Lloyds Auctions Mortgage Bonds To Beef Up Its Balance Sheet

Lloyds Auctions Mortgage Bonds To Beef Up Its Balance Sheet

Lloyds Banking Group PLC (NYSE:LYG) (LON: LLOY) Friday announced that it has stuck deals worth £3.3 billion to sell off a portfolio of securities backed by U.S. Home Loans.

The British lender, which is 39 percent owned by the tax payer, continues to strengthen its reserves by disposing of assets that are not part of its core UK banking business.

Britain’s largest mortgage lender said the sale of the U.S. mortgage portfolio that had a book value of £2.7 billion would result in a pre-tax gain of £540 million.

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The British bank’s sale comes on the back of a recovery seen in the U.S. housing market, where the housing prices have seen their largest gain in March, after the peak seen during the 2006 housing boom.

The British lender’s sale would strengthen its ratio of core equity capital to risk-weighted assets, as measured by the regulator’s new rules, by about 47 basis points. This translates into £1.4 billion of capital, or 33 basis points under the earlier regime.

Recently, the Bank of England’s Financial Policy Committee told that the UK banks would collectively need to raise £25 billion to become strong enough to meet its standards.

Lloyds Announced Staff Reduction

Earlier Lloyds Banking Group PLC (NYSE:LYG) (LON: LLOY) announced its plans to reduce its staff strength. This move was also intended to conform to capital adequacy requirement by disposing its non-core assets, instead of raising fresh capital from investors.

The British Bank announced that it has cut about 31,000 jobs since 2008 and announced that it might cut a further 2,340 during this year.

Britain’s largest mortgage lender also announced that its pension trust sold its portfolio consisting of U.S. mortgages having a book value of £805 million. This sale resulted in a pre-tax gain of £360 million which would be used to cut its deficit. Lloyds’ pension trust scheme had a deficit of £957 million at the end of 2012, with assets of more than £30 billion.

The latest sale of mortgage bonds follows a series of announcements made by the British bank in the recent past. The recent sales are part of Lloyds Banking Group PLC (NYSE:LYG) (LON: LLOY) Chief Executive António Horta-Osório’s drive to make the British lenders focus towards UK retail and commercial bank besides shrinking its balance sheet.

Earlier this week, the British lender outlined its plans to sell its Geneva-based private bank besides branches in Zurich, Monaco and Gibraltor to the Geneva-based asset management group, Union Bancaire Privee for £100 million. Besides last week, the British bank sold another tranche of its shares in St. James’ Place for £450 million.

Lloyds Banking Group PLC (NYSE:LYG) (LON: LLOY) also announced the closure of its offices in Dubai and South Africa that offer private banking services. These offices are to be sold to Banco Sabadell, a Miami based private banking office.

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