Lloyds Banking Group PLC (LON:LLOY) has agreed to sell its Irish residential mortgage portfolio to Barclays PLC (LON:BARC) for £4bn in cash as part of its strategy to become a UK-focused bank.
Lloyds said it would make a pre-tax loss of £110mln on the sale to be recognised in its first half results.
The disposal will, however, add 25 basis points to its common equity tier 1 capital on completion. The deal is expected to be completed in the second half.
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"The sale is in line with the group's strategy of becoming a low risk, UK focused bank," Lloyds said.
"Following the transaction, the group will have minimal exposure to Ireland and the total outstanding run-off portfolio will be around £4bn, less than 1% of the group's loans and advances to customers."
The sale includes £4.3bn in gross assets, of which £0.3bn are impaired. In 2017 the assets made a pre-tax loss of £40mln.
Proceeds from the sale will be used for general corporate purposes, the bank added.
Shore Capital maintained a 'buy' rating on the stock and target price of 66p.
"While this will result in an exceptional pre-tax loss of £110m, it will bolster the group’s core tier 1 ratio by approximately 25bps, thus further helping it towards its full year target for core tier 1 capital generation of 170-200bps (noting that it generated 50bps in Q1 2018)," said ShoreCap's Gary Greenwood.
Disposal makes strategic sense, says analyst
AJ Bell investment director, Russ Mould, said the sale marks another example of how some banks are cleaning up their acts and focusing on the better parts of their business.
“The Irish portfolio made a £40m pre-tax loss in 2017 and was low-yielding so you can perhaps understand why Lloyds was eager to get rid of it. Strategically it also makes sense as Lloyds has a desire to concentrate solely on the UK," he said.
“The £4bn sale tag looks a good price and better than analyst expectations. It is also the second Irish portfolio sale this week, with AIB striking a €0.8bn deal to get rid of a portfolio of non-performing loans.”
Shares were little changed in morning trading at 66p.
-- Adds broker comment, share price --