National Australia Bank has agreed to sell a £625 million ($1.13 billion) parcel of distressed loans from its UK commercial real estate portfolio to an affiliate of New York-based buyout group Cerberus Global Investors.
The bank on Monday confirmed the transaction, saying it represented a “substantial de-risking of the portfolio”. It said the sale would cut the gross loans balance of the portfolio by 20 per cent to £2.38 billion as at 30 June 2014, and gross impaired loans from the portfolio by 48 per cent.
The portfolio is part of the loan book of Clydesdale Bank, which NAB bought in the late-1980s. Clydesdale’s underperformance has been traced to its exposure to commercial property outside London. NAB has transferred about £3.5 billion worth of loans to the Australian parent in the last two years.
These loans are being sold by Morgan Stanley in tranches as part of “project chestnut”, a wider program to sell non-core assets and free up capital. First-round bids started in June and a number of hedge funds reportedly lined up, encouraged, in part, by growing optimism about the UK economy.
The positive market conditions are underlined by the speed in which NAB has run down its commercial property book, given it was £5.8 billion 18 months ago.
NAB said on Monday the transaction would result in a small gain above net book value and would release an estimated £127 million of capital for the NAB Group.
The loans included in the sale are either in default, passed maturity or near maturity.
Incoming NAB Group chief executive Andrew Thorburn said a focus on opportunities to accelerate the winding down of the NAB’s UK commercial real estate portfolio had led to the transaction.
“We’ve progressively reduced our exposure to UK commercial property loans through organic run-off,” Mr Thorburn said.
“This sale represents a substantial de-risking of the non-performing portion of the NAB UK commercial real estate portfolio.
“As we signalled at the interim results in May, we continue to look at opportunities to optimise return on equity by accelerating the sale of non-core assets,” he said.
“While pleased with the acceleration of the run-off in the NAB UK commercial portfolio, our broader UK operations still face some challenges, in particular in relation to conduct related costs,” he said.
Source: The Age