before.

    The selling of the debt just enables them to get it off their property loan book, the dangers of a meltdown will not go away.

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  • nice to see there is talk of lloyds bank starting dividend payments next year, wonder what amount per share will be

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