Lloyds Banking Group has cyrstallised in the region of £13bn in impairment charges against distressed property loans in the four years since the merger between Halifax Bank of Scotland and Lloyds TSB.
In the bank’s commercial real estate business support unit (BSU), a division set up as part of the then new Lloyds Banking Group four years ago to tackle distressed loans, impairment charges of £1.2bn were taken last year.
Last year’s impairment charges for defaulted property loans is preceded by £1.3bn in 2011 and £2.4bn in 2010.
Lloyds did not report the loan impairment charge for BSU’s maiden year, but he bank did register a figure of £8.34bn in impairment provisions in 2009 for BSU.
These impairment provisions possibly include a proportion of accumulated provisions from previous years. However, given the buoyancy of the market up until 2008, provisions are most likely negligible, if at all.
The aggregate charges, then, amount to £13.13bn over four years which, as a proportion of Lloyd’s aggregate property company loan book at the end of 2009, at £83.82bn, reflects a 15.6% write-downs in four years.
While there is still a lot of sludge left in the tank for Lloyds to wade through, this is encouraging progress.
Lloyds’ BSU division is an open loan book, with distressed loans moving in and out throughout the year. The end of year annual figures, therefore, mask the annual de-leveraging achieved.
At the end of 2012, BSU’s loan book was £15.7bn, compared to 2011’s £21.05bn, but the volume of loans de-leveraged from this divisional segment over last year was likely to be greater than the simple static net £5.35bn reduction.
Similarly, the aggregate run-down from BSU over the last four years will have been greater than the net difference from end of 2009’s £25.5bn balance and 2012’s £15.7bn – with the £9.8bn figures obscuring a deeper de-leveraging effort.
Lloyds reported today that £4bn of net cash proceeds was recovered from last year’s de-leveraging and that over the last three years BSU has reduced non-core gross loan exposure by approximately £21bn.
In 2012, disposals outside London accounted for over 70% of CRE BSU’s disposals by value and over 90% by number.
Lloyds’ CRE BSU is predominantly, although not entirely, comprised of the bank’s non-core real estate loan exposure, with the UK exposure within the division ending last year with a balance of £12.7bn, split £10.16bn in commercial real estate and £2.54bn in residential.
Lloyds reported this morning that 73% of the £12.7bn UK property exposure in BSU, which reflects £9.27bn, was impaired with provisioning at 42% covered.
Lloyds Banking Group has de-leveraged £45.01bn from its balance sheet in global commercial real estate loans in the four years since the merger between Halifax Bank of Scotland and Lloyds TSB, driven by a string of legacy portfolio unwinding tactics.
This year Lloyds reduced its combined core and non-core property loan book by £12.36bn, taking the bank’s net exposure in the real estate sector to £52.39bn at the end of 2012.
Four years ago, when Lloyds first established Lloyds Banking Group and reported for the first time the merged commercial property and residential lending books of HBOS and TSB, the combined book was £97.4bn – comprised of HBOS’s £44.bn UK and £29.4bn overseas loan books, with TSB’s £23.3bn UK book.
The combined HBOS and TSB UK commercial property loan book was £44.7bn at the end of 2008, which has now reduced to £23.12bn, with £12.96bn in Lloyd’s core bank and £10.16bn in CRE BSU.
At the broadest level, Lloyds reported a combined £52.39bn global commercial and residential loan book – including £9.2bn in social housing lending and £2.1bn in loans to house builders – at the end of last year, reflecting a £12.36bn reduction in 12 months.
In the last four years, Lloyds’ global commercial and residential loans to property companies has fallen by £31.43bn – from £83.82bn to £52.39bn – driven by loan repayments, asset sales – consenual and enforcement – as well as, of course, around £13bn in write-offs over the period.
Lloyds’ CMBS book reduced by £1.42bn last year to £366m, down from £4.78bn at the end of 2009, taking the bank’s wind-down over the last four years to £4.41bn.